Four ways to dive into the property market with a smaller deposit

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Three-in-five prospective first home buyers intend to buy soon with a smaller deposit, rather than wait until they have saved a 20% deposit. So how do they plan on doing so?

It usually takes between seven to 14 years for first home buyers to save a 20% first home deposit, according to a new report by Genworth on recent and prospective first home buyers (FHBs).

With that in mind, it’s no wonder that 59% of prospective FHBs are eagerly exploring their options to buy now in the current market, rather than risk waiting until house prices rise.

Indeed, about two-thirds of recent and prospective FHBs are of the opinion that property prices will stabilise or increase over the next 12 months.

So what options are available for prospective FHBs with a deposit of less than 20%?

Option 1: First Home Loan Deposit Scheme

The first option, which doesn’t come into play until 1 January 2020, is the Federal Government’s ‘First Home Loan Deposit Scheme’, which three in four prospective FHBs intend to apply for.

Under the scheme, some FHBs will be able to borrow up to 95% of the value of their property without forking out for Lenders Mortgage Insurance (LMI).

But with the scheme limited to just 10,000 FHB loans each year, and the number of Australians who bought their first home in 2018 totalling 110,000, it’s important to have a Plan B up your sleeve.

Option 2: Paying Lenders Mortgage Insurance

In recent times, one-in-three FHBs have opted to bite the bullet and fork out for LMI in order to secure a home loan with less than a 20% deposit.

LMI usually costs between $3,000 and $13,000, depending on the size of the home loan and how much of your deposit you’ve saved.

It’s an insurance policy you’re generally required to take out if you have a deposit of less than 20% (it reimburses a lender if you fail to make repayments and your home is repossessed and sold for less than its outstanding mortgage debt).

Option 3: Bank of Mum and Dad

The third option, which is being considered by one-in-four prospective FHBs, is to ask the ‘Bank of Mum and Dad’ for assistance.

Of recent FHBs that pursued this strategy, 28% had their family gift them some money, 21% had their family lend them some money, and 16% had their family act as guarantor.

Option 4: Off-the-plan

The fourth option, which is not covered in the Genworth report, is to buy off-the-plan, which often requires a deposit of 10% to be paid to the developer to secure the property.

This means you’ll have more time to save for the remaining 10% before settlement while the property is being built.

That said, buying off the plan isn’t without its risks, so be sure to do your research on every facet of the development that happens to catch your eye (the internet is littered with stories of off-the-plan purchases that have gone awry).

Get in touch

If you’re a prospective FHB and you want to find out more about entering the property market sooner rather than later, please get in touch.

We’d be more than happy to run you through your options if you’re looking to buy a home with a deposit less than 20%.

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.

Ever dreamed of starting your own business?

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Ever been tempted to tell the boss you’re leaving to start your own business? You’re not alone. In fact, more than nine million Aussies dream about becoming their own boss.

However, the biggest hurdle for 60% of those people (5.4 million) is ‘access to money’, according to research commissioned by the Australian Banking Association (ABA).

The percentage is even higher for women and young people. Indeed, two-thirds of women and people aged 18 to 34 believe access to finance is stopping them from fulfilling their entrepreneurial dreams.

What’s holding most people back?

It’s fair to say there’s no shortage of entrepreneurial self-promoters plugging their brands on Instagram and LinkedIn these days, which could give you the impression that plenty of people are reaching out for business finance.

But small business loan applications have actually declined by 33% since 2014, according to the ABA report.

That is despite 94% of small business loans being approved by lenders, not to mention record low interest rates.

“There could be many reasons for the downturn, including people believing that they won’t get a loan, thinking it takes too long, deeming the application process is too complex, or they’re simply borrowing money from other sources,” acknowledges ABA CEO Anna Bligh.

Why seek finance?

Well, besides obtaining access to the initial capital that’ll allow you to become your own boss, business finance can also allow you to grow your business more quickly.

That’s important, because the bigger your business, the better its chance of survival.

For example, while almost two-thirds of businesses in Australia are sole traders, only 60% of sole traders who were operating in June 2014 were still in business by June 2018.

That number increased to 70% for businesses with 1-4 employees, 78% for 5-19 employees, and 82% for 20+ employees.

Meanwhile, the main reasons businesses seek finance are to maintain short-term cash flow or liquidity (40%), to ensure the survival of business (32%) and to replace equipment or machinery (24%).

Want to get started?

To help prospective small business owners the ABA has created an educational website, which includes a suite of resources demystifying business financing.

Once you think you’re ready to apply for finance, get in touch. As the ABA points out, one of the key benefits of using a finance broker like us is that we handle the paperwork and assist you every step of the way.

And because we have developed professional relationships with lenders, we may also be able to reduce the processing time for your application.

Last but not least, we can review your current financial position, as well as your business case, to help match your funding needs to finance available in the market.

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.

Buy now, pay now: the importance of budgeting for gifts

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How much do you think the average Aussie spends on gifts each month? $20, $50 or 100? (hint: we’re a generous bunch). Today we’ll look at why it’s important to budget for these expenses correctly, rather than succumbing to ‘buy now, pay later’ services.

Did you know Australians spend nearly $20 billion a year on gifts?

That’s about $1,200 each per year, or $100 a month, according to a new research report by the Financial Planning Association of Australia (FPA).

It turns out that Gen Y is by far the most generous age bracket (25-39), spending $130 on gifts each month, well ahead of Gen Z ($91), Boomers ($89) and Gen X ($87).

The importance of budgeting for gifts

Ok, so here’s where this feel-good story starts to get a tad concerning: three in four Australians (73%) do not budget for gifts at all.

Now, with the average gift costing between $66 and $137 (depending on the occasion), that’s enough for some households to turn to ‘buy now, pay later’ services.

And make no mistake: these ‘buy now, pay later’ services are booming.

Market leader Afterpay saw its shares rise by 8% this week alone, with the company now valued at more than $7 billion.

In fact, in the 12 months to January 2019, 1.59 million Australians used one of the latest ‘buy-now-pay-later’ digital payment methods, with a whopping 40.6% of its customers being Millennials.

That’s right – Millennials, who are not only by far the most generous gift-givers, but are also seeking to enter the mortgage market for the first time.

So what’s the big deal?

According to recent media reports, lenders are increasingly trawling through bank statements for evidence of outstanding ‘buy now, pay later’ accounts when prospective borrowers apply for a loan.

In one incident, a 21-year-old NSW woman said a couple of hundred dollars worth of Zip Pay purchases, all of which had been paid off, almost prevented her from getting a bank loan to buy her first car.

“I honestly never thought it would impact me being able to get a loan. I am now petrified of using it at all, as I really want a house,” she said.

In another incident, a big 4 bank knocked back a 26-year-old Perth woman’s mortgage application after discovering she had an outstanding Afterpay balance.

These are just two examples of the importance of making sure you factor gifts into your monthly budget to ensure you aren’t setting off a lender’s warning bell by using ‘buy now, pay later’ services.

Need help getting your accounts in order?

If you’ve used a ‘buy now, pay later’ service to buy a gift for a friend, family member or even yourself, there are steps you can take to help minimise the impact it might have on your next loan application.

Your most obvious course of action is to pay it off as soon as you can, and then avoid using the service again in the future.

And look, let’s be honest, no one likes a Scrooge, so your next step would be to ensure you’re including an allocated (and realistic) amount for gifts in your monthly household budget moving forward.

If you’d like to know more, or want a hand getting your monthly budget in order before applying for finance, then 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.

How criminals steal your identity to steal your money

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Scams involving identity theft have cost Australians at least $16 million this year, and that figure is likely to be just the “tip of the iceberg”, says the Australian Competition and Consumer Commission (ACCC).

Worryingly, four in every 10 Scamwatch reports so far in 2019 have involved an attempt to gain information or the actual loss of a victim’s information.

“If you think scammers might have gained access to your personal information, even in a scam completely unrelated to your finances, immediately contact your bank,” says ACCC deputy chair Delia Rickard.

“Timeliness in alerting your financial institution is absolutely crucial.”

Identity thieves can empty victims’ bank accounts, take out tens of thousands of dollars in bank loans under victims’ names, and purchase expensive furniture or electronics under ‘no-repayments for 12 months’ schemes.

“Identity thieves can make victims’ lives a nightmare. They’ll change the victims’ phone carrier so they lose service and set up mail redirections so they’re in the dark about what’s going on,” says Ms Rickard.

You might not even know until you apply for finance

Here’s the really scary bit, though.

You might not even know you’ve fallen victim to identity theft until the day you have difficulty obtaining finance due to an inexplicably bad credit rating, points out ASIC.

This is why it’s important to regularly check your credit report, which you can do for free every year via MyCreditFile.com.au (Equifax) or CheckYourCredit.com.au (illion).

ASIC says if you’re a victim of identity theft you should tell the credit reporting agencies so they can note it in your file.

“Check your credit report to see what companies have checked your credit history recently, and let them know not to authorise any new accounts in your name,” ASIC adds.

You can also consider placing a temporary ban on your credit report to give you time to report the matter to police, and then send the police report to the credit agencies.

While the freeze is in place (initially 21 days, but it can be extended), the credit reporting agencies cannot share your credit report with credit providers without your consent.

If you can prove you weren’t responsible for the fraudulent transactions then you’ll hopefully be able to get your credit score fixed.

How people fall victim to identity theft

Some of the common ways that scammers obtain personal or banking information include:

– phishing emails and text messages which impersonate banks or utility providers seeking your login details
– fake online quizzes and surveys
– fake job advertisements
– remote access scams in which the scammer has direct access to everything on your computer
– sourcing information about you from social media platforms
– direct requests for scans of your driver’s license or passport, often in the course of a dating and romance scam.

“No one is really selling an iPhone for $1, or rewarding the completion of a survey with expensive electronic goods or large gift vouchers. They’re scams to get your valuable personal information,” says Ms Rickard.

If you’ve fallen victim to identity theft

Be alert to the signs of identity theft, says Ms Rickard.

“If your mobile phone suddenly loses coverage, you haven’t received expected electronic or physical mail, or you receive unexpected notifications from a financial institution, call your bank,” she says.

If you have been the victim of identity theft, contact IDCARE on 1300 432 273. IDCARE can guide you through the steps to reclaim your identity.

People can also report a scam to the ACCC via Scamwatch.

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.

Got a spare pineapple? Pay off your mortgage faster

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Reckon you could scrounge together an extra $50 each week to pay off your mortgage? If so, latest modelling shows the average household with a $400,000 loan could save $46,992 and pay off their home loan four years faster.

This week we’re going to look at the benefits of paying just a little bit more off your mortgage each week.

Now, this is quite a timely subject because the RBA has just delivered back-to-back cash rate cuts, so even if your monthly repayment amount has been reduced, there’s a lot to be gained by sticking to the same amount you’ve been paying over the last few years.

Breaking it down

One of the biggest problems people run into when trying to pay off their mortgage faster is trying to do so in big, irregular lumps.

It helps a lot more if you break it down.

So instead of trying to pay an extra $150 to $300 extra each month, break it down to a weekly amount that you can actually commit to, like $20 to $50 a week (or $3 to $7 a day – basically one or two takeaway coffees).

Breaking it down into smaller figures also helps reinforce good habits, and can help with your family’s cashflow.

Below, we’ll look at some modelling conducted by AMP that shows the benefits of setting up a weekly direct debit that will automatically pay an extra $20 to $50 a week off your mortgage.

What an extra $20 (aka a lobster or mud crab) a week gets you

– $400,000 loan: save $21,281 in interest and pay it off 1 year and 9 months faster

What $50 (aka a pineapple) a week gets you

– $400,000 loan: save $46,992 in interest and pay it off 4 years faster

What $100 (aka a lime) a week gets you

– $400,000 loan: save $78,828 in interest and pay it off 6 years and 11 months faster

Check out the full list here, which covers loans of $300,000, $500,000 and $1 million. All the calculations assume that you’re five years into a 30-year average home loan.

Get in touch

If you want some more tips on paying off your mortgage sooner – or you want to discuss your refinancing options – then get in touch.

We’ve got plenty of ideas up our sleeve and always love sharing what we’ve learned with our clients.

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.