APRA suggests banks relax key lending criteria

APRA suggests banks relax key lending criteria

Here’s a bit of good news: you may be able to borrow more for your next home loan after the prudential regulator sent a letter to the banks asking them to relax a key lending criteria.

In a letter to lenders, the Australian Prudential Regulation Authority (APRA) has proposed removing its guidance that lenders should assess whether borrowers can afford their repayment obligations using a minimum interest rate of at least 7% (although most ADIs currently use 7.25%).

Instead, APRA has proposed that authorised deposit-taking institutions (ADIs) use an interest rate buffer of 2.5% over the loan’s actual interest rate when assessing a customer’s ability to manage repayments.

How you’ll be assessed

CoreLogic research analyst Cameron Kusher has done a pretty good job of breaking down how you’ll be assessed under these proposed changes:

“If someone is looking to borrow at an interest rate 3.9%, the borrower would previously have been assessed on their ability to repay the mortgage at an interest rate of 7.25%,” he said.

“Now they would be assessed on their ability to repay at a lower 6.4% (3.9% + 2.5% buffer).”

Kusher added that the proposed APRA changes seem sensible given the interest rate environment with the expectation that rates will fall from here and remain lower for longer.

“Furthermore, since 2014 it has become much more difficult to get a mortgage, that is partly because of this serviceability assessment,” he said.

Why the change?

APRA chair Wayne Byres said the operating environment for ADIs had evolved since 2014, prompting APRA to review the ongoing appropriateness of the current guidance.

“APRA introduced this guidance as part of a suite of measures designed to reinforce sound residential lending standards at a time of heightened risk,” said Mr Byres.

“Although many of those risk factors remain – high house prices, low interest rates, high household debt, and subdued income growth – two more recent developments have led us to review the appropriateness of the interest rate floor.”

Mr Byres said with interest rates at record lows, and likely to remain at historically low levels for some time, the gap between the 7% floor and actual rates paid had become quite wide in some cases, and “possibly unnecessarily so”.

What does this mean for borrowers?

Mr Byres said the changes are likely to increase the maximum borrowing capacity for a given borrower.

However, he warned banks that the changes are not intended to signify any lessening in the importance that APRA places on the maintenance of sound lending standards.

“The proposed changes will provide ADIs with greater flexibility to set their own serviceability floors, while still maintaining a measure of prudence through the application of an appropriate buffer to reflect the inherent uncertainty in credit assessments,” Mr Byres said.

What next?

A four-week consultation will closed on 18 June, ahead of APRA releasing a final version of the updated guidance.

CoreLogic’s Kusher said the changes will allow some borrowers who can’t quite access a mortgage currently to get one.

“Overall for the housing market, it will mean more people are able to get a mortgage. These proposed changes in conjunction with the uncertainty of the election now behind will potentially provide additional positives for the housing market,” Kusher said.

In the meantime, if you’d like to find out if these changes might help increase your borrowing capacity, then get in touch. We’d be more than happy to run through your situation with you.

Your home is not perfect: the value of pest and building inspections

Your home is not perfect: the value of pest and building inspections

They say that home is where the heart is. And it’s true that we spend so much of our time, money and emotions in our homes. So it can be hard to truly look at them and think that something could be wrong.

But when you’re selling your home, or looking to rent it out as an investment, any faults or flaws can cost you money.

That’s why it’s a good idea to have a building and pest inspection done before you list your home.

If any problems are uncovered, they can be dealt with there and then; if there aren’t any problems, you’ll be able to show potential buyers or renters the inspection results.

This will potentially help you get more value from your property.

Pesky pests

There are a number of common pests in Australia that can affect homes and cause problems for homeowners.

The ones most likely to cause trouble are cockroaches, rodents, and bedbugs. Destructive termites are also a serious issue in some areas of Australia, mainly in coastal areas and especially up north.

Cockroaches and rodents carry disease, get into and ruin food supplies, and leave droppings behind, making homes unsanitary. They are particularly dangerous to children and pets, though adults can also become sick from contact with these animals or their faeces.

Bedbugs aren’t likely to carry disease, but their bites are painful and itchy, and their life cycle makes it extremely difficult to remove them from a home. Like fleas or lice, their eggs are basically impervious to chemicals.

This means that a home must be treated multiple times; the first treatment will kill any adults and nymphs that are currently present; the second treatment is designed to kill any eggs that have hatched into nymphs before they can become breeding adults.

Each of these pests can be difficult to manage on your own, and often require professional treatment to eliminate the problem.

Demonstrating that your home is clear of them can make it possible to sell your home for a higher price.

If you’re renting your place out, on the other hand, you’ll know if the pests entered the property before or after your new tenants.

Building inspections

Many buyers will want their own inspector to survey the building before they place a bid, but you can sometimes skip that process by having your own inspection completed.

You can also have a building inspection completed before you even consider listing your home for sale.

Building inspectors look for all sorts of faults in a home, from major structural damage to leaking pipes.

Once any problems are identified, you can make a decision about whether it’s better to disclose the issue and lower the selling price on your home, or fix the problem before you sell the house.

Which solution is right for you depends on the specific damage and the cost of repair.

The one thing you should absolutely not do, as you prepare your home for sale, is to take the ‘she’ll be right’ approach.

There’s nothing worse than having a potential buyer uncover something you should have known about. This immediately makes the buyer wonder what else you don’t know about – or worse, aren’t telling them about.

Final word

Whether you’re looking to sell, or simply looking to get in new tenants, knowing that your property is in tip-top shape can help you maximise the return on your investment, and make smart decisions about repairs and pricing.

If you’d like to find out more about this topic, or others that may help increase the value of your property, then get in touch – we’d love to help out.

Don’t get scammed this tax season

Don’t get scammed this tax season

Tax time is just around the corner, which means ATO impersonators are pulling out their bag of tricks to try and scam you. Here are the main scams currently doing the rounds.

It’s fair to say that no one likes getting on the wrong side of the ATO. And this is one of the main reasons why ATO tax scams are so effective.

The other main reason is that these scams are becoming increasingly sophisticated and tech-savvy.

Not only do they look more convincing, but they’re also reaching more people through a wider number of distribution channels, such as SMS, robo-calls, and emails.

Below we’ve outlined some of the latest scams to ensure your monthly budget, mortgage repayments or savings account doesn’t get thrown into disarray.

Fake tax agent (phone scam)

The scam: a scammer pretending to be from the ATO sets up a three-way phone call between themselves, the victim and another scammer, who pretends to be an accountant who works at the same practice as the victim’s tax agent (the fake tax agent advises that the victim’s actual tax agent is currently unavailable).

The two scammers then work together to convince the victim that they owe thousands of dollars to the ATO, and that they need to immediately pay off the debt to avoid going to jail.

They’ll then ask the victim to pay using unusual methods of payment such as iTunes, Bitcoin cryptocurrency, store gift cards or pre-paid visa cards.

Avoid being scammed: know the status of your tax affairs by checking your details via myGov. Or hang up and independently call your tax agent or the ATO on 1800 008 540.

Extra tip: a variation of this scam is when the scammer offers a tax refund but advises that you have to provide a personal credit card number for the funds to be deposited into. Instead of the scammer depositing money they’ll instead steal funds from these cards.

Tax refund notification (SMS scam)

The scam: scammers are texting people informing them that they are due to receive a tax refund.

However, if you click on the link it will take you to a fake ‘Tax Refund’ form, where it will ask you to fill out your personal information (which the scammers will then steal!).

Avoid being scammed: the ATO doesn’t have an online ‘Tax Refund’ form and will never send you an email or SMS that asks you to access online services via a hyperlink.

Extra tip: all online management of your tax affairs should be carried out via your genuine myGov account, which you should only ever access by typing out my.gov.au into your URL address bar.

Imitating ATO phone numbers (phone scam)

The scam: the ATO is reporting an increased number of scammers contacting people using phone numbers that make it look like they’re genuinely from the ATO.

The numbers that have been appearing most frequently are 6216 1111 and 1800 467 033, but numbers for individual ATO staff members have been used as well.

The scammer will usually claim the potential victim has an outstanding tax debt and threaten them with arrest if it’s not paid immediately. Sometimes voicemail messages are left.

Avoid being scammed: remember that the ATO will never threaten you with arrest, demand immediate payment, refuse to allow you to speak with a trusted advisor or tax agent, or present a phone number on caller ID.

Extra tip: never call a scammer back on the number they provide. If you are in any doubt about an ATO call, hang up and phone the ATO directly (on 1800 008 540) to check if the call was legitimate.

myGov tax refund notification (email scam)

The scam: scammers are emailing people from a fake myGov email address, asking them to fill out an application to receive a tax refund – similar to the SMS scam above.

This scam is currently tricking victims because it displays the ATO’s myGov logo and the links look as though they’ll send you to the myGov website (spoiler: they don’t).

Avoid being scammed: do not click anywhere in these emails as they contain malicious links. As mentioned in the SMS scam, the ATO doesn’t have an online ‘Tax Refund’ form.

Extra tip: if the bottom of the suspected scammer’s email contains a line that says ‘If you feel you received this email by mistake or wish to unsubscribe, click here’, don’t click. It’s most likely another nefarious link.

Final word

If you ever suspect that you’re being scammed, don’t feel obliged to stay on the phone to be polite.

Simply hang up the phone straight away (or close the email) and either check your myGov account or directly contact your accountant or financial adviser.

With interest rates dropping, is it time to pull the cord?

With interest rates dropping, is it time to pull the cord?

interest rates fixed variable

Fixing your home loan while interest rates are dropping is a bit like pulling the ripcord on a parachute. If you do it early you’ll get a steady ride but may miss out on a bit of action. But if you leave it too late things might get a little messy.

To fix the rate or not?

That seems to be the question on a lot of people’s lips at the moment.

We’re half way through 2019 and already 44 lenders have dropped rates on more than 500 fixed-rate home loan products.

These discounts aren’t just being offered by smaller lenders trying to attract new customers, either.

Commonwealth Bank, Westpac and NAB have all announced significant fixed rate cuts, over the last couple of months.

To fix or not to fix?

When there are so many lenders scrambling over each other to cut rates, a question we often hear from clients goes something along the lines of: “Is now a good time to lock in a rate?”

While we’d love to be able to give you a definitive answer on this, the fact of the matter is that it depends on your individual circumstances, preferences and home loan.

Let’s quickly run you through a few important considerations below.

What will the RBA do?

The first factor to consider is that these cuts were made out-of-step with the RBA.

That’s because June was the first time that the RBA has changed the cash rate since August 2016, to 1.25%.

Some economists, including AMP’s Shane Oliver and NAB’s Ivan Colhoun, predict the RBA will cut the official cash rate twice to 1% before the year’s end.

With that said, nothing is certain. It wasn’t too long ago that most pundits were predicting that the RBA was going to move the cash rate upwards rather than downwards.

The pros and cons

Locking in a fixed home loan means that it doesn’t matter whether or not the official rate goes up or down, you won’t be affected.

It can give you a sense of clarity and certainty, and as such, can help you budget and plan ahead for up to the next five years.

You might prefer a fixed home loan rate if you:

  • are comfortable with the interest rate offers being currently spruiked by lenders and won’t suffer from FOMO (fear of missing out) if rates drop further
  • prefer to accurately plan your finances in the short and mid-term
  • are concerned that you would be unable to make your repayments if rates were to rise.

However, you might prefer not to lock in a rate if you:

  • are confident interest rates will continue to fall over time
  • don’t mind having some unpredictability in your financial planning
  • prefer to go with market rates.

Give us a call

If you’re still unsure on what’s the best option for you, or you’d like us to run you through some of the home loan rates currently on the market, then give us a call.

As we touched upon earlier, lenders have dropped rates on more than 500 fixed rate home loan products so far this year, so the market is constantly shifting.

We’d be happy to look at your current home loan and run you through how it compares to some of the other products on the market.

Social media teaser: Lenders have dropped rates on more than 500 fixed-rate home loan products this year, but is now a good time to lock in a rate? We discuss in our latest article.

Will lenders pass on the RBA interest rate cut to you?

Will lenders pass on the RBA interest rate cut to you?

The RBA has cut the official cash rate to a new record low of 1.25%. But hang on a sec… Will lenders even pass on the cut in full? Today we’ll look at how you can make the RBA rate cut work for you.

The Reserve Bank interest rate cut to 1.25% – down from 1.5% – which is the first rate cut in almost three years (since August 2016).

“The Board took this decision to support employment growth and provide greater confidence that inflation will be consistent with the medium-term target,” said RBA Governor Philip Lowe in a statement.

But will the banks pass the cuts on?

Well, that’s to be determined by the banks. However, the government has urged them to pass on the cuts in full to customers.

Treasurer Josh Frydenberg met with Commonwealth Bank chief executive Matt Comyn the day before the cut was announced after similar meetings with other major bank CEOs.

“I expect all banks to pass on the benefits of sustained reductions in funding costs,” said Mr Frydenberg.

What next?

Well, on the back of the RBA decision, you may see a number of lenders advertising interest rate cuts.

What can be hard to determine is if they’re offering to pass on the full cut, a partial cut, or simply re-advertising a rate they’ve been offering for months.

So what to do?

Well, the good news is that we’re following the market closely. We’ll know which lenders are passing the rate cut on to their customers in full, and which lenders aren’t.

So if you see or hear about a rate cut from a lender that you want to know more about, your best bet is to get in touch with us and we can give you a good idea of how it compares to other lenders in the market and/or whether there are other options that are more suited to your situation.

Farewell negative gearing and CGT discount?

Farewell negative gearing and CGT discount?

You’ve probably seen ‘negative gearing’ and ‘capital gains tax’ in the news recently. That’s because they’re set to become hot topics ahead of the next federal election. Today we’ll take a look at both.

If you’re an aspiring first home buyer, negative gearing and capital gains tax (CGT) are things that you may have heard a lot about, without paying a whole lot of attention.

That’s because, well, if you don’t have an investment property yourself, who really cares?

However, Labor is proposing to reform both negative gearing and the CGT if it wins the next election.

Reforms may have a flow-on effect for the entire property market – whether you’re an aspiring first home buyer, or a budding property baron.

But before we (cautiously) tread our way into the political hoo-ha, let’s take a look at what negative gearing and CGT actually are.

What exactly is negative gearing?

Ok, rest assured it’s all much simpler than it sounds.

Gearing is when you borrow money to invest.

Negative gearing is when the rental income from your investment is less than your interest repayments and expenses.

Why on earth would you want to make a loss?

Well, negative gearing is a common technique used by property investors, who are often prepared to accept a loss to reduce their taxable personal income.

In turn, this minimises the amount of overall tax they need to pay.

For example, if you’re earning $90,000 a year, and you’re losing $10,000 on your investment property, your taxable income drops to $80,000.

Capital gains tax discount

Still with us? Great.

Ok, so we’ve established that negative gearing can help minimise your personal tax each year.

But you’re still going to need to pay tax on the profit that you make once you sell the investment property – this is called capital gains tax (CGT).

However, if the property is held for more than a year, investors may be entitled to a 50% discount on their CGT.

Who is negative gearing mainly used by?

Well, property investors first and foremost. Australia has more than one million landlords using a negative gearing strategy, according to the ABC.

The Liberal party says negative gearing benefits middle-income earners such as nurses, teachers and policemen.

However Labor disputes this, saying it’s mainly used to benefit high-income earners.

They point to Grattan Institute data which shows it’s used most by surgeons, anaesthetists and lawyers.

That all said, the option is open to all. It’s just whether or not it’s in your own best interests – and that varies according to your personal situation.

The flow-on effect

Now, earlier we mentioned that Labor was looking at reforming negative gearing and CGT, remember?

Labor wants to limit negative gearing to newly built properties and halve the CGT discount from 50% to 25%. Labor says this will help first-home buyers get a foothold in the property market.

The Liberal party, on the other hand, says these policies will crash the property market.

Now, that’s about as much as we can say about the situation without wandering too far down the political path.

Suffice to say many economists say the reforms have the potential to lower property prices. That’s good for first home buyers, not so good for (current) property investors.

Want to know more?

The above outline is only scraping the surface of negative gearing and CGT.

It’s also important to reiterate that everybody’s situation is different.

How much you earn, where your property is located, your age, and many other factors will all have a significant bearing on whether or not negative gearing would be a good fit for you.

There’s also plenty of pros and cons, not to mention risks vs reward, to weigh up. All of which, once again, will depend on your individual circumstances.

So if you’d like to find out more, get in touch. We’d love to discuss your options further with you.