Indulgences such as caviar, wagyu beef and the finest bottles of wine shouldn’t count against you when lenders assess your application for finance, a Federal Court judge has said.
Ok, so maybe Federal Court Justice Nye Perram has a slightly different grocery list to the rest of us.
But his recent judgement should be welcome news to potential borrowers who have splashed out on the odd luxury over the past six months and are worried that it would completely derail their loan application.
So what’s going on?
Well, the corporate watchdog (the Australian Securities and Investments Commission, aka ASIC) filed a court case against Westpac in 2017 in an attempt to strengthen lending standards.
ASIC argued that Westpac’s automated decision system relied solely on a household expenses benchmark that underestimated real living expenses and, as such, was flawed.
However, Justice Perram ruled that Westpac had done nothing wrong by using its automated system, rather than manually checking the borrowers’ living expenses, when approving more than 260,000 home loans between December 2011 and March 2015.
A tasty morsel from the judgement
Justice Perram said that current laws do not explicitly require banks to check expenses.
“I’m unable to discern why, as a matter of principle, the consumer’s declared living expenses must be considered,” he said.
“I may eat wagyu beef every day washed down with the finest shiraz but, if I really want my new home, I can make do on much more modest fare.
“The fact that the consumer spends $100 per month on caviar throws no light on whether a given loan will put the consumer into circumstances of substantial hardship.”
Basically, what Justice Perram is saying is that just because you fork out for expensive items before you apply for a mortgage, doesn’t mean you’re incapable of reducing your expenses once you’ve taken out a loan.
What happened next?
The Australian Financial Review (AFR) followed up on the decision with a scathing smackdown of ASIC in an editorial that asked: “why did ASIC even bother?”.
“Leave banks – the institutions with the expertise and incentive to write good loans – to assess risks for home loans. Not second-guessing bureaucrats,” the editorial stated.
“After all, it is hardly in a bank’s own interest to lend to people who are unlikely to be able to pay the money back.”
CoreLogic Research Analyst Cameron Kusher meanwhile wrote that it was not only a big win for Westpac, but the entire lending industry.
“The judge in the ASIC/Westpac case seems to really get it. While you might spend a lot more before you get a mortgage, getting a loan is about knowing someone has the capacity to change their spending behaviour once they have a mortgage,” he said.
“Lending has become so prescriptive when it is really the unexpected life events that cause someone to default on their mortgage. You can’t foresee everything.”
Meanwhile, ASIC commissioner Sean Hughes said the commission was consulting on new guidance in relation to responsible lending obligations.
What this means for your next loan application
Westpac says the decision provides clarity for the interpretation of responsible lending obligations, however consumer groups who found the decision “disappointing” are calling on the government to amend responsible lending laws.
While this court ruling may have the potential to somewhat relax the tight lending standards currently in place, it’s better to be safe than sorry when applying for a loan and we can provide you with some good tips on how to get your accounts in order.
After all, it is still up to the lender’s discretion (perhaps hold off on the caviar for a while longer!).
So if you’re considering applying for finance in the near future, get in touch.
We’d be more than happy to help guide you through the ever-evolving responsible lending landscape.
Great news for home buyers – housing affordability is the best it’s been since 1999, according to new data released by the nation’s peak housing and building body.
That’s right – housing affordability is comparable to the days when the Y2K bug had us fearing for our lives, Nokia Snake was the pinnacle of mobile gaming, and median house prices in Australia ranged between $112,000 (Hobart) to $272,000 (Sydney).
These days, however, median prices range from $420,000 (Hobart) to $840,000 (Sydney).
But here’s where it gets a little interesting.
For a home buyer with an average income purchasing a median-priced dwelling (assuming a 10% deposit), mortgage repayments will consume the smallest proportion of their earnings since 1999, according to the Housing Industry Association (HIA) Affordability Index.
Hang on, how is this possible?
The main reason housing affordability is comparable with levels seen in 1999, despite house prices rising significantly faster than incomes over the last 20 years, is that interest rates are (in the vicinity of) 4.6% today compared with 6.7% in 1999, says HIA senior economist Geordan Murray.
Average earnings have also increased by 113% over the past 20 years.
While the median home price has increased by 228%, the lower interest rates have kept the cost of servicing a loan the same, points out Murray.
“The combination of lower home prices, improvements in wage growth and lower interest rates have contributed to the ongoing improvement in the HIA Affordability Index for the June 2019 quarter,”
What does the HIA Affordability Index measure?
HIA’s Affordability Index is calculated for each of the eight capital cities and regional areas on a quarterly basis and takes into account the latest dwelling prices, mortgage interest rates and wage developments.
All eight capital cities saw an improvement in the affordability index over the quarter to June 2019, with Darwin seeing the greatest improvement with its index up by 4.8%.
This was followed by Melbourne (+3.0%), Perth (+2.6%), Brisbane (+2.6%), Sydney (+2.4%), Canberra (+2.4%), Hobart (+ 2.2%) and Adelaide (+1.0%).
It gets even better
There are a number of recent initiatives that are not reflected in HIA’s Affordability Index but are nonetheless providing further benefit to purchasers, HIA points out.
There’s the reduction in income tax, the easing of APRA restrictions on mortgage lending, and the Australian government’s First Home Loan Deposit Scheme.
According to HIA managing director Graham Wolfe.
“The passing of the federal government’s income tax package means that millions of Australians will have extra income to put towards a deposit for a new home,”
Get in touch
If you’d like to take advantage of the current housing affordability conditions, then get in touch.
We can help arrange a home loan that’ll put a smile on your face and get you partying like it’s 1999.
We’ve all done it. In a moment of weakness, a dodgy salesperson has persuaded us to hand over our hard earned money for a purchase we didn’t really need, let alone want. Here’s how to politely rebuff a salesperson’s pressure tactics.
Whether it was a shiny new car, sports or leisure gear, or simply an impractical pair of shoes – we’ve all been guilty of making a luxury purchase that we didn’t really need in our lives that knocked our family budget off course.
Below are some classic salesperson techniques to avoid, as well as some tried and tested strategies you can use to prevent yourself falling victim to them.
“You’re in luck, this is our last one.”
This line and those similar to it are used to create a sense of urgency or FOMO (fear of missing out).
It’s usually delivered as a closer to ensure you make a purchase then and there on-the-spot.
It will usually be followed by something along the lines of: ‘How about I take it up to the counter for you so no one else buys it while you’re making your decision’.
Online stores will use a similar technique by displaying “only 2 items left in stock!” next to the ‘checkout’ button.
Rest assured that if you ever hear or see something along these lines, then chances are there’s more stock. And if there isn’t, rival businesses or a nearby franchise will most likely have them available anyway.
Other variations of this tactic include “this is a one-time only offer” or “our sale ends today”.
“Here’s a little something to say thanks”
If you ever receive a gift for “free” while you’re deciding on whether to purchase an item (or after you’ve attended a seminar), then there’s every chance that it wasn’t intended to be given to you for “free”.
Rather, its main purpose is to make you feel obligated to purchase something else.
So if you ever receive a free gift, remind yourself that it’s just that: free.
You owe the salesperson nothing in return.
Variations of this method include “I can do this just for you” and “don’t tell my boss, but…”
Just because you like them, doesn’t mean you need to purchase from them
Most salespeople are very personable. There’s absolutely nothing wrong with that, and I’m sure most are decent, down-to-earth people just trying to make ends meet for their own family.
But remember: just because you like someone doesn’t mean you have to purchase what they’re pushing, or trying to up-sell.
For this reason, it’s important that you try and separate the two and ask yourself:
“Do you actually need the product?” Or are you being peer pressured by a charming person into making a purchase you can’t actually afford?
How to take the pressure off
We’ve all experienced a situation where we’ve decided we aren’t going to purchase something, only for the salesperson to somehow pull it out of the bag and get us signing on the dotted line a few minutes later.
Here’s a good response to give yourself some breathing room so that you can go home and research whether the product is dodgy, a lemon, or simply not very competitive:
I never purchase on the spot: “Thank you very much for your time today. I have a rule that I never break, which is to never buy or sign up to something on the spot. Can I please have your card so that I can make a decision with my (partner, mother, best friend, more research) please?”
This excuse works well because the salesperson most likely gets paid on a commission basis. By taking their card they feel they’ll still be the employee who gets the commission, should you buy the product.
And if they’ve offered you a “special deal”, get them to scribble it down on the card.
Finally, be firm
By now the salesperson may have built up a rapport with you, which can mean two things: a) it’s harder for you to be firm with them, and b) they’ll try their luck being a little pushier with you.
With that in mind it’s essential that you respond firmly.
Once you’ve asked for time to make your own, independent decision, stick to your guns.
Because while the salesperson might now be all chummy with you, remember that it’s highly unlikely the two of you are going to strike up a long-term friendship where you’ll meet every week for coffee or beers and discuss footy, children, grandchildren, etc.
Finally, remember that it’s your money. Money that could be better off going towards your kid’s education, your mortgage, or buying a superior product that you just haven’t gotten around to properly researching or saving for yet.
If you’d like to find out any more budget saving strategies, get in touch, we’d love to help out!
Did you know that it takes four to seven years for the average household to save a 20% deposit for their first home and avoid paying lender’s mortgage insurance? However, a new scheme promises to drastically reduce that time by dropping the required deposit to just 5%.
As you may have seen, the Coalition government recently announced a plan to let first home buyers borrow up to 95% of the value of a property and still avoid paying lenders mortgage insurance (LMI).
Now, the First Home Loan Deposit Scheme “isn’t free money”, points out Prime Minister Scott Morrison, but it means fewer young Australians will need to ask the “bank of mum and dad” for cash upfront.
Why is this a big deal?
Ok, so as it stands, it is possible to get a home loan with just a 5% deposit.
But people with a deposit of less than 20% usually have to pay LMI, which can be a pretty big deterrent if you’re wanting to crack into the market.
Basically, LMI is the insurance that reimburses a lender if a property is repossessed and sold for less than its outstanding mortgage debt.
The insurance covers the backside of the lender, but the premium is paid by the borrower.
Under the new scheme, the government would guarantee the additional amount needed to reach the 20% threshold, which would save borrowers thousands of dollars in LMI.
How much could I save?
Ok, let’s say you want to purchase a $400,000 home to get your foot in the property market.
Currently, if you have saved up $62,000 for the deposit and fees, you’ll have around a 15% deposit. In that case, you’ll pay about $3,500 in LMI.
If you have pulled together a 10% deposit ($42,000 in savings), you’ll be up for $6,500 in LMI.
And if you’ve only put away a 5% deposit ($22,000 in savings), you’ll face $12,500 in LMI.
As you can see, that’s quite a lot of money you’ll be able to save in LMI under the new scheme.
The government’s policy in a nutshell
We’ve gone through the government’s policy and pulled out some of the more relevant tidbits. They are as follows:
– The scheme will commence on 1 January 2020.
– Eligible first home buyers can’t have earned more than $125,000 in the previous financial year, or $200,000 for couples (and both need to be first home buyers).
– The First Home Loan Deposit Scheme will be limited to 10,000 first home buyer loans each year.
– The lender will still have to undertake the full normal credit check process (meeting all their legal obligations) to ensure that you’re in a position to afford your repayments.
– If the borrower refinances, or the loan comes to an end, the Commonwealth support will terminate.
– Eligible first home buyers will be able to use the scheme in conjunction with the First Home Super Saver Scheme as well as relevant State or Territory first home buyer grants and duty concessions.
Other factors to consider
Keep in mind that having a 5% deposit, rather than a 20% deposit, means that the monthly repayments on your home loan will be larger.
You’ll also likely pay tens of thousands more dollars in interest over the life of a 20-30 year home loan.
That said, this scheme will enable many young Australians to start growing their property portfolio years earlier than they otherwise could have.
And for most people, it will also mean they can save a few years paying rent.
For example, if you’re paying $400 a week in rent while saving for a deposit, that’s $62,000 over three years that could have gone towards the mortgage on your first property instead.
Basically, it’s a decision each prospective first home buyer will need to make according to their own personal circumstances.
If you’d like help cracking into the property market, or know a family member who would, please get in touch.
As we’ve alluded to, lenders will still be required to go through all the checks and balances to ensure a first home buyer has genuinely saved up their deposit and can afford their mortgage.
We’d love to provide you with some helpful tips and techniques to ensure that when lenders look through your accounts in 2020, you’ll be well and truly prepared.
Banks’ unclear pricing costing frustrated borrowers thousands
Borrowers who don’t shop around due to the banks’ unclear pricing tactics are losing out on an average of $850 a year, an ACCC report has found.
Get a load of this. The tactic which the banks use to makes it “difficult” for borrowers to discover the best rates on offer. Banks including ANZ, CBA, NAB and Westpac.
The tactic is called discretionary pricing. The Australian Competition and Consumer Commission (ACCC) has just released a scathing report on it.
So what is discretionary pricing?
The banks don’t really advertise their best home loan deals. But there are two kinds of discounts that they do offer.
The first is their “advertised discounts”, which are generally published on their website and relatively easy for borrowers to discover.
The second is “discretionary discounts”, which are much harder to find.
Discretionary discounts are offered on a case-by-case basis to individual borrowers. Usually after a separate request to the lender has been assessed.
The criteria for discretionary discounts is generally not disclosed to borrowers.
So what’s the problem?
Basically, the banks are intentionally making it pretty damn hard and time-consuming for borrowers. They don’t want you to obtain accurate lowest interest rate offers from multiple lenders.
They’re hoping you’ll just get too frustrated and put the whole ‘searching around for a better deal’ thing in the too-hard-basket. Or even better that you just go with the advertised rate and increase their margins.
The ACCC says that’s how it was for 70% of recent borrowers from one bank. They obtained just one quote before taking out their residential mortgage.
“The lack of transparency in discretionary discounts makes it unnecessarily difficult and more costly for borrowers to discover the best price offers,” says the ACCC.
This adversely impacts borrowers’ willingness to shop around. Whether for a new residential mortgage. Or when they are contemplating switching their existing residential mortgage to another lender. The unnecessarily high cost that prospective borrowers incur to discover price information from lenders causes inefficiency.
How effective is this tactic?
The rate of borrowers switching lenders remained extremely low last financial year.
In fact, less than 4% of borrowers with variable rate residential mortgages with the top five banks refinanced to another lender, says the ACCC.
That’s just 1 in every 25 mortgages.
(Note: only 11% of people got a better home loan deal from their current bank. Either asking for it or being offered it.)
“The big four banks profit from the suppression of borrower incentives to shop around and lack strong incentives to make prices more transparent,” says the ACCC.
How much are these opaque tactics costing some borrowers?
In two words: A lot.
The ACCC believes an existing borrower with an average-sized residential mortgage who negotiates to pay the same interest rate as the average new borrower could initially save up to $850 a year in interest.
“This could add up to tens of thousands of dollars over the full term of their residential mortgage in net present value terms,” the ACCC adds.
So will the banks stop doing it?
Unlikely. Well, anytime soon that is. Here’s what the ACCC say about it:
“At least one Inquiry Bank appears to be aware of borrower frustration with discretionary pricing. There is little evidence of any Inquiry Bank responding to that frustration by moving away from the practice,” the ACCC says.
“More generally, the Inquiry Banks, particularly the big four banks, lack a strong incentive to reduce the cost that prospective borrowers incur to discover price information because they profit from the suppression of borrowers’ incentives to shop around.”
So what can I do about it then?
That’s the easy part. Get in touch with us to discuss your refinancing and/or renegotiating options.
By teaming up with us, not only can you save yourself the headache of having to research the best available discount’s. We happily negotiate for it on your behalf.
So if you’re interested in potentially cutting down the amount of interest you pay each year. Give us a call today on 07 3911 1190.
Three financial tips for the savvy Millennial
It takes more than just cutting back on avocados to make it financially in Australia. Here’s what the under 35s really need to know.
A Deloitte 2017 Millennial Survey paints a less than rosy picture of the financial outlook for millennials in Australia – at least, from a millennial’s perspective.
It states that only 8% of young Australians (born after 1982 but before 2000) believe they will be financially better off than their parents.
However, there are several ways in which Millennials can proactively tackle these concerns and start working towards a financial future which could match – or indeed surpass – that of their parents.
Three financial tips for the savvy Millennial
1. Use tech to help you save
Millennials have one up on their boomer parents in the tech stakes, and the smart use of technology can seriously help you manage your money.
There are literally hundreds of free apps available to help you track your spending, save, and invest.
Here are a few of them:
Pocketbook is an Australian app which lets you to track expenses and set spending limits.
Money Smart’s TrackMyGOALS allows you to set, plan, track and manage your savings goals and visualise your progress.
Expensify allows you to scan receipts and track time or mileage for tax deductions.
2. Set up a budget
The single most important step a Millennial can make in terms of taking control of their finances is setting up a budget and tracking income and expenses.
This is because as soon as you start to see where your money is going – on takeaway coffee, on drinks and the pub, or on yes the ubiquitous avocado toastie – you’ll realise how much you can save by making a couple of small, but key, lifestyle changes.
Even as much as $5 a week in savings can start to quickly add up.
Setting up a budget is quick and easy and can now be done online, allowing you to add to your expense list when you’re out and about.
Use our free and user-friendly online budget planner.
3. Define clear financial goals
It’s never too early to start planning for your future. Indeed, the earlier you start, the more you’ll save and the quicker you’ll start racking up financial wins.
When setting your financial goals, the key is to make them achievable and time-bound.
With so much time to accumulate wealth over your lifetime, it’s also important to set yourself short, medium and long term goals, so you feel rewarded and satisfied throughout your financial journey.
Want to go on a trip to the States, or buy a new car? These might be your short to mid-term goals.
Want to have enough in the bank for a comfortable retirement? This is an important long-term goal which you need to start planning for now.
I’m still going to need some help
It’s normal for younger people to put their head in the sand when it comes to their financial future. It’s wise to dig it out as quickly as possible and start planning.
If you need help in setting yourself up for a healthy financial future, come and talk to us.
There are many more ways we can help you set out on the path to wealth as soon as possible.