How the new govt scheme could give you a head start on property

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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.

Labor has matched the proposal, meaning it should go ahead no matter who wins government this election, so today we’ll break the scheme down for you.

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.

Final word

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.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

5 ideas to help first home buyers break into the property market

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While housing affordability is improving across the country, for many young first home buyers cracking into the property market can feel like breaking into a fortress. Here are five ideas that can help bust down that door.

Housing affordability for new mortgage borrowers in Australia will continue to improve over the next 12 months because of declining housing prices, shows the latest research from Moody’s Investors Service.

That said, there’s no denying that hopeful first home buyers have a much harder time breaking into the market than those who house-hunted in decades past.

In fact, the dwelling price to income ratio showed a 78% increase between 1980 and 2015.

With that in mind, here are five tips to help you bang down the property market front door.

1. Consider “rentvesting”

Rentvesting is a term used to describe the act of renting a property in the neighbourhood you’d like to live in, while purchasing an investment property in a more affordable neighbourhood and renting it out to a tenant.

That way, you’re able to live where you want while building equity in a home at the same time.

This tactic has become so popular in recent years that conventions, seminars and dedicated property investment businesses have begun popping up to help people do it effectively.

2. Take advantage of government schemes and incentives

Government schemes and incentives, such as the First Home Owners Grant (FHOG), can be a great way for first-time home buyers to offset some of the cost of purchasing their first home.

Similarly, many states and territories offer stamp duty discounts for first home buyers, which can also save you thousands of dollars.

Each state and territory has different rules around who is eligible to apply for them, but by and large, they make buying your first home more affordable.

3. Live at home while you save for a deposit

As unappealing as it may first seem to live with your parents while saving for a home, the idea becomes a lot more digestible when you consider that the national median rental price in Australia is $450 a week.

That’s $23,400 a year.

If you include all the money you’ll save by splitting food and utility costs (including water, gas, electricity, internet and phone bills) with your parents, you could save up to $30,000 a year.

4. Share the cost of ownership with a friend

If the property you want is out of your reach, why not consider going in on it with a friend or relative?

Splitting the cost of a home purchase with another person can allow you to build equity in the home of your choice, without overstretching your resources.

Just keep in mind that you’ll want to speak with a lawyer and draw up an agreement regarding ownership and mortgage liability, plus things like how maintenance costs will be met and what happens if someone wants to sell in future.

5. Rent a room in your house out to a tenant

If you want to own the property you live in and don’t want the mess that can come with sharing ownership with another individual, then renting out a room in your house can be another great option.

By renting out the room for $200 a week you can make $10,000 a year – plus you’ll save on utility bill costs.

If you’re not too fond of having a full-time housemate, consider creating a guestroom and leasing it out on Airbnb.

Just be sure to take out appropriate insurance and keep accurate records of the income you earn from Airbnb as the ATO is cracking down on undeclared income from the platform.

Final word

The Australian housing market may have cooled off in recent months, but pricing is still high enough that it can be very challenging for first-time home purchasers to break into the market.

By getting creative with some of the tips in this post, you’ll stand a better chance at turning your dream of owning your first home into a reality.

If you’d like any other help cracking into the property market then please get in touch – we’d love to help out any way we can!

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Technological budget killers to watch out for in 2019

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As technology continues to evolve, so too do the challenges of keeping your family budget in check. This week we’re going to look at a couple of technological trends that could put your family budget under some real strain in 2019.

Sure, having everything there at the click of a button these days is convenient. But convenient isn’t free.

In fact, it can blow out your annual family budget by thousands of dollars each year, which can put strain on more important bills such as your mortgage and utilities.

Below we’ll explore a couple of the technological trends that are really starting to chew up more and more of the average Australian household budget.

1. Uber eats and other food delivery apps

Remember the good old days when you used to ring up your local Thai restaurant and place an order directly with the store?

Sure, you’d have to pick it up, but you paid less and the restaurant got the full cut.

Those days seem long gone since Uber Eats, Deliveroo, Menulog and other food delivery services burst onto the scene.

These days you pay about $5 extra each time you order through Uber Eats, and they claim about a 35% commission.

But it’s not just the extra expense per meal. The thing about these apps is that they make it all too tempting to skip making dinner and order takeaway instead.

More than half of Australians are now struggling to plan and cook meals and turn to these apps instead, according to a survey by Australian Beef, and it’s costing an extra $4000 per year in some cases.

The solution? Spend more time cooking fresh food instead. Rather than thinking of it as a chore, consider it an option to spend more time participating in an activity with your loved ones.

It’s cheaper, healthier and more fun!

2. Entertainment subscriptions

Video and music streaming subscriptions services have exploded in popularity over the last two to three years.

Entertainment giants have realised that the best source of revenue is recurring revenue, so they’re all climbing over one another to win over your hard earned cash.

One or two subscription services obviously won’t have too big of an impact on your bottom line (in fact it may even save you money), however problems start arising if you subscribe to a number of them.

For example, there’s Netflix ($18/month), Stan ($17), Foxtel ($50), Kayo ($25), Spotify ($12) and 10 All Access ($10), to name but a few.

Taking out just Netflix and Spotify would cost you $360 a year – about a dollar a day.

Subscribe to the whole lot however and you’re looking at an extra $1200, not to mention any other services family members may subscribe to such as Xbox Live, Podcasts, Youtube Premium, Twitch and Amazon’s Audible.

Long story short: they can add up very quickly!

The solution? Stick to your favourite one or two.

There’s plenty of free entertainment options out there, such as ABC iview and SBS on Demand.

And sure, it might be a bit old fashioned, but your local library is free and offers an endless stream of entertainment.

Final word

Don’t get us wrong: we’re definitely not saying you should shun technology altogether. After all, it makes everything much more convenient.

Rather, instead of the the technology harnessing you, harness it instead.

If you use it wisely and in small doses you can get the best of both worlds: an enjoyable today and a well-funded future.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Property buyers are increasingly turning to mortgage brokers

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Excuse the humble brag, but property buyers are turning to mortgage brokers in record numbers. Here’s why that’s great news for the both of us.

Ok, ok, sure, we know we’re beating our own drum a little here.

But there’s a good reason why, we promise.

Firstly, it’s fantastic to see that at a time when the royal commission is dominating headlines and consumer confidence in the big banks is tanking, our industry is proving worthy of people’s trust.

During the September 2018 quarter, mortgage brokers settled an unprecedented 59.1% of all residential home loans.

That’s up from 53.6% in 2016 and 55.7 per cent in 2017 over the same period.

MFAA CEO Mike Felton points out that the result reflects not only the trust and confidence customers have in their mortgage broker, but the systemic importance of the mortgage broking industry.

“As banks have persisted in making it more difficult to secure a loan, turning many would-be borrowers away, consumers have continued to increasingly utilise the broker channel for experience, expertise and greater market choice to secure access to credit,” Mr Felton says.

Take that, banks

The figures emerge as the big banks continually try to curb the effectiveness of mortgage brokers. And it doesn’t take Einstein to figure out why: mortgage brokers promote a more competitive lending market at their expense.

According to Deloitte Access Economics, over the past three decades brokers have contributed to the fall in net interest margin for banks of over 3% points. This saves you $300,000 on a $500,000 30-year home loan (based on an interest rate fall from 7% to 4% pa).

Furthermore, on average, mortgage brokers have 34 lenders on their panel, and 28% of the time arrange residential loans through lenders other than the big four banks.

“In addition to providing customers access to a panel of 34 lenders on average, brokers are ideally positioned to help customers, especially those with more complex lending scenarios, to understand the ever-evolving application process and provide the information necessary to meet changing lender requirements,” adds Mr Felton.

Current model under threat

There’s been a recent push by at least one of the big four banks to make the customers pay for the services of a mortgage broker. If they had their way, that would be an industry-wide standard.

However, news that more and more customers are flocking to mortgage brokers under the current system will hopefully help us both out in the long run.

Better yet, a recent report shows that 9 out of 10 customers are satisfied with the services provided by mortgage brokers, so we sincerely thank you for your support.

Got a minute help us out a little more?

Besides continuing to use our services, and recommending us to family and friends, another way you can support us is by contacting your local MP to let them know you’re happy with the mortgage broking service we’re currently providing.

By letting your local Federal Member of Parliament know this you can help prevent the cost of our future services being transferred from the bank over to you – and you’ll also be showing your support for us.

If you’d like any more information on this issue don’t hesitate to get in touch. We’d love to speak to you more about it.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Under the microscope: your micro-transactions

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When it comes to paying off your mortgage, many of us are in the dark as to where we should be making significant savings. A good place to start? Cutting down on ‘micro-transactions’.

The lure of micro-transactions – purchases that are low in cost and trivial in nature – can be a real obstacle for those trying to pay off their mortgage faster.

Indeed, while the cost of these transactions may seem infinitesimal in the grand scheme of things, they can add up to the equivalent price of that trip you always wanted to take, or the sophisticated new piece of technology you’re desperate to try.

Of course, there are a myriad of ways to pay of a mortgage sooner, including refinancing or downsizing.

For many of us, however, addressing our penchant for micro-transactions is surprisingly effective. Here are a few examples.

Takeaway coffee and bottled water

Picking up a hot cup of takeaway coffee in the morning is an irresistible slice of luxury for many of today’s busy workers.

However, while a cup only costs a few dollars, transactions can easily add up for caffeine addicts.

One $4 cup of coffee costs you $28 per week. Over one month that’s almost $120. Over a year it’s almost $1500.

Consider switching to home-brewed coffee in a flask. As well as saving you a lot of money, you’ll be saving the environment by avoiding disposable cups. The same can be said for bottled water.

The gym

Having a gym membership can make you feel virtuous and healthy, but how often do you actually make use of it?

If the answer is “not as much as I should” then you need to reconsider your membership.

The daily cost of a gym membership is about the same as a cup of coffee. That’s another $1500 each year right there.

The great thing about exercise is that it can be done for free – throw on some jogging shoes and think about all the cash you’re saving!

Household bills

There are plenty of possible ways you could be overpaying on household bills.

Many people still pay for a landline, for example, but the rise of the mobile has made domestic phones almost redundant.

And do you really need high speed NBN? Most of the Telcos are offering BYO mobile phone plans with endless data for about $60-$70 a month – with unlimited calls and texts.

Once you go past a 40GB cap your internet speed is reduced to 1.5Mbps – which is still fast enough to stream Netflix in standard definition, browse the web, and listen to music.

The best bit? Your smartphone can double as a hotspot modem to your other devices.

Other common ways of overspending on household bills include failing to set a thermostat correctly, leaving electrical items on standby, using inefficient light bulbs or failing to obtain accurate meter readings.

Dig a little deeper into where your money is going on household bills and you could save a significant sum – enough to reduce your mortgage significantly each year.

Get in touch

If you’d like to find out other ways you can save on your mortgage – get in touch – we’d love to help out.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.