Housing affordability best it’s been in a decade: report

Great news for homeowners and prospective buyers: housing affordability is at its best level in a decade and should continue to improve throughout 2021.

Housing affordability improved in all major Australian cities over the year to September 2020 despite the ongoing global pandemic, according to a new report by investor service Moody’s.

“Owning a house was the most affordable it’s been in a decade in most major capital cities during the last six months,” Moody’s says.

What is housing affordability?

Put simply, improved housing affordability means that households are spending a smaller portion of their monthly income on their mortgage.

Two-income households, for example, needed 23% of monthly income to repay new mortgages in September 2020, down from 25.1% a year earlier.

Better yet, Moody’s predicts that housing affordability will continue to improve moderately over the next 12 months because of low mortgage interest rates and a continuation of the mild dip in housing prices.

How is housing affordability measured?

Alrighty, so Moody’s measures housing affordability based on three things: median housing sales prices, average discounted variable mortgage interest rates, and average household income.

Let’s start with median housing sales prices.

Australian median housing sales price fell 1.5% over the six months to September 2020, according to Moody’s.

With a number of economists predicting housing values will continue on a mild downward trajectory until about mid-2021 (before going on a two-year surge), that would continue to assist housing affordability over the next year.

Next, interest rates.

At present, the RBA’s official cash rate is at historically low levels, and competition amongst lenders for borrowers is fierce.

That all spells extremely low interest rates for borrowers, which allows for lower monthly mortgage repayments.

And the good news is that most experts expect interest rates to stay low for the next few years while the economy gets itself back on track.

Finally, let’s look at income.

As mentioned earlier, the report found two-income households needed 23% of their monthly income to repay new mortgage loans in September 2020, down from 25.1% a year earlier.

How is this possible during COVID-19?

Well, no doubt a big factor in keeping the nation’s average household income buoyant was the federal government schemes JobKeeper and JobSeeker.

And although household incomes will come under pressure as these support measures come to an end, Moody’s says “this should not outweigh low mortgage interest rates and lower housing prices”.

So is now a good time to buy?

With all of this positive housing affordability news in mind, is now a good time to buy?

Well, more than a quarter of Australians (26%) believe now is the time to invest in property to safeguard their future, according to the latest ING Bank survey of 2,000 people.

And Tim Lawless, head of research at leading property expert group CoreLogic, agrees:

“For people with confidence in their own financial circumstances and household balance sheets, arguably this is a good time to be considering a home purchase thanks to the low cost of debt and certainty that rates will remain low for at least the next few years.”

There is also a raft of federal and state government incentives you could take advantage of, including the $25,000 HomeBuilder scheme, first home buyer grants and stamp duty exemptions.

So if you’re looking to buy your first home, or add to your existing portfolio, get in touch today.

As mentioned above, competition amongst lenders is fierce, and we’re here to help you use those competitive conditions to your advantage.

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.

Flow of credit to small businesses remains strong

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Small business owners in need of credit will be buoyed by new data that shows the approval rate for loans has remained strong throughout the coronavirus crisis.

In fact, about 70% of SME business loan applications received by lenders have been approved since early February, according to Australian Banking Association (ABA) statistics.

That’s resulted in more than 128,000 Australian sole traders, small businesses and medium-sized businesses receiving loans, with an average loan size of $320,000.

Breaking it down further, that’s 500 new SME loans a day for more than 250 days.

The ABA data is in line with the latest Sensis Business Index, which shows 26% of businesses that applied for finance over the past three months were knocked back.

Why the flow of credit remains strong despite COVID-19

The figures have no doubt been assisted by the relaxation of business lending rules, the federal government’s Instant Asset Write-off Scheme (now expanded to “temporary full expensing”), and the Coronavirus SME Loan Guarantee Scheme.

Temporary full expensing allows businesses, both big and small, to immediately write off any eligible depreciable asset, at any cost, up until 30 June 2022.

This can help improve your business’s cash flow by allowing you to reinvest the funds back into your business sooner.

The Coronavirus SME Loan Guarantee Scheme, meanwhile, allows businesses with a turnover of up to $50 million to apply for loans of up to $1 million with participating lenders.

The loans can generally be offered by lenders “more cheaply and more freely” compared to ordinary business loans, as the government will guarantee 50% of the new loans.

How we can help

While 70% of loans being approved is great news, it’s obviously not quite a done deal when you apply for finance in the current financial landscape.

So, to help avoid being among the unfortunate remaining 30% of businesses, get in touch with us today.

Our job is to act as a conduit between you and the lender, which allows you to focus on your business while we focus on getting you the finance that your business needs.

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.

Housing market confidence ‘booms’, cash rate cut expected

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Consumer sentiment is surging, confidence in the housing market is booming, and the number of experts tipping a Melbourne Cup Day cash rate cut is increasing. Let’s look at why households and businesses are becoming increasingly optimistic.

Ahh, spring. It’s fair to say we love it around here.

Not only do we usually see an uptick in property market activity (houses always look much nicer in spring), but this year – in particular – we’re seeing consumers more upbeat about what lies ahead.

This can be seen in the latest Westpac-Melbourne Institute Index of Consumer Sentiment survey, which saw consumer sentiment increase by 11.9% to 105.0 in October (up from 93.8 in September).

“This is an extraordinary result,” says Westpac’s chief economist Bill Evans.

“The index has now lifted by 32% over the last two months to the highest level since July 2018.”

Confidence in the housing market is also high

One of the biggest takeaways from the latest consumer sentiment survey is that more and more people believe now is a good time to purchase property.

“Confidence in the housing market has boomed,” explains Mr Evans.

“The ‘time to buy a dwelling’ index increased 10.6% to its highest level since September 2019.”

House price expectation sentiments also rose strongly, up 31.5% to 117.3 (from 89.2), with all states registering impressive recoveries.

Why is consumer sentiment soaring?

While leaving the doom and gloom of a COVID winter behind and entering spring sure doesn’t hurt, it’s not the only reason for the uptick in consumer sentiment.

This latest survey came right off the back of the federal government’s October Federal Budget, which allocated a record amount of spending and support measures to businesses and households.

There’s also an increasing “expectation that the Reserve Bank (RBA) board is likely to further cut interest rates at its next meeting on November 3”, says Mr Evans.

In fact, according to financial market pricing, there’s now around a 75% chance that it will happen.

That’s because, while previous communications from the RBA indicated that the “effective lower bound” of its official cash rate was 0.25%, in recent weeks it’s changed its tune, hinting at a willingness to cut it to 0.10% on Melbourne Cup Day.

“Recently, we have detected a change in attitude (from the RBA) indicating more confidence that the plumbing of the financial system can operate effectively at an even lower set of policy rates,” says Mr Evans.

“With that in mind, and the commitment towards full employment and the target for inflation, there seems to be no reason for the board to delay its decision.”

How’s your outlook at the moment?

So, how about you? Have things on the financial and property front started to look a little rosier recently?

If so, feel free to get in touch with us today. We’d love to run you through some of the financing options that may available to you in the current financial landscape.

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.

Turbocharged instant asset write-off scheme unveiled

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There was one big-ticket initiative in the federal budget that really caught our eye, and that was the turbocharged version of the instant asset write-off scheme. Today we’ll look at how it could improve your business’s cash flow moving forward.

Did you catch the announcement that businesses, both big and small, can now immediately write off any eligible depreciable asset, at any cost, up until 30 June 2022?

Well, that’s any business with a turnover of up to $5 billion (and I don’t know about you, but I don’t rub shoulders with many businesses that size).

Treasurer Josh Frydenberg says the initiative will unlock investment opportunities for businesses by freeing up their cash flow.

“A trucking company will be able to upgrade its fleet, a farmer will be able to purchase a new harvester and a good manufacturing business will be able to expand its production line,” Mr Frydenberg says.

Let’s look at the scheme in a little more detail

The government is calling the new initiative “temporary full expensing”.

But to put it more simply, it looks like an expanded version of the popular instant asset write-off scheme, which was previously only available for small and medium-sized businesses (SMEs) and for assets up to $150,000.

Now, however, any business with a turnover of up to $5 billion can immediately deduct the full cost of any depreciable asset purchased from 6 October 2020 and first used or installed by 30 June 2022.

The cost of improvements made during this period to existing eligible depreciable assets can also be fully deducted.

There are a few other key details you should be aware of, however, especially when it comes to the purchasing of second-hand assets, including:

– Full expensing also applies to second-hand assets for SMEs (with an aggregated annual turnover of less than $50 million).

– Businesses with aggregated annual turnover between $50 million and $500 million can still deduct the full cost of eligible second-hand assets costing less than $150,000 that are purchased by 31 December 2020 under the existing instant asset write-off scheme.

– SMEs that acquire eligible new or second-hand assets under the $150,000 instant asset write-off by 31 December 2020 will also have an extra six months, until 30 June 2021, to first use or install those assets.

To help explain things further, below is a brief case study provided by the ATO.

Case study: Grace’s Grains

Grace owns an agricultural company, Grace’s Grains Pty Ltd, which has an aggregated annual turnover of $20 million for the 2021-22 income year.

Grace’s Grains Pty Ltd purchases a combine harvester for $600,000, exclusive of GST, on 1 July 2021.

Without temporary full expensing, Grace’s Grains Pty Ltd would claim a total tax deduction of around $180,000 for 2021–22, with the remainder of the cost being depreciated over future years.

Under temporary full expensing, however, Grace’s Grains Pty Ltd will instead claim a deduction of $600,000 for the full cost of the combine harvester in 2021–22, approximately $420,000 more than before.

At the 2021–22 tax rate for small and medium companies of 25%, Grace’s Grains Pty Ltd will pay around $105,000 less tax in 2021–22.

This will improve the company’s cash flow and help Grace reinvest and grow her business.

Your next step

Being able to write-off assets purchased is all well and good, but if you don’t have access to the funds to purchase them, then the scheme won’t be of much use to your business.

So if you’d like help obtaining finance to make the most of temporary full expensing for your business, get in touch with us today.

We can present you with financing options for the scheme 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.

Responsible lending laws to be axed: what that means for you

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You might have recently heard that ‘responsible lending laws’ are set to be scrapped early next year. Rest assured though that you’ll still be able to borrow responsibly. Let us explain how.

The planned scrapping of the responsible lending laws is the federal government’s latest key initiative to boost economic recovery from the COVID-19 recession.

Now, the federal government (and the banks) say it will simplify the regulatory landscape and free up access to credit for home buyers and small businesses.

Consumer rights advocates, on the other hand, argue it’s all about “giving a free-kick to the banks” and will put borrowers at risk.

But, here’s the good news.

Not only can we assist you in making the most of the upcoming changes, but we can help you determine your borrowing power so that you’re confident to repay any loan you take out.

Sounds like a win-win, right?

Let’s break it all down in a little more detail, and how it might affect you come 1 March 2021.

What are responsible lending laws?

Basically, they put the onus on the lender to determine whether or not a loan is suitable for the applicant, and that the borrower can repay the loan without going into substantial financial hardship.

They were introduced in the wake of the Global Financial Crisis as part of the National Consumer Credit Protection Act 2009.

If you’ve applied for a loan recently, you’ll know firsthand that the bank scrutinises your ability to repay the loan very, very closely.

Ordered take-away a little too much? Had a punt on the latest sports match? Too many streaming subscriptions like Netflix? Chances are these non-essential expenses would draw some very close scrutiny from the lender.

Once the laws are scrapped, however, lenders will be able to rely on the information provided by borrowers.

That means if a would-be borrower overlooks expenses or provides misleading information in their loan application, the lender won’t be the one facing the heat.

Instead, the responsibility is flipped back onto the borrower.

That said, lenders will still be required to comply with APRA’s lending standards, which require sound credit assessment and approval criteria. So it’s not open-slather for banks.

Why it’s changing

Put simply: the federal government is pulling out all stops to kickstart the national economy in 2021.

“What started a decade ago as a principles-based framework to regulate the provision of consumer credit has now evolved into a regime that is overly prescriptive, complex and unnecessarily onerous on consumers,” says Treasurer Josh Frydenberg.

By scrapping the laws, the federal government hopes to reduce the cost and time it will take you to access credit.

“Now more than ever, it is critical that unnecessary barriers to accessing credit are removed so that consumers can continue to spend and businesses can invest and create jobs,” adds Mr Frydenberg.

What it means for you going forward

As mentioned above, the proposed changes will reduce red tape and make it easier for the majority of Australians and small businesses to access credit.

But you’ll still want to make sure you’re not taking on debt that you can’t afford to pay back.

And that’s where we can make ourselves especially useful.

Not only will we be able to guide you through the updated process, but we’ll be able to help you work out your earnings and expenses so that you take on a loan that you’ll be able to confidently repay.

That way you’ll get the best of both worlds: responsible borrowing and easier access to credit.

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.