Banks tighten lending, reducing the maximum you can borrow

Some of Australia’s biggest banks have tightened their mortgage lending criteria, meaning you might not be able to borrow as much from them. How might this affect your next purchase?

This week ANZ lowered a key lending cap, indicating it will no longer lend to borrowers with a debt-to-income (DTI) ratio above 7.5 (meaning people can borrow up to seven and a half times their gross annual income).

NAB meanwhile has reduced its cap to eight times a borrower’s income.

Up until this month, both banks had been willing to lend up to nine times a borrower’s income.

In effect, the changes mean the maximum amount you can borrow with them to buy a property will be reduced.

Fellow big four banks CBA and Westpac have not announced any reductions but have said they’re already applying tighter lending rules to borrowers seeking loans with high DTI ratios.

Why are banks tightening lending?

The increased focus on lending caps comes as financial institutions and the industry regulator, the Australian Prudential Regulation Authority (APRA), prepare for the impact of higher interest rates (many economists are tipping another rate hike in June).

APRA started making moves as early as late last year when it announced new borrowers would need to be tested to see if they could cope with interest rates at least 3% above the current rate (up from 2.5% previously).

Then, this week APRA Chair Wayne Byers indicated the regulator was concerned about the rise in high DTI loans being issued by some banks.

“We will also be watching closely the experience of borrowers who have borrowed at high multiples of their income – a cohort that has grown notably over the past year,” he told the AFR Banking Summit in Sydney.

“Interestingly, this growth has not been an industry-wide development, but rather has been concentrated in just a few banks.”

So how do DTI ratios work?

Your DTI ratio is very simple to work out.

The formula is: total debt / gross income = debt-to-income ratio.

So, if you’re seeking a $700,000 home loan (and have no other debt), and you have $160,000 in gross household income, your DTI is 4.375 – a ratio most lenders would be very comfortable with.

However, a household in the same financial position seeking to borrow $1.4 million for a home would have a DTI of 8.75, putting it above the caps now being imposed by ANZ and NAB.

So how much can you safely afford to borrow?

There’s a fine line between maximising your investment opportunities and stretching yourself beyond your limits, especially with interest rates on the rise.

And that’s where we come in.

It’s not only important to stress-test what you can borrow in the current financial landscape, but also against any upcoming headwinds that are tipped to hit borrowers – such as multiple interest rate rises.

So, if you’d like to find out your borrowing capacity and options, get in touch today. We’d love to sit down with you and help you map out a plan.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or 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.

Bulk of SMEs preparing for growth over next 12 months: research

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Small businesses around the nation are once again confident about their future and ready to start driving toward their next phase of growth, according to new research.

The research, carried out by small business lender Prospa, found that 81% of Aussie SMEs expect their businesses to grow over the next 12 months.

This is despite 87% of business owners anticipating challenges within the same timeframe.

“Small business owners have not had an easy ride navigating through the pandemic, supply chain issues, staff shortages, and now increasing operating costs,” says Beau Bertoli, co-founder and chief revenue officer at Prospa.

“Despite ongoing challenges, the majority of small business owners have been working hard to make smart decisions to drive new revenue and become more efficient to propel growth.”

Business owners are also looking to access funding

The research found that 7 out of 10 business owners have either made, or are in the process of making, changes to their business.

This is combined with 71% of business owners expressing that they plan to embark on accessing funds in the short-term, ahead of possible further interest rate rises.

“Small businesses are not only confident, but studies show business owners are planning to apply for funds sooner to spare them from paying extra on their repayments,” adds Mr Bertoli.

Heads-up! The end-of-financial-year is fast approaching

Another key reason why small business owners are looking to access funds over the next few weeks is to take advantage of the federal government’s temporary full expensing scheme this financial year.

The scheme allows businesses keen to invest in their future to immediately write off the full value of any eligible depreciable asset purchased, at any cost.

This can help with your cash flow, as it allows you to reinvest funds back into your business sooner.

Trucks, coffee machines, tools, excavators, and vehicles are just some examples of assets eligible under the scheme.⁣⁣

But here’s the catch: the asset must be installed and ready to use by June 30 in order to be eligible for this financial year.

So if you’d like help obtaining finance to make the most of temporary full expensing ahead of the impending EOFY deadline, get in touch with us today.

We can help you with financing options that are well suited to your business’s needs now, and into the future.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or 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.

ATO hit list: rental property income and capital gains

Property investors beware: the Australian Taxation Office (ATO) has revealed the four key areas it will be targeting this tax year, and rental property income/deductions and capital gains are high on the hit list.

Tax office Assistant Commissioner Tim Loh says this tax season the ATO will be targeting four key problem areas where it commonly sees people making mistakes, including:

– rental property income and deductions;
– capital gains from property, shares and crypto assets;
– record-keeping; and
– work-related expenses.

“We know there are still some weeks left until tax time, but if you start organising the income and deductions records you’ve kept throughout the year, this will guarantee you a smoother tax time and ensure you claim the deductions you are entitled to,” says Mr Loh.

1. Rental property income and deductions

If you’re a rental property owner, it’s important to include all the income you’ve received from your rental in your tax return, including short-term rental arrangements, insurance payouts and rental bond money you retain.

“We know a lot of rental property owners use a registered tax agent to help with their tax affairs. I encourage you to keep good records, as all rental income and deductions need to be entered manually,” explains Mr Loh.

He adds that if the ATO does notice a discrepancy it may delay the processing of your refund as it may contact you or your registered tax agent to correct your return.

“We can also ask for supporting documentation for any claim that you make after your notice of assessment issues,” Mr Loh adds.

For more information visit ato.gov.au/rental.

2. Capital gains from property, shares and crypto assets

If you dispose of an asset such as property, shares, or a crypto asset including non-fungible tokens (NFTs) this financial year, you will need to calculate a capital gain or capital loss and record it in your tax return.

Generally, a capital gain or capital loss is the difference between what an asset cost you and what you receive when you dispose of it.

“Through our data collection processes, we know that many Aussies are buying, selling or exchanging digital coins and assets so it’s important people understand what this means for their tax obligations,” adds Mr Loh.

3. Record-keeping

For those who deliberately try to increase their refund, falsify records or cannot substantiate their claims, the ATO warns it will be taking firm action against them this year.

If you’re not in a rush to complete your tax return, it might be better to wait until the end of July, which is when the ATO can automatically pre-fill a lot of information for you.

“We often see lots of mistakes in July as people rush to lodge their tax returns and forget to include interest from banks, dividend income, payments from other government agencies and private health insurers,” the ATO says.

Just note that not all information can be pre-filled for you, so be careful to double-check.

“While we receive and match a lot of information on rental income, foreign-sourced income and capital gains events involving shares, crypto assets or property, we don’t pre-fill all of that information for you,” adds Mr Loh.

4. Work-related expenses

Many people around the country have changed to a hybrid working environment since the start of the pandemic, which saw one-in-three Aussies claiming work-from-home expenses in their tax return last year.

“If you have continued to work from home, we would expect to see a corresponding reduction in car, clothing and other work-related expenses such as parking and tolls,” says Mr Loh.

To claim a deduction for your working from home expenses, there are three methods available depending on your circumstances.

You can choose from the shortcut method (all-inclusive), fixed-rate method, or actual cost method, so long as you meet the eligibility and record-keeping requirements.

For more information visit ato.gov.au/deductions.

We’re around to help you this tax season

The end of financial year is a busy time for all finance professionals – and mortgage brokers are no different, as there are plenty of important June/July deadlines we can help you with.

That includes helping your business obtain finance to make the most of temporary full expensing before CoB June 30, and assisting potential first home buyers apply for the Home Guarantee Scheme come July 1.

So if there’s something you think we can help you with this EOFY period, please don’t hesitate to shout out – we’d love to help you out.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or 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.

The two major parties’ first home buyer policies explained

Housing affordability is one of the key battlegrounds ahead of the federal election this Saturday. So what is each of the two major parties proposing to help first home buyers crack the market? Let’s take a look.

Now, before we get into the nitty-gritty, we’d like to stress that we’ll be doing our darndest to make this article as non-partisan as possible.

We understand that everybody has their preferences, priorities and beliefs – and housing affordability might not factor very highly for you – so what we’ll do below is simply run you through each of the policy’s details.

As is customary with these kinds of things, we’ll kick it off with the incumbent government’s policy pitch first.

The coalition’s policy: Super Home Buyer scheme

If re-elected, Prime Minister Scott Morrison (Liberal Party) is promising to allow first home buyers to use their superannuation to help supplement a house deposit under its Super Home Buyer scheme.

It won’t be open slather on your super account, though.

You would need to have a 5% house deposit saved up before you could apply.

And you could only access up to 40% of your superannuation, to a maximum of $50,000.

The scheme would apply to both new and existing homes and there would be no income or property price caps under the scheme

Also, if you decided to later sell the property, you would have to return the money taken from your superannuation account, including a share of any capital gains.

Labor’s policy: Help to Buy scheme

Opposition Leader Anthony Albanese (Labor Party) meanwhile has pitched to first home buyers a “Help to Buy” scheme.

If elected to government, Labor has promised to help you buy a house by purchasing up to 40% of it with you for new builds, and 30% for existing homes.

Eligible first home buyers would need to have saved a minimum deposit of 2%, and the scheme would be limited to individuals earning less than $90,000 or couples earning $120,000.

Under the scheme, which would be capped at 10,000 spots each year, the government would own the relevant percentage of your house that they contribute, which you could choose to buy back over time.

If your income increased above the thresholds, you’d have to start buying the government’s share back, and if you sold your home, the government would claim back its share (along with the relevant proportion of any capital gains).

Property price caps would also apply, including $950,000 in Sydney, $850,000 in Melbourne, $650,000 in Brisbane, $600,000 in ACT, and $550,000 in Perth, Adelaide, Tasmania and NT.

Whichever party wins, we’ll be here to support for you

No matter which party wins the federal election, rest assured that we’ll be across the details of its home buying and economic policies and ready to support you on your home buying journey.

Likewise, if you have any concerns about the housing market or the interest rate outlook over the next 12 to 24 months, please don’t hesitate to get in touch.

We’re more than happy to run through your situation and help you weigh up your options.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or 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.

EOFY alert! Financial year-end is fast approaching

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Small business owners wanting to buy a vehicle, asset or important piece of equipment and immediately write off the cost have just over a month to act this financial year.

There’s nothing like an impending deadline to get you moving.

And with June 30 now just over a month away (didn’t that sneak up on us!), time is running out for your business to take advantage of the federal government’s temporary full expensing scheme this financial year.

What is temporary full expensing?

Temporary full expensing is basically an expanded version of the popular instant asset write-off scheme.

It allows businesses that are keen to invest in their future to immediately write off the full value of any eligible depreciable asset purchased, at any cost.

This helps with your cash flow as it allows you to reinvest funds back into your business sooner.

Trucks, coffee machines, excavators, and vehicles are just some examples of assets eligible under the scheme.⁣⁣

There is just one small catch though …

The asset must be installed and ready to use by June 30 in order to be eligible for this financial year.

But rest assured that even if you do order the asset, and then miss the June 30 deadline because it doesn’t arrive in time, you can still write it off next financial year because the scheme is set to run until 30 June 2023.

Asset eligibility

To be eligible for temporary full expensing, the depreciating asset you purchase for your business must be:

– new or second-hand (if it’s a second-hand asset, your aggregated turnover must be below $50 million);

– first held by you at or after 7.30pm AEDT on 6 October 2020;

– first used, or installed ready for use, by you for a taxable purpose (such as a business purpose) by 30 June 2023; and

– used principally in Australia.

Obtaining finance that’s right for your business

Being able to immediately write off assets is one thing, but if you don’t have access to the right kind of finance to purchase them now, the scheme won’t be much use to you this financial year.

So if you’d like help obtaining finance to make the most of temporary full expensing ahead of the impending EOFY deadline, get in touch with us today.

We can help you with financing options that are well suited to your business’s needs now, and into the future.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or 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.