Homeowners nearly four years ahead on their mortgage repayments

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Australian homeowners are loading up their offset accounts in record amounts, so much so that the average household is now almost four years ahead on their mortgage payments.

Quick question: do you have an offset account (or several) attached to your mortgage?

They’ve become quite popular in recent years, especially since the RBA’s official cash rate has hit record low levels and impacted the amount of interest you can earn in savings accounts (which we’ll explain in more detail further below).

But first, how much have offset balances increased?

Research from the Australian Prudential Regulation Authority (APRA), provided to The Australian, shows the average balance sitting in offset accounts is now nearly $100,000 – up almost $20,000 since the pandemic kicked off in March 2020.

In total, $222 billion was in offset accounts across the country as of September 2021 – up almost $50 billion from $174 billion in March 2020.

In fact, in the September 2021 quarter alone, offset account balances increased by 10%.

All of this has helped contribute to mortgage holders now being, on average, 45 months ahead on their repayments – up from 32 months prior to the pandemic.

In terms of the various ways Australians have gotten ahead, 57% of prepayments came from offset accounts, 40% via available redraw balances, and 3% through other excess repayments.

So what’s an offset account?

Basically, an offset account is a regular transaction account that is linked to your home loan.

The advantage is that you only pay interest on the difference between the money in the account and the mortgage.

Some banks allow you to have 10 offset accounts attached to your mortgage, too, with cards linked to them that you can use for everyday spending.

How exactly does it work?

Say you owe $350,000 on your mortgage, and have $50,000 in a savings account.

If you move that $50,000 into a full offset account, you’ll only pay interest on $300,000 (which is the loan value minus the amount in your offset account).

The offset account can then continue to be used for all your daily needs, like receiving your salary or withdrawing cash.

So why would you consider an offset account over a savings account?

With the RBA’s cash rate at record low levels, the interest rate you’ll receive on the balance in your bank’s savings account is also at record low levels too.

Say for example that you had a savings account with a 1% interest rate and a mortgage with a 2.2% interest rate.

By allocating money into your full offset account, you’d save more money on interest than you would earn in your savings account.

Additionally, interest on your savings accounts is subject to tax, whereas the interest-saving on your mortgage isn’t.

Is an offset account for you?

Of course, there are additional factors you’ll want to consider, such as account keeping fees and the minimum amount needed in the account to make it useful.

And obviously, savings accounts and offset accounts are not the only two places you can park your hard-earned money. Depending on your risk appetite, there are other options you could consider that might yield a higher return.

The long and the short of it is everyone’s situation is different, but if you think an offset account might be for you, get in touch and we can help you explore 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.

2022 forecast: places where housing prices aren’t slowing down

National housing values grew 22.1% in 2021, and there are two capital cities and one region in particular that are not ready to slow down just yet. Can you guess where?

Happy New Year everyone! To kick off 2022, we’re looking at how the property market performed across 2021, and what we can expect over the next 12 months.

The most recent CoreLogic data reveals there’s a two-speed housing situation emerging across the country, with prices in Sydney (+0.3%), Melbourne (-0.1%) and Perth (+0.4%) slowing down in December.

On the other hand, Brisbane (+2.9%), Adelaide (+2.6%) and regional Queensland (+2.4%) are set to defy 2022 slowdowns, with CoreLogic saying there’s “no evidence of their growth slowing just yet”.

In fact, the monthly rate of growth for each of these regions reached a new cyclical high in December.

“In Brisbane and Adelaide, housing affordability is less challenging, advertised stock levels remain remarkably low and demographic trends continue to support housing demand,” explains CoreLogic’s Research Director Tim Lawless.

Hobart (+1%), Canberra (+0.9%), and Darwin (+0.6%) meanwhile performed smack bang in the middle of the pack in December.

So what’s causing the slowdown in other markets?

The annual housing value gains in the nation’s two biggest cities, Sydney (+25.3%) and Melbourne (+15.1%), were stellar in 2021.

But momentum has slowed sharply, with both cities recording their softest monthly reading since October 2020.

The slowing trend can partly be explained by a bigger deposit hurdle caused by higher housing prices alongside low-income growth, says Mr Lawless, as well as negative interstate migration.

“A surge in freshly advertised listings through December has (also) been a key factor in taking some heat out of the Melbourne and Sydney housing markets,” adds Mr Lawless.

Slower conditions across the Perth housing market, meanwhile, may be more attributable to the disruption to interstate migration caused by extended closed state borders.

“This has had a negative impact on housing demand,” adds Mr Lawless.

So what can we expect in 2022?

For starters, housing stock is very low across regional Australia in particular, with advertised stock levels finishing the year 35.9% below the five-year average.

This compares to combined capital cities seeing stock 14.2% below the five-year average.

“It is likely regional markets, especially those with lifestyle appeal, will continue to benefit from higher demand as remote working policies are more normalised, and demand for holiday homes remains strong amid continued international border restrictions,” says Mr Lawless.

“However, as interest rates begin to bottom out, and affordability constraints extend to regional markets, these housing markets may also move into a downswing phase over the course of 2022.”

And while sellers held the upper hand at the negotiation table in 2021, buyers are expected to regain some leverage in 2022.

That’s because the average time properties spend on the market is beginning to increase, while auction clearance rates are trending down.

Need help to finance your 2022 purchase?

The juxtaposition of higher housing values against low-income growth has resulted in higher barriers to entry.

“It is becoming increasingly harder to raise a deposit and fund transactional costs such as stamp duty,” says Mr Lawless.

This is why it’s never been more important to have a broker like us in your corner when it comes to securing your next property purchase, be that your dream home or adding to your investment portfolio.

In this current market, it’s also important to know your borrowing capacity before you start house hunting so you don’t stretch yourself beyond your limits.

So if you’d like to find out what you can borrow – get in touch today. We’d love to sit down with you and help you map out a plan for your 2022 property goals.

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.

Season’s greetings! Here’s to a prosperous 2022!

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To all our terrific clients: thank you for your ongoing support and for being such wonderful, loyal clients.

We are always so appreciative of any opportunities – be they big, small, or anywhere in between!

Life has thrown many of us all sorts of challenges these past two years, so we hope you’re shifting into holiday mode and getting ready to relax and unwind (or looking forward to a few public holidays at least!).

Whether you’re planning to feast alongside family and friends you haven’t seen in a while, or go on a long-overdue holiday somewhere a little more exotic than your local park, we hope you have a Merry Christmas and Happy New Year!

It’s been an absolute pleasure and an honour working with you towards your lifestyle and business goals in 2021. We look forward to helping you towards a prosperous 2022!

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.

Up to 4,600 first home buyer guarantees back up for grabs

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Want to buy your first home with a deposit of just 5% and pay no lenders’ mortgage insurance? You could be in luck – the federal government will soon reissue up to 4,651 unused Home Guarantee Scheme spots.

First home buyers who use the Home Guarantee Scheme fast track their property purchase by 4 to 4.5 years on average, because the scheme means they don’t have to save the standard 20% deposit.

The government usually issues spots in the scheme once a year (July 1), but this time it’s reissuing guarantees that went begging earlier.

Where are these extra spots coming from?

The government states the scheme will reissue “up to” 4,651 unused guarantees for first home buyers from the 2020-21 financial year.

It adds many of the spots have been unused because of COVID disruptions, but it’s unclear exactly how many guarantees will be made available.

It’s also unclear exactly when the spots will be reissued, with the government entity overseeing the scheme – the NHFIC – saying it’s working with its panel lenders and “looks forward to reissuing unused guarantees soon”.

All in all, that means we’re going to have pretty short notice of when these spots officially become available to apply for, and they could be in short supply.

So if the guarantee is something you’re interested in, you’ll want to get in touch with us today so we’re ready to act when the spots do drop.

Back up, what’s the Home Guarantee Scheme?

Ok, so the Home Guarantee Scheme is broken up into three separate schemes: two for first home buyers, and one for single parents called the Family Home Guarantee scheme.

At this stage, it’s believed (but not confirmed) that the reissued spots will mainly be for the first home buyers through the New Home Guarantee scheme (new builds) and First Home Loan Deposit Scheme (includes existing builds).

These two schemes allow eligible first home buyers to build or purchase a home with only a 5% deposit, without forking out for lenders’ mortgage insurance (LMI).

This is because the federal government guarantees (to a participating lender) up to 15% of the value of the property purchased.

Not paying LMI can save buyers anywhere between $4,000 and $35,000, depending on the property price and deposit amount.

There are price caps on eligible properties, ranging from $950,000 for new builds in Sydney, ​​Newcastle, Lake Macquarie and Illawarra, down to $350,000 for existing properties in regional South Australia.

A full list of the price caps can be found here.

Get in touch today to get the ball rolling

With these schemes, allocations are generally granted on a “first come, first served” basis.

And it’s worth re-iterating that spots this time will be limited and will likely fill up fast.

So if you’re a first home buyer looking to crack into the property market sooner rather than later, get in touch today and we can explain the schemes to you in more detail.

And when the reissued spots become available, we can help you apply for finance through a participating lender.

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.

How many SMEs find it difficult to repay business loans?

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Ever thought about taking out a loan for your business but hesitated because you were worried about meeting your repayments? Don’t worry, it’s a common concern. But some promising data has just come out that might help you put those fears aside.

You gotta spend money to make money, so the saying goes.

But what if your business’s cash flow has been heavily impacted this year due to COVID-19? What options do you have at your disposal?

Well, according to the Australian Banking Association’s latest report, $10 billion in new lending was made to small businesses in the three months to August 2021 – a 26% jump ($7.9 billion) on last year.

Which means as many as 50% of SMEs now hold a borrowing product of some sort.

So while taking out finance for your business might feel daunting, rest assured it’s something most businesses do, and there are a range of different finance products and options available to suit businesses of all shapes and sizes.

How difficult do most businesses find it to pay back loans?

So, here’s the good news.

Despite the difficult business conditions during 2021, just 1-in-6 small businesses (16%) found it difficult to meet their financial commitments.

That’s opposed to 41% of SMEs that found it “easy” or “very easy”, while 36% were indifferent.

And many of these businesses are taking out finance to help keep their doors open and operations running smoothly.

The top reason small and micro businesses gave for recently seeking finance was to ‘maintain short-term cash flow or liquidity’ (about 50%), while the second most common reason was to ‘ensure survival of the business’ (about 40%).

Replacing, upgrading or purchasing equipment or machinery came in third (20-30%).

Want to explore your finance options?

The SME lending space is an evolving one, with a surge of new lenders and products recently hitting the market.

And as brokers, we’re constantly upskilling and learning to make sure we stay abreast of the expanding options available to small business owners.

So if you’re an SME owner who might be in need of funding, get in touch today.

The sooner we can discuss your options with you, the better placed your business can be to hit the ground running in 2022 and thrive beyond.

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.