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.
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.
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.
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.
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.
We’ve all seen the movies where the luckless protagonist borrows money from a remorseless loanshark and is warned that they’ll lose a finger for each day they’re overdue.
Fortunately, us Australians have much more civilized short-notice borrowing options, but that’s not to say there aren’t any risks associated with payday loans.
What’s a payday loan?
Put simply, a payday loan is money lent at short notice at a high rate of interest over a small period of time.
The name is basically derived from the understanding that the money will be paid back as soon as the borrower’s next pay cheque rolls around.
These days, however, the loan can be repaid over the course of one year (larger loans can be taken out over even longer periods, too).
Usually, payday loans are between $200 and $2000, and they tend to be paid back via direct debit on your pay day, or even a deduction from your pay itself.
What are the risks? Are my fingers safe?
Rest assured that ‘Bobby and the boys’ won’t be waiting for you in any empty car parks or down any dimly lit alleyways.
However, that’s not to say payday loans aren’t without their risks.
For starters, while the fee you are charged varies according to who you borrow from and how much your borrow, credit providers can charge you a one-off establishment fee of 20% and a monthly account keeping fee of 4%.
ASIC’s Moneysmart website has got a pretty handy calculator that shows if you borrowed $1500 to pay for unexpected car repairs, you would have to pay back $2040 over four months just to pay off your debt, or $2520 over one year.
Depending on how long it took you to pay back, that’s an extra $540 or $1020 you could have invested or spent elsewhere.
So if you’re relying on payday loans every time trouble strikes, you’ll soon rack up quite the bill.
If your financial situation takes a turn for the worst
Bad: If you default on a payday loan, the lender will likely charge you a default fee until you repay the outstanding amount in full.
Worse: If you do fall into default, the lender can then charge you twice the total amount of the loan.
Worser: If you fail to pay back the loan after falling into default, the lender can claim enforcement expenses, which are the costs of them going to court to recover the money you owe.
Worst: If you’re still unable to meet your debts by this stage, and have exhausted all other repayment options available to you, you may end up having to consider applying for bankruptcy.
Fortunately, other options are available for those in need of short-term cash, including:
– It’s always better to plan ahead rather than waiting until disaster strikes. So create a savings account where you put away 5-10% of each pay cheque for emergency situations. You can start today!
– See if you’re eligible to apply for a no or low interest loan instead. They’re available to people with a Centrelink healthcare or pension card.
– If you absolutely need to buy an essential household item such as whitegoods or a computer, you can see if the store has a 12, 24 or 50 month interest-free repayment option. Just make sure you cut up the credit card so you don’t get tempted to use it for anything else. And make sure you meticulously stick to a repayment plan or you may find yourself in a similar situation to the one outlined above.
You can save a lot of money by simply having an emergency funds buffer to lean back on.
If you’d like more tips or strategies on how to make your money work best for you, make sure you come and pay us a visit – we’re a much friendlier and helpful bunch than those Hollywood loansharks!
They say a fool and their money are easily parted. But with how sophisticated scams are becoming nowadays, it’s no longer just fools who are being duped. Here’s how to spot a scam in the digital day and age.
Australians lost $91 million to scammers last year alone. That’s about $250,000 every day.
With that in mind, now’s a better time than ever to look at some of the more sophisticated scams that are parting Australians with their hard earned money.
There is no shortage of scammers out there offering fake loans, especially in Australia where people are just itching to crack into the property market.
In recent years scammers have got this down to a fine art – victims are provided with authentic-looking fake loan contracts with Australian credit licence numbers belonging to unrelated businesses.
Scammers also pretend they’re in Australia with re-routed phone numbers.
They then tell the victims they must pay insurance or fees of up to $5400 upfront into an Australian bank account.
However, legitimate lenders who are authorised under Australian credit laws will generally not request that fees are paid upfront because establishment costs are usually included in the loan and repaid over time.
So, if you ever receive a call or email along these lines, take it with a very large grain of salt.
Better yet, ask us to look into it. We’ll be able to tell if it’s a legitimate looking loan or not.
Remote access scams
This involves scammers trying to convince you that you have a computer or internet problem and that you need to buy new software to fix the problem.
The scammer will usually phone you and pretend to be a staff member from Telstra, the NBN or Microsoft. The caller is usually very persistent and may become abusive.
If you receive one of these calls simply hang up. Companies such as Telstra and the NBN don’t request credit card details over the phone to fix computer or telephone problems.
Identity thieves are after anything that contains your personal information. And not just through tech-savvy hacking. One of the most common gateways to identity theft is mail theft.
Here are five simple ways you can prevent identity theft:
- Don’t take the bait. Scam artists ‘phish’ for victims by pretending to be reputable businesses or government agencies. Never give out personal information if you did not initiate contact.
- Be mysterious. Don’t overshare personal information on social media.
- Don’t use simple passwords. Use a mix of letters, numbers, and symbols.
- Shop with caution. Check out a website before entering your credit card and personal information.
- Pay attention to your statements. If bills stop arriving in the mail, call your bank – someone may have changed your contact information to cover their tracks.
Threats to life, arrest or other
Threats to life, arrest or other ultimatums usually involve the scammer demanding you to pay money that you supposedly owe, and threatening you if you don’t comply.
And there’s been a large spike in the amount of money scammed in recent months according to Scamwatch.
Scammers often impersonate government officials and target the elderly and newly arrived migrants.
If someone targets you with this scam, the government’s Scamwatch website advises that you do not respond to texts or emails. The scammers will only escalate their intimidation and attempts to get your money.
If you receive a phone call from someone threatening you and asking you to pay a fee, simply hang up and don’t respond.
And of course, if you’re worried about your safety, contact the police.
Scammers often use psychological tricks to part with your money. Some may offer you a gift or help so that you feel obligated to return the favour.
They also know that most people find it hard to say no to friends, so they’ll try and build a strong rapport with you.
If you ever have suspicions that you’re getting scammed, don’t hesitate to get in touch. We’d be more than happy to look into the situation to help you protect your wealth.
With the RBA setting the official cash rate at all-time lows, it’s a good time to work out how this impacts the interest rate on your home loan and whether you are getting a good deal or not.
When the interest rate on your home loan fluctuates, it can feel as though you don’t have control of your debt. Despite being frustrating, interest rate changes are a part of every loan’s lifespan and warrant your consideration.
The interest rates that banks charge on their home loans are influenced by the Reserve Bank of Australia’s (RBA) cash rate.
The cash rate is reviewed by the RBA on a monthly basis in order to safeguard Australia’s economic stability. The cash rate is the rate charged on loans made between the RBA and your lender. This, in turn, has a very strong impact on the interest rates your lender charges you.
“The RBA supports the banks with liquidity facility,” explains Advantedge General Manager Brett Halliwell. “The RBA is a bank to the banks. The cash rate is effectively the rate at which the RBA will lend to the banks, and what the banks effectively use as a reference rate for other things.”
When the cash rate is changed by the RBA, lenders decide whether or not to mirror the new rate in the interest they charge their mortgagees.
This is entirely up to the lender in question and depends on the market and how the lender is performing at the time of the cash rate change.
“If you look at the mortgage market, specifically by itself, it is very competitive,” Halliwell says. “It is about the lender trying to get the right outcome on the deposit side of the balance sheet within the context of a very, very competitive marketplace, but recognising that a reference rate has changed and, therefore, looking at where they stand.”
Some lenders choose to shift their interest rate changes higher than the RBA’s cash rate change and, in these instances, other lenders may be offering lower interest rates than the one you currently have.
Keeping track of how your lender manages cash rate changes and where that leaves you as the person paying the interest can be time consuming, and is made more difficult by fees, charges and the flexibility offered by different loan products, which all need to be weighed alongside the interest rate.
A simple way to regain control of your interest rate is to lock it in for a period, if you believe rates are not likely to fall further. Fixed rates offer less flexibility, but more certainty.
To discuss what changes to interest rates that lenders have made recently and how that may affect you contact us on 07 3911 1190 or use our contact form.