Goodbye stamp duty?

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The dreaded and controversial stamp duty tax could soon be a thing of the past, with calls for it to be abolished gaining momentum.

The Property Council of Australia is the latest body to add their voice to the chorus this month after both the NSW and Victorian state governments ramped up calls for stamp duty reform.

Axing the controversial tax is a key measure being proposed in the Property Council’s Seven Point Plan for Economic Recovery, released this week, to help kickstart economic recovery across the nation.

“Stamp duty is a terrible tax,” the Property Council’s chief executive Ken Morrison recently explained to the AFR, “every economic analysis puts it at the top of their list of worst taxes. For every $1 raised it does about 80c of harm.”

What is stamp duty and how much does it cost?

Stamp duty is a government tax on certain transactions, including when you buy a motor vehicle, an insurance policy, or for the purposes of this article: a piece of real estate.

In a nutshell, state treasurers and many economists want reform in this space because stamp duty is volatile – it rises during property booms and shrinks during downturns.

Now, how much it costs will depend on where you live, and the value of the property you’re buying.

Most states have stamp duty exemptions or concessions in place for first home buyers, but that doesn’t help out those looking to expand their property portfolio.

The tax also acts as a barrier to older Australians who want to downsize and unlock their wealth.

So how much does stamp duty usually cost? Well, as luck would have it, Domain just released a summary of the stamp duty costs for median-priced homes in each capital city:

Sydney: $49,586 (house) or $28,942 (unit)
Melbourne: $50,171 (house) or $28,328 (unit)
Hobart: $18,847 (house) or $15,351 (unit)
Adelaide: $23,663 (house) or $12,522 (unit)
Perth: $19,063 (house) or $10,679 (unit)
Canberra: $23,914 (house) or $9396 (unit)
Brisbane: $12,165 (house) or $4342 (unit)
Darwin: $4,868 (house) or $0 (unit)

Those figures are for non-first-home buyers who are purchasing established properties.

So what would replace stamp duty?

The NSW government is considering a broad-based property tax (aka land tax).

Victorian Treasurer Tim Pallas meanwhile, says a review of the state’s revenue base after the COVID-19 pandemic is needed, but he’s not sure that switching from stamp duty to land tax is the way to go.

“It’s a bit like a Mills & Boon novel: it might be satisfying and uplifting to read, but getting to that point without causing major trauma to the community is a very serious consideration,” he said.

Another option being floated by the Property Council is to replace stamp duty revenue by broadening the GST base.

What to do in the meantime?

As mentioned earlier in the article, most states and territories already have certain exemptions and concessions that apply when it comes to stamp duty, particularly for first home buyers.

Generally, it depends on the price of the property you have purchased, or if it was off-the-plan, as to whether you’ll be eligible.

And obviously, the less stamp duty you pay, the more of your hard-earned-money you can put towards your home loan deposit.

So if you’d like a hand figuring it all out please get in touch – we’re happy to help you crunch the numbers.

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.

Relief for SMEs: tardy paying companies given final notice

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Promising news for SMEs this week: supply chain financing provider Greensill has given late-paying companies formal notice that it will ditch them if they continue to extend their payment terms beyond 30 days.

This is good news for SMEs because cash flow problems – which are often caused by, or exacerbated by, late payments – are one of the biggest reasons for small businesses failing.

So what exactly has happened?

Well, back in February, supply chain financing (SCF) provider Greensill informed all Australian clients that they must not push out payment terms to SME suppliers beyond 30 days.

The multi-billion-dollar company, founded by Bundaberg-born, London-based financier Lex Greensill, says virtually all of its clients in Australia have complied (keyword: “virtually”, but more on that soon).

“Greensill has allowed a period for the remaining clients to complete their internal reviews stemming from our request,” a Greensill statement says.

“We have given formal notice to those clients that their SCF facilities will be discontinued unless they ensure that they do not use our SCF facilities to push out payment terms to SME suppliers beyond 30 days.”

So, who’s still holding out?

Australian Small Business and Family Enterprise Ombudsman Kate Carnell has the answer on that one.

She says it’s clear Greensill’s statement is in relation to its dealings with contractor UGL, owned by construction firm CIMIC – Australia’s biggest construction company.

“UGL has reportedly extended its payment terms to its small business suppliers to 65 days from the end of [the] month the invoice is lodged, offering supply chain finance to those that want to be paid earlier and are willing to take a discount on the invoiced amount,” Ms Carnell explains.

“This is an example of clear misuse of supply chain finance as outlined in our recently released Supply Chain Financing Review. Practices such as this are harmful to small businesses, especially in the current challenging environment.”

The promising news is that according to the AFR, CIMIC has now put its controversial SCF scheme “under review”.

So what exactly is supply chain financing?

SCF, also known as supplier finance or reverse factoring, can free up cash flow for both the SME business that sends the invoice to be paid, and the company that owes the money.

It does this by the SCF provider acting as a facilitator between the two.

Here’s a quick example: let’s say Big Business Inc (buyer) orders some machine parts from Little Joe Traders (supplier).

Little Joe then sends the invoice to Big Business Inc, which approves the invoice and confirms that it will pay the SCF provider for the invoice at the invoice’s maturity.

Little Joe then has two options: 1) Patiently wait for the invoice’s payment terms to be met and paid in full; or 2) Get paid earlier by the SCF provider, but at a discounted rate.

Often Little Joe’s decision will depend on his cash flow requirements at the time.

So what’s the problem?

Normally nothing. When done right “it’s an excellent concept for both buyer and seller”, says Clive Isenberg, chief executive of Octet, which specialises in supply chain financing for smaller companies.

But the risk, as Mr Isenberg points out, is that if your business is supplying the big end of town, you can become overly reliant on them and have to play by their rules.

“You are being constantly pressurised to follow the way they’re going. You’ve got to agree to their payment terms,” he told the AFR.

Need a cash flow solution for your business?

As you’re well aware, business cash flow solutions aren’t exclusively for the big end of town.

There are plenty of products that cater to SMEs’ many different needs.

So if you’d like to explore some of the options available to your business, then please get in touch – we’re happy to run you through them.

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.

Cash rate to remain at record-low level until 2023: experts

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Here’s a bit of welcome news for mortgage holders: Australia’s record-low cash rate is likely to remain in place until 2023, according to leading economic and property experts.

In March, the Reserve Bank of Australia (RBA) called an emergency meeting, cutting the cash rate for a second time that month and taking it to a record-low of 0.25%.

It capped off an action-packed 12 months, with a total of five rate cuts since May 2019.

But for avid followers of the RBA’s cash rate, “the next few years are likely to be pretty boring”, says AMP Capital chief economist Shane Oliver.

The outlook

CoreLogic, the nation’s largest provider of property information and analytics, predicts the cash rate will stay at 0.25% until 2023.

“The RBA has previously been clear that the cash rate won’t move higher until inflation is well within the 2-3% target range and labour market indicators are trending towards full employment, implying an unemployment rate around the 4.5% mark,” says CoreLogic.

However, the RBA has recently indicated unemployment is likely to peak around 10% in June and inflation could turn negative over the coming months.

“Arguably, it’s safe to assume neither of these indicators [inflation or unemployment] will be in a position to trigger an increase in the cash rate target for at least the next couple of years,” CoreLogic adds.

Westpac Chief Economist Bill Evans agrees with that timeframe, as does AMP’s Mr Oliver.

“We expect that the overnight cash rate is unlikely to be lifted before December 2023,” says Mr Evans.

What does this mean for your home loan?

Put simply: the current cash rate means extremely low mortgage rates, and tough competition amongst lenders.

“Average variable mortgage rates for owner-occupiers are below 3% while investor variable mortgage rates are in the low 3% range,” CoreLogic says.

“Fixed-term mortgage rates are even lower. Such a low cost of debt is a key factor that should help to support housing demand as the economy emerges from the COVID-19 hibernation.”

So what’s your next step?

Well, with all the above in mind, now’s a great time to consider your refinancing options.

And CoreLogic says it’s already seeing more and more homeowners do just that.

“We continue to see refinancing … at elevated levels relative to the same time last year as mortgagors seek out the most competitive interest rates available,” it says.

So, if you too would like to explore your refinancing options, then please get in touch – we’re ready to jump into action and make it happen for you.

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.

The big questions we’re receiving from first home buyers

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It’s fair to say it’s an unusual time to be a first home buyer. But there are still opportunities out there for those whose jobs haven’t been affected by COVID-19. 

Here are five key talking points we’ve been regularly discussing with first home buyers in the current market.

1. Is the First Home Loan Deposit Scheme (FHLDS) still available?

Many first home buyers have been saving their home loan deposit over the last 5-10 years, trying to reach that magic 20% figure where you don’t have to pay Lenders Mortgage Insurance (LMI).

But a new path recently opened up for first home buyers: the FHLDS.

Places in the scheme, which started on January 1, are still available and can allow eligible first home buyers to purchase a property with a deposit of just 5% without having to pay LMI.

If you’d like to take advantage of the scheme, give us a call and we can help you through the process.

2. Has it become tougher for first home buyers to get a loan in recent months?

This will depend on your individual situation and how much coronavirus has impacted your household’s bottom line.

Interestingly, though, the latest Australian Bureau of Statistics data doesn’t suggest it was any tougher for first home buyers to get a loan in February than the previous few months.

Indeed, over the month, home loans for owner-occupier first-home buyers increased by 0.4%.

That said, COVID-19 didn’t really start impacting the Australian economy until March, so we’ll keep monitoring the data for you in coming months.

3. I heard QBE is no longer insuring borrowers from distressed sectors?

One of Australia’s largest insurance groups, QBE, has temporarily suspended offering LMI to specific groups of new mortgage borrowers, such as those working in hospitality, tourism, gyms and beauty salons.

The good news is that Australia’s other major LMI provider, Genworth, told the AFR it has no plans to change its existing position on LMI, stating that it trusted lenders to “apply responsible lending standards and assess applications on their merits”.

Also, if you’re taking out your first home loan through the FHLDS, remember that the whole point of the scheme is that you don’t have to pay LMI – so that’s another reason to consider applying.

4. Are lenders requiring evidence that my income will be stable?

In the current COVID-19 climate, it’s safe to say that lenders will be scrutinising your income and will require sound evidence that your income will be stable.

This shouldn’t create too big a headache for those employed in essential services, such as a Coles permanent employee, a pharmacist, or an IT professional in a government department, for example.

But others in less coronavirus-proof industries may find it more difficult to prove their income is stable.

For example, some lenders are no longer accepting bonus income for borrowers outside essential services, unless their employer can write a letter to say that the bonus will continue to be paid out at the current level.

Your best bet is to give us a call – we can run through your situation and help you identify any areas that may be an issue in advance.

5. I heard valuations are coming in lower than the contract price?

There’s no shortage of recent stories out there of valuations coming in lower than the contract price, and the gap is proving difficult for some off-the-plan buyers to make up.

So if you’re a first home buyer and you’re worried about a lower valuation then please get in touch. We can run through the options that may be available to you to make up the shortfall, including going through the FHLDS (mentioned above).

Give us a call

Buying your first home can be a bit overwhelming at the best of times, let alone during a period of uncertainty and rapid change. Rest assured though that we’re on top of it.

So if you’d like us to help you explore your options and secure a competitive home loan then please get in touch – we’re ready to jump into action and make it happen for you.

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.

What is the Coronavirus SME Loan Guarantee Scheme?

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SME businesses in need of working capital due to the coronavirus outbreak can now access unsecured loans “more cheaply and more freely” than ordinary business loans.

The initiative is part of the government’s $40 billion Coronavirus SME Loan Guarantee Scheme, which kicked off just before the Easter weekend.

Because the government will guarantee 50% of the new loans, lenders can offer the loans “more cheaply and more freely” compared to ordinary business loans, says the Australian Banking Association.

The loans will be in the form of unsecured finance, meaning that borrowers will not have to provide an asset as security for the loan.

Furthermore, no payments are required from the business on these loans for the first six months (however interest will capitalise during the repayment holiday).

Eligibility requirements

The government will provide eligible lenders with a guarantee for loans with the following terms:

– eligible SMEs, including sole traders, must have a turnover of less than $50 million

– maximum loans of $250,000 per borrower

– loans will be up to three years, with an initial six month repayment holiday

– unsecured finance, meaning that borrowers will not have to provide an asset as security for the loan.

The decision on whether to extend credit, and management of the loan, will remain with the lender.

Want to apply?

Participating lenders are already accepting applications from SMEs. So if you’re looking to bridge a gap in your business’s cash flow, please give us a call.

We’re more than happy to discuss your eligibility and more features of the scheme.

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.