Buy now, pay later schemes putting young shoppers at debt risk

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One in six customers who use payment methods such as Afterpay and Zip Pay run into financial strife – and ASIC is putting the ‘buy now, pay later’ industry under the spotlight.

ASIC’s first review of this evolving market finds that buy now pay later arrangements are having a negative impact on spending habits, especially those of younger consumers.

Six buy now pay later providers were reviewed, including Afterpay, zipPay, Certegy Ezi-Pay, Oxipay, BrightePay, and Openpay.

Over-commitment

ASIC identifies a real risk that some buy now pay later arrangements increase the amount of debt held by consumers and contribute to financial over-commitment.

It finds that 1 in 6 users (16%) believe they have experienced at least one type of negative financial impact due to a buy now pay later arrangement.

In fact, 7% delay paying other bills, 5% borrow money from family or friends, and 4% get a loan or cash advance on their credit card to pay the money back.

Those who do pay it off on time? Well, 1 in 4 users (23%) use a credit card to make their repayments anyway.

Users are young and earn less

Interestingly, 60% of buy now pay later users are aged between 18 and 34 years old and more than 2 in 5 users (44%) have an annual income of less than $40,000.

Prices sometimes inflated

Each provider in ASIC’s review contractually prevents merchants from charging consumers higher prices for using a buy now pay later arrangement.

However, ASIC has received anecdotal evidence that some merchants may be charging consumers significantly higher prices for using a buy now pay later arrangement for purchases over $2,000, or where the price is less transparent and ‘negotiable’ (eg. solar power products, services).

More expensive, spontaneous purchases

Buy now pay later arrangements result in 81% of consumers buying a more expensive item than they would have otherwise been able to afford.

Seven in 10 users are now also making more spontaneous purchases.

As a result, as of 30 June 2018, there was a whopping $903 million in outstanding buy now pay later balances across Australia. That’s $37 for every man, woman and child in Australia.

Potentially unfair contracts

Finally, in ASIC’s view, each buy now pay later provider includes terms within their standard contracts that are potentially unfair to consumers.

They also provide a very broad range of circumstances under which a consumer will be regarded to be in ‘default’ and hold consumers liable for unauthorised transactions, even when the provider knows or suspects the transaction may be unauthorised.

What next?

Given the potential risks to consumers, ASIC has supported extending proposed product intervention powers to all credit facilities regulated under the ASIC Act.

Basically, this would provide ASIC with a much more flexible tool kit to address emerging products and services such as buy now pay later arrangements.

It could also ensure ASIC can take appropriate action where significant consumer detriment is identified.

What you can do in the meantime, however, is only shop for items you can afford through better budgeting so that your important debts, such as your mortgage, don’t become stressed from a flow-on effect.

That’s something we can help you with.

And if you do really want something that you need to take out a loan to purchase an item such as a car then give us a call.

There are a number of reputable and responsible lenders to choose from that operate under the National Consumer Credit Protection Act, unlike buy now pay later providers.

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 round up: NSW overhauls stamp duty, NAB increases rates

There’s been a couple of fairly big property-related announcements recently, including a stamp duty overhaul in NSW and NAB increasing interest rates. Let’s break down what they could mean for you.

NSW stamp duty overhaul

First, let’s start with the good.

The NSW Government recently announced it will peg stamp duty to the rate of inflation. It’s the first state to do so after leaving its current system largely unchanged for over 30 years.

In a nutshell, the seven different price brackets that determine how much stamp duty NSW homebuyers pay will be adjusted to the Consumer Price Index (CPI).

Why does this matter?

Well, over the past 15 years the average rate of stamp duty in NSW rose from 3.37 per cent to 4.05 per cent.

At the same time, the median house price in Sydney rose from around $400,000 to $1 million.

The NSW government says the changes, which are effective from July 1, will ensure the tax on housing does not continue to grow.

The immediate savings will be “modest” – think in the ballpark of $500 by 2021 – but they will become more substantial for home buyers over the long run.

A couple of quick examples to break it down

If stamp duty brackets had been indexed to CPI 15 years ago, for example, the amount payable on a $500,000 home would be around $2000 lower today.

Meanwhile, the amount payable on a $1.5 million home would be around $6400 lower.

“Whether you are a first homebuyer, a downsizer or upgrading to the family home you will ultimately benefit as a result of this reform,” says NSW Treasurer Dominic Perrottet.

So will other states follow suit? Well, that remains to be seen, but this is a great first step.

NAB Increases mortgage rates for new borrowers

Ok, now time for the not-so-good news.

The National Australia Bank (NAB) recently announced it’s slashing the discount offered to new borrowers from 0.48% to 0.30%.

That effectively translates to a rate of 3.87%, up from 3.69%.

The new rate applies to all new principal and interest loan customers. The good news is that NAB has committed to keeping its standard variable rate on hold for existing customers for as long as is reasonably possible.

What next?

NAB’s move comes just two months after Westpac, CBA and ANZ raised their own interest rates.

At the time, NAB said it wouldn’t raise rates so that it could rebuild trust with customers following the Royal Commission report into mortgage lending practices.

The big question is: will the other banks follow suit once again and increase rates further? That remains to be seen, but the message is clear: interest rates are going up.

Actions you can take to combat rising interest rates include shopping around, locking in a rate, or consolidating your debts.

If you’d like help putting any of the above strategies into place, get in touch with us today. 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.

6 Christmas tips to help you save this silly season

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Most of us roll our eyes when we start seeing shopping centres spruik Christmas merchandise in November. While it’s important not to get caught up in the festivities too early, now’s actually a great time to start prepping to ensure a budget blow-out doesn’t derail your mortgage repayments over the silly season.

The best bit? By following some of the below tips, you can turn the retailers’ early mind games against them and save money instead!

1. Buy food ahead of time

Christmas time tends to lead to a lot of socialising. Even if you aren’t the one catering, requests to bring a plate can add up over time.

Make a point of keeping an eye out for food and drinks specials ahead of time and buy items like boxes of chocolates, long life snacks and drinks when they are on special. That will make it much easier to stretch the food budget over Christmas.

2. Opt for Secret Santas

For people who have a large family or friendship circle, Christmas can lead to a long list of presents to buy. Many people prefer not to get extra clutter for their kids, so suggest a Secret Santa arrangement instead of buying for every person.

This way you can put more thought into each gift as well as not creating more stress.

3. Homemade wrapping paper

If the end of term results in your kids bringing home sheets of artwork, why not recycle these and use them for wrapping paper for the extended family?

Not only does this mean that the kids get to see their artwork being passed on to loved ones, but it also saves you money on buying wrapping paper that will be in the bin by Christmas morning.

4. Shift the focus

Rather than dwelling on social media posts of the perfect Christmas morning with matching pyjamas, shift your focus to the true meaning of Christmas: helping others who are less fortunate.

For instance, instead of getting new books for Christmas Eve story time you could choose books from the library and make a donation to charity that helps literacy in at-need communities.

5. Keep a track of your spending

With a large percentage of Australians overspending at Christmas (and feeling guilty about it), it’s important to keep a budget for Christmas and any associated events – like holidays – over that time.

By following a budget, and starting now, you can spread out your spending – $200 a week over five weeks is much better than $1000 in the week before Christmas.

6. A final few tips

– Create a list of who you need to buy for and brainstorm present ideas before you go shopping.

– Make your own gifts.

– Buy online when sales specials are on. This can help you avoid pressure from sales staff and impulse purchases.

– If hosting a Christmas day event, organise it early so attendees can help out with the food and drinks.

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.

Guidance needed for borrowers, industry body says

Property owners and prospective first home buyers are increasingly in need of clear guidance on home lending as the housing markets in Melbourne and Sydney begin to cool, says the Housing Industry Association (HIA).

The RBA on Tuesday again resolved to leave the official cash rate on hold at 1.5%, noting that the current settings continue to offer appropriate support for the Australian economy.

Borrowers are uncertain

Despite the stable cash rate, Geordan Murray, HIA Senior Economist, says borrowers are still wary of any potential hike in their borrowing costs.

“In the post GFC era lenders have frequently adjusted home loan rates independently of movements in the official cash rate in order to ensure that their lending rates more accurately reflect their true cost of capital,” explains Murray.

Clear guidance needed

Murray adds that as the housing markets in Melbourne and Sydney continue to cool it will be increasingly important that households have clear guidance on any potential changes they may face in home lending.

While industry guidance is great, having a trusted professional (that’s us!) watching out for market changes on your behalf is even better.

That’s because over the last couple of years there has been an additional degree of complexity in the home loan market – and we can help decipher what that all means for you.

“Lenders have been squeezed by regulators which led to a degree of credit rationing and higher borrowing costs for investors and those wishing to borrow in interest only terms,” explains Murray.

Why were lenders squeezed?

A while back APRA – the regulator – introduced a range of measures that tightened lending standards to curb growth in risky lending.

“APRA’s interventions were appropriate at the time that they were implemented. (However) the housing downturn now has its own momentum and does not need additional assistance from the regulator,” says Murray.

In fact, recent figures published by the RBA show that growth in housing credit to investors has dropped to a historic low and owner-occupier lending growth is also now slowing.

“The housing market is now in a very different position to the time when APRA imposed the restrictions. We have already seen the speed limit on investor lending dropped but other restrictions remain,” says Murray.

“It will be important for the RBA, APRA and the federal government to monitor developments in the housing market and ensure that we have appropriate policy settings to ride out the cyclical downturn smoothly.”

Want some guidance?

As Murray explains, now more than ever borrowers are needing someone to help guide them through uncertain lending times.

That’s where we can help.

We have our ear to the ground when it comes to all industry movements, which means you don’t have to stress about doing so.

So if you’d like to find out more about how we can help you navigate the tricky lending times ahead, get in touch today.

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.