THE FOUR STEPS MILLIONAIRES USE TO BUILD THEIR WEALTH

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At the end of the day, building wealth is relatively simple: earn good money, save and invest.

But there’s a fourth step millionaires often take once that’s all said and done - investing in real estate.

“Investing in real estate seems like a natural result once the basics are covered and excess cash is generated,” John, who retired at the age of 52 with a $US3 million ($4.2 million) net worth and writes personal finance blog ESI Money, wrote in a blog post.

John would know – he spent the past few years interviewing 100 millionaires.  Here he breaks down the four-step process many of the millionaires he spoke with used to build wealth:

  • "Person/couple begins with normal job, then works to grow income and/or advance, generating additional, strong career income.

  • "While doing this they keep their spending under control, creating an ever-widening financial gap between what they make and what they spend.

  • "They invest in index funds to add even more growth to their finances. 

  • "As this cycle continues and feeds itself, they look for additional sources of investment  and real estate seems a natural fit for this extra cash.”

The first three steps involve tried and true principles to becoming a millionaire.  Most millionaires are goal-oriented and hard workers – they commit to increasing their skill set to build wealth for a long-term plan, according to author Chris Hogan, who studied 10,000 millionaires.  This leads to the strong career income John spoke of.

They also have enough perseverance to avoid “lifestyle creep” – the tendency to spend more whenever one earns more.

By spending below their means, millionaires are able to commit to saving that well-earned income, which is the heart of building any wealth.

William D. Danko, the co-author of the best-seller The Millionaire Next Door, recently said in a Q&A with The Washington Post that you should create a lifestyle off 80 per cent of your income and save the remaining 20 percent.

A portion of this 20 per cent goes to millionaires’ favoured investing strategy: low-cost index funds, which are recommended by experts like legendary investor Warren Buffett for their minimal risk and cheap costs.

It’s then that millionaires can begin to move beyond simplicity and look for additional investment opportunities like real estate.

Seasoned investors build wealth through real estate

“It’s an interesting result since real estate is not known to fit the other investment criteria millionaires prefer (simple, easy, etc.) but there’s certainly something about it that draws them,” wrote John.

Just ask Dana Bull, a realtor and real-estate investor based in Massachusetts.  After becoming a landlord in her early 20s, when she bought a condo and rented it out for extra income, she now owns more than a dozen rentals and thinks that real estate is one of the best ways to build wealth.

“What I love about real estate is that you can build your own strategy,” she wrote in a post for Business Insider.  “My bread and butter has been purchasing small multi-families with two to four units per building.  This is a great entry-level strategy, especially for those looking to live in one apartment while renting out the rest to offset a mortgage.”

The financial advantages of investing in real estate are plentiful, according to Bull: positive cash flow, appreciation in terms of housing values, leverage and tax advantages.

But the reward doesn’t come without the effort, she says. Like building wealth, investing in real estate takes patience and hard work.

SMH – 14 Jan 2019

PROSPERA FINANCE — Geoff Norman

MOBILE LENDER PROVIDING MORTGAGE BROKERING SERVICES TO NORTH SYDNEY | CROWS NEST | ST LEONARDS | GLADESVILLE — FINANCING HOME LOANS — FIRST HOME BUYER LOANS — CAR LOANS — LOW DOCUMENTATION LOANS — EQUIPMENT LEASE

WHY COMMISSIONER HAYNE HAS ADDED INSULT TO INJURY FOR AUSTRALIAN HOME BUYERS AND INVESTORS

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The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry is long overdue.

Its goal was to ensure better outcomes in the future as banks and financial institutions are forced to put their customers’ needs before an institution’s bottom lines and its executives’ pay packets.

While well intended, Hayne’s recommendations for proposed sweeping changes to mortgage broker remuneration may destroy the one channel that has kept the banks honest and delivered outstanding results to the customer.

A heavy-handed approach to broker remuneration will decimate mortgage lending competition – which has flourished as a result of a level playing field created by brokers. Low entry costs for smaller banks, non-banks and niche lenders have forced the banks to cut their margins in half since the late 1980s, with brokers an integral part of offering alternatives to the big banks and stimulating competition.

Should this competitive lending marketplace be reversed, Australians could see 2 to 3 per cent added to their mortgage repayments if history is anything to go by.

Borrowers clearly prefer brokers to a direct relationship with a bank when it comes to choosing a mortgage. Since the inception of the mortgage broking industry, millions of Australians have dumped a bank branch for a broker. And today, 60 percent of borrowers favour this channel when it comes to choosing a mortgage.

That is an astounding proportion of all borrowers, and brokers’ share of the mortgage lending market continues to grow. 

When you look at the latest data, it is not hard to see why. The Consumer Access to Mortgages Report conducted by Momentum Intelligence in December evaluated the opinion of 5,800 borrowers to better understand the customer experience when using a broker.

The findings revealed that 96 per cent of mortgage broker customers were satisfied or very satisfied. What’s more, 95.8 percent would choose a mortgage broker for their next loan.

The message is clear: the mortgage broker channel has near-perfect customer loyalty, while only one in three direct customers plan to return to their bank.  But a cornerstone of relationship between brokers and their customer hinges on the value borrowers see in a “free” service.

Why is this proposition so important and why won’t borrowers pay a fee-for-service that they clearly value?

The answer is simple. Why would anyone willingly pay for something that’s always been free, particularly when they get great value out of the service? Borrowers know that brokers are paid a commission – and the Consumer Access to Mortgages Report showed almost 80 per cent, a huge majority, have absolutely no concern about this structure.

Just 3.5 percent of broker customers would be prepared to pay a fee that is equivalent to the average upfront broker commission of around $2,000, the reported indicated.

That signals a potentially catastrophic outcome for borrowers should commissions be removed.

Australian property is also expensive enough as it is. What’s more, stamp duty, legal fees, insurance, plus a host of other expenses will leave most borrowers little left in the kitty – and potentially make property out of reach for millions of Australians already struggling with affordability constraints. Is it any wonder they don’t want to fork out on broker fees as well?

Any decision that borrowers should be forced to hand over a fee-for-service that is currently free and they value – for their own good – is frankly an insult.

The Adviser – 5 Feb 2019

PROSPERA FINANCE — Geoff Norman

MOBILE LENDER PROVIDING MORTGAGE BROKERING SERVICES TO NORTH SYDNEY | CROWS NEST | ST LEONARDS | GLADESVILLE — FINANCING HOME LOANS — FIRST HOME BUYER LOANS — CAR LOANS — LOW DOCUMENTATION LOANS — EQUIPMENT LEASE

INTEREST RATES ON MORTGAGES COULD BE EVEN LOWER IN A YEAR, ANALYSTS PREDICT

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This time next year, your mortgage repayments could be lower, some analysts are predicting.  Banks often justify raising the interest rates on their mortgage products by pointing to the rising cost of funding these mortgages.  But several analysts have told RN Breakfast funding costs for banks look to be heading down over the next six months.

"People with principle-and-interest, owner-occupier home loans will be paying less this time next year than they are today," Shaw and Partners banking analyst Brett Le Mesurier said.  The reason why banks are not moving to cut rates now, analysts argue, is because of the big swings we have seen on share and bond markets recently.  Those swings are related to developments on many major international macroeconomic and geopolitical fronts, including the US-China trade war, a debt hangover in Europe and the possibility of a hard Brexit.  It has made lending a more risky activity, and created a sense of nervousness in the money markets.  That has seen banks charging each other more to lend to one another. 

"What's happened at the moment is that funding costs have increased, therefore the chance of them cutting their home loan rates across the board is very small at the moment," Mr Le Mesurier added.  All four big banks confirmed to RN Breakfast the cost of sourcing money has gone up in the past few months.  Westpac told the ABC, "Funding costs are up since November", while ANZ said, "Funding costs have increased again in recent months, resulting in an increase to overall bank-funding costs compared to three months ago".

Banks 'flush' with deposits, pushing rates down

However, while banks draw on a number of different money pools to fund home loans, they mostly rely on deposits.  Mozo has a database of Australian bank deposit rates.  Mozo banking analyst Peter Marshall said the cost to banks of holding these deposits is currently very low.  "There are plenty of products out there that are offering really terrible returns at the moment," Mr Marshall said.  The average online interest rate is roughly 1.35 per cent and that is down 0.05 percentage points over the past 12 months.  If you add on bank fees and charges, and consider how inflation erodes the value of money, some savers could actually be worse off by putting their money in the bank.  "Absolutely, you could be going backwards," Mr Marshall said.  "If you're not earning over 2.5 per cent then, yes, you're probably going backwards in your savings."  UTS business professor Warren Hogan believes that is likely to remain the case for some time.  "[Deposit rates are] historically very low," he observed.  "They're almost at levels we've never seen before and I'm not sure if we're going to see much of a material change in that."

Anne Anderson from UBS manages roughly $30 billion of clients' funds in the bank's fixed-income department. She agrees with Mr Hogan.  "Banks actually don't need more deposits and that's why rates are falling very modestly," she argued.  "Actually I wouldn't say they're rising or falling, they're broadly unchanged.  "The banks are flush with cash at the moment because we've all heard the talk that credit growth is slowing and therefore they don't need as much money, so that's one of the reasons why the rates, if they've fallen, have fallen, for that reason."

'Bank funding costs will start to come down'

But banks do not just take money from depositors to provide home loans.  They also draw on what is known as the wholesale money market — massive pools of money sourced from other financial institutions and professional investors.  Australia has a wholesale money market and there are money markets overseas as well.  Professor Hogan argues the cost of borrowing from those markets, given what he predicts will be less anxiety on global markets later this year, will see funding costs fall.

"So I think bank-funding costs will start to come down over the course of the next six months or so."  RN Breakfast asked the major banks about their upcoming costs.

The nation's biggest lender, the Commonwealth Bank, said it was just three weeks away from releasing its half-year financial results and so it could not comment any further.  ANZ noted price-signalling legislation meant it also could not give additional commentary.  RN Breakfast was still waiting for a written response from National Australia Bank.  It is important to note that, for some of the smaller lenders, rates are actually increasing.  The Bank of Queensland, for example, raised rates last week and said the decision was based on continuing funding-cost pressures and intense competition for term deposits.  Anne Anderson warned even if the big four banks were in a position to cut rates, they would be tempted to only drop them by a small amount.  "So when we're talking here about the banks easing back, it could be of the order of 10 basis points or something," she said.  However, she added any kind of mortgage relief would be welcomed by households.  "The Reserve Bank still believes in the cash-flow mechanism," she observed.  "If it was required, reducing interest rates supports household balance sheets.  "It gives them a cashflow effect, in the absence of wage increases and enables people to pay off debt."

House price falls may trigger rate cut

For the big four banks, though, the biggest wild card remains the Reserve Bank.  While deposit rates are expected to remain very low, and there is a chance the cost of other funding sources will come down, if the Reserve Bank lowers its official interest rate there will be enormous social pressure on the banks to also follow suit.  Warren Hogan believes there is a one-in-four chance of a rate cut.  "The housing market is the key here," he said.  "If it continues to deteriorate in the first half of 2019, like it did in the second half of 2018, I think we will get a rate cut.  "The falls we have seen in house prices so far, I think the economy will be resilient to — people will look through 5-to-10-per-cent declines in the value of their homes.  "If the falls become 15 or 20 per cent, then I think that's going to affect peoples' spending.  "They're going to start to think, 'I've just lost five years of savings worth of wealth in the last year, because my house price has fallen, and I therefore am going to delay buying a new car, buying a new fridge, going on a holiday'.  "If that affects a lot of consumers — bearing in mind 70 per cent of people own a home, with or without a mortgage — then it could become a macroeconomic event, in which case the RBA would need to respond.  "But, at the moment, I'm still of the view the housing market will stabilise in the next few months, but really all eyes on those auction markets come February."

PROSPERA FINANCE — Geoff Norman

MOBILE LENDER PROVIDING MORTGAGE BROKERING SERVICES TO NORTH SYDNEY | CROWS NEST | ST LEONARDS | GLADESVILLE — FINANCING HOME LOANS — FIRST HOME BUYER LOANS — CAR LOANS — LOW DOCUMENTATION LOANS — EQUIPMENT LEASE

‘BROKERS MAKE MORTGAGE MARKETS WORK BETTER’: DELOITTE

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Mortgage brokers “make mortgage markets work better”, increase choice and competition between lenders, and help drive “better service levels and competitive mortgage pricing”, a new report from Deloitte Access Economics has found.

The Value of Mortgage Broking, a new report from Deloitte Access Economics (DAE), has been released today (24 July), outlining the evolution, growth and role of mortgage brokers in Australia; the impacts broking has on the economy; the consumer value proposition of the industry; and the lender value proposition.

Commissioned by the Mortgage Broking Industry Group (MBIG)*, the report comes off the back of increasing scrutiny of the sector (following on from ASIC’s review of broker remuneration, the Productivity Commission’s focus on broking in its review of competition in the Australian financial system, and the financial services royal commission).

The DAE report aims to provide an “up-to-date body of information” about the industry “for the purpose of informing policymakers and the broader community about the role mortgage brokers play in the mortgage market and the economic contribution of the mortgage broking industry in Australia”.

The 47-page report, which reportedly took six months to undertake, is broken into four parts:

  • the dimensions and history of the mortgage broking industry;

  • the value that the mortgage broking industry has provided to the broader economy;

  • the outcomes and benefits mortgage brokers provide to consumers; and

  • the value proposition mortgage brokers provide to lenders.

Pulling on data from a range of sources, including the Mortgage & Finance Association of Australia (MFAA), ASIC, the ABS and stories from The Adviser, the report also reveals new findings collected from a nationally representative survey of 1,635 mortgage brokers (both independent and those working in a group) and a focus group workshop with mortgage brokers, and consultations with industry participants (such as National Australia Bank, Heritage Bank, Liberty Financial, AFG, Connective and Pink Finance).

Key findings of the report

New findings from DAE’s survey include:

  • Brokers that are sole traders earn an average income (after costs and before tax) of $86,417.

  • A broker business with more than one broker reported average earnings (before tax) of $119,838.

  • 73 per cent of brokers working in mortgage businesses work full-time.

  • 90 per cent of sole trader brokers work full-time.

  • 23 per cent of broker customers are first home buyers.

  • More than half (57.3 per cent) of broker clients are residential owner-occupiers.

  • An average mortgage broker has 13.8 years’ industry experience.

  • 70 per cent of a broker’s business comes from existing customers (either directly or indirectly).

  • The mortgage broking industry supported 27,144 full-time equivalent jobs in 2016–17.

  • There are approximately 7,115 people employed in supporting roles in mortgage broking businesses.

  • 70 per cent of brokers are credit representatives (and the remainder hold their own ACL).

  • 64 per cent of brokers have education and training above their minimum entry qualifications (Certificate IV in Finance & Mortgage Broking).

  • The mortgage broking industry contributes $2.9 billion to the Australian economy each year.

Other findings included the confirmation that lodging loan applications and managing the process to settlement are the most time-intensive tasks of a broker (just 12 per cent of time is spent post settlement), while it also revealed that the average broker has access to 34 different lenders and uses an average of 10.

The report also confirmed that “mortgage brokers sell more loans than lenders’ own distribution channels (e.g. through branches, mobile lenders and over the telephone)”, noting stats from the MFAA which showed that brokers’ share of new residential home loan settlements reached 55.7 per cent by value in the September 2017 quarter.

Other insights included that mortgage brokers drive more competitive mortgage pricing, provide valuable services and offer greater choice for consumers.

The report reads: “Overall, mortgage brokers make mortgage markets work better. They are intermediaries that provide consumers with information about the mortgage products available and the process to follow in applying for a mortgage.

“Mortgage brokers also provide lenders with an additional channel to arrange loans. Mortgage brokers increase choice and competition between lenders, leading to better service levels and competitive mortgage pricing. Mortgage broking is also an industry in its own right, providing direct employment opportunities and supporting employment in other industries…

“A continually improving mortgage broking sector will be good for consumers, lenders and the economy. Along with changing technology, consumer preferences and broader finance industry changes, regulation and self-regulation/co-regulation will shape the future of an industry that has evolved considerably over a number of decades since its emergence in Australia.”

“Devising a new fact base to feed into the public debate”

Speaking to The Adviser, Deloitte Access Economics director Mike Thomas said: “This has been a very large information gathering exercise that has taken well over six months. Putting a survey out to field, getting the data back, processing all the data... going through the written report, updating the data as new data came to hand and then getting it to the final stage really [meant it] was an extensive body of work.”

He added: “We were asked to devise a new fact base to feed into the public debate that has been going on around the industry (and about the financial services sector in general) lately. There has been a lot of scrutiny, so you need a good fact base to make sure that that debate is carried out in an informed manner but also there is an evidence base for policymakers.

“If policymakers and regulators are going to make decision[s] that affect the industry, they need a sound evidence base. So, we hope that what we’ve put together helps to meet both of those aims; informing the public debate and providing that good evidence base for going forward.”

Speaking of the report, the CEO of the Mortgage & Finance Association of Australia, Mike Felton, told The Adviser the he believed there were four key takeaways from the report: the fact that brokers have, on average, 13.8 years of experience; the fact that nearly two-thirds have higher than required education levels; that brokers have access to (on average) 34 lenders but use 10; and the new finding that the average sole operator earns around $86,400.

Mr Felton told The Adviser: “While the report shows so many positives about the critical role that brokers play in driving competition, choice and service to those that need it most, it also shows the vulnerability that a broker only earns $86,400 and how vulnerable they are to any adjustments that might reduce that. That poses risk to choice, competition, interest rates and the provision of these services.”

He added that he hoped the report would “assist with addressing the shortfall in knowledge of what brokers do, the role they play and the value that they produce”.

In addition, Finance Brokers Association of Australia (FBAA) executive director Peter White said: “Customer satisfaction is critical for our industry. With so much referral and return business, brokers know they must do everything they can to help their customers secure finance that works for them. And it’s clear that this is happening — more than 90 per cent of home buyers are happy with their mortgage broker’s performance.

“Beyond this dedication to serving their customers, mortgage brokers are experienced professionals. The report found the average broker has 13.8 years’ industry experience, which speaks to the quality of service and value that brokers provide their customers.”

Mr White told The Adviser that he hoped the report would provide a “much clearer, succinct understanding of what the industry really looks like”.

The head of the FBAA concluded: “It was intentional that we used Deloitte, a business of great significance, to sit in front this report, because we wanted the independence to truly speak to what the market is like.

“It’s not a report of self-interest, which some [other industry] reports have been. It is a concrete report that can be cited with great confidence given the research quality and the neutrality. We hope it will be a key piece of conversation in political circles, in mortgage circles, in the media and across the economy, going forward.”

Earlier this month, Deloitte released its Australian Mortgage Report 2018, based on a roundtable discussion and survey of some of the biggest decision makers in the mortgage industry, which found that the popularity of mortgage brokers among the public continues to defy media criticism and ongoing scrutiny.

The MFAA has also recently launched a major marketing campaign across the country to promote the value of brokers to the general public, with the FBAA also taking steps to hit out at some of the misreporting and “myths” about broking in the mainstream media.

PROSPERA FINANCE — Geoff Norman

MOBILE LENDER PROVIDING MORTGAGE BROKERING SERVICES TO NORTH SYDNEY | CROWS NEST | ST LEONARDS | GLADESVILLE — FINANCING HOME LOANS — FIRST HOME BUYER LOANS — CAR LOANS — LOW DOCUMENTATION LOANS — EQUIPMENT LEASE

ACCC REPORT REPRESENTS ‘OPPORTUNITY’ FOR BROKERS

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A new report into mortgage pricing has shown that a lack of transparency is stifling competition, with the heads of the broker associations highlighting that this presents a prime “opportunity” for brokers to help borrowers.

The Australian Competition and Consumer Commission (ACCC) released the final report of its mortgage price inquiry on Tuesday (11 December), which monitored the prices charged by the five banks affected by the government’s major bank levy between 9 May 2017 and 30 June 2018.

The report was initiated by the commission after the Treasurer directed the body to inquire into prices charged by the financial institutions affected by the major bank levy (ANZ, CBA, NAB, Westpac and Macquarie Bank) to understand whether the costs of the levy were being passed on to borrowers.

While the ACCC did not find evidence that the five banks were changing prices specifically to cover the cost of the levy (whether in part or in full) over the monitoring period, it did find that the mortgage market was characterised by “opaque discretionary pricing practices” that cause “inefficiency” and “stifle price competition”.

ACCC chair Rod Sims said: “Pricing for mortgages is opaque and the big four banks have a lot of discretion. The banks profit from this, and it is against their interests to make pricing transparent.

“Borrowers may not be aware they can negotiate with their lender on price, both before and, particularly, after they have established their mortgage.”

A main finding of the ACCC report was that new borrowers pay lower interest rates than existing borrowers. According to the ACCC, new borrower loans were, on average, up to 32 basis points lower than existing borrower loans (depending on the category of residential mortgage).

This, it suggested, could be worth up to $1,000 per year for the average mortgage holder.

Mr Sims therefore urged “more people to ask their lender whether they are getting the lowest possible interest rates for their residential mortgage and, as they do so, be ready to threaten to switch to another lender”.

“I am afraid that the threat of switching banks will often be necessary to achieve a competitive mortgage rate,” he added.

While mortgage brokers play an intrinsic part in finding an appropriate home loan for borrowers, the report touched on brokers only briefly, and this was largely in relation to how smaller lenders rely on the third-party channel for distribution.

‘Brokers find consumers a better deal’: FBAA

Speaking to The Adviser following the release of the report, Peter White, managing director of the Finance Brokers Association of Australia (FBAA), argued that while he appreciated that the report was focused on “transparency of how interest rates are priced”, he said that the findings marked an “opportunity for brokers to highlight that this is what brokers do – finding consumers a better deal”.

Mr White told The Adviser: “I understand why mortgage brokers weren’t more profiled across the report because that is not how it was being positioned. Instead, it was looking at how the banks, and the majors in particular, actually create the pricing decisions on mortgages.

“But that said, the thing that I was surprised wasn’t mentioned that should have been is that this is one of the value-added propositions of mortgage broking.”

The FBAA MD elaborated: “Mortgage brokers are consistently helping clients to negotiate a better deal with their banks because they know that the banks do this. And when you can’t get a better deal or the loan is not suitable, then they look at refinancing options.”

Anecdotally, Mr White said that between 30 and 55 per cent of loans written by FBAA members were for renegotiation of a client’s loan with their existing bank.

He said: “This saves borrowers money, because they not only can achieve a lower interest rate, but they also don’t have the costs of having to move their loan, which can include costs for things such as mortgage insurance, new valuations, legal fees, etc.

“So, the mindset of the professional broker is to help clients get a better deal with the lender they are with. If that is not possible, then they are able to showcase the other options in the market place. This is part of the value proposition of brokers.”

Mr White concluded: “We see, once again, in the ACCC report that the banks are not being transparent about rates. And this was a theme that was raised in the royal commission, too.

“If you take the brokers out of the game, imagine how much worse it would be. Because we are the ones keeping the banks honest.”

‘In an economy devoid of mortgage brokers, most smaller lenders simply could not compete’: MFAA

The Mortgage & Finance Association of Australia (MFAA) also welcomed the report, specifically noting that the ACCC recognised the competition driven by smaller lenders, which is supported by the mortgage broking channel.

“As we have stated repeatedly in our responses to multiple regulatory reviews, from the ASIC Remuneration Review to this year’s royal commission, scrutiny on the financial services sector is entirely appropriate,” the MFAA said.

“It is also appropriate for the mortgage broking industry – we are now systemically important to the Australian economy, given that mortgage brokers now originate more than 55 per cent of all home loans in Australia.

“This is the reason the MFAA has supported industry reform and was instrumental in the formation of the Combined Industry Forum (CIF). The CIF has driven a broad range of reforms (in response to ASIC’s 2017 review), aimed at addressing potential conflicts which have allowed the industry to get ahead of the curve in seeking to continually improve the customer outcomes we are producing,” the association continued.

However, the MFAA said it was “critical that unintended consequences are considered before any regulatory change is implemented”.

The broker association highlighted a recent Deloitte Access Economics report, which found that the average broker earns $86,400 before tax, so “any significant reduction to commissions is likely to severely rationalise, if not decimate, the industry, as many brokers would not be able to continue to run their small businesses”.

“The result would be devastating for smaller lenders, and therefore catastrophic for competition, choice and access to credit for consumers, compounding the fact that credit has already been tightened due to a range of other factors,” the MFAA said.

It concluded: “The ACCC’s finding, that small lenders ‘are likely to be more vulnerable to future regulatory changes that affect the use of brokers as a distribution channel’, reflects exactly what the MFAA has been communicating to policymakers, Treasury, media and other stakeholders. In an economy devoid of mortgage brokers, most smaller lenders simply could not compete.

“With the smaller lenders removed, Australian consumers would be left with the choice of just a handful of lenders, or fewer if they live in a regional or rural area. This will lead inevitably to less competition, less choice and ultimately, higher prices, which would not be a good customer outcome at all.”

Contact Geoff if you’re looking for a better home loan deal or if you have any lending needs.

PROSPERA FINANCE — Geoff Norman

MOBILE LENDER PROVIDING MORTGAGE BROKERING SERVICES TO NORTH SYDNEY | CROWS NEST | ST LEONARDS | GLADESVILLE — FINANCING HOME LOANS — FIRST HOME BUYER LOANS — CAR LOANS — LOW DOCUMENTATION LOANS — EQUIPMENT LEASE

FALLING HOUSE PRICES SET TO LEVEL OUT

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The country's falling property prices will stabilise next year before moving into a moderate growth phase, new research from Domain Group has predicted.  Domain's first Property Price Forecast has modelled median house and unit prices in the capital cities to the end of 2020.

Domain Group economist Trent Wiltshire said solid population growth, low unemployment and low interest rates underpin property price growth in the period to the end of 2020.  "We think the market will correct itself in 2019, and then change gears into a cycle of modest growth into 2020," Mr Wiltshire told 9News.

Domain predicts unit prices will be more resilient, in part due to stamp duty concessions in Sydney and Melbourne.   Unit prices are expected to grow nationally by two percent in 2019 and three percent in 2020 after bottoming out to their 2016 levels early next year.  Domain's forecasts are based on what the group believes is most likely to play out over the next two years.

But it warns the positive forecasts could be thrown out by mortgage rates rising earlier than expected, slower population growth, forced selling by investors, and a slowdown in the Chinese economy.

Labor's proposed changes to negative gearing, should it win next year's federal election, could weigh on house prices in long-term but may also provide a short-term boost.

"I think for people looking to buy there's still some bargains to be had," Mr Wiltshire said.

SYDNEY

In Sydney, house prices are currently eight percent below their peak and will be close to unchanged to December 2019 before modest growth in 2020.  "For Sydney, we're seeing house prices unchanged in 2019 and to grow by about four percent in 2020," Mr Wilshire said.  The median house price should reach a low point of just over $1 million in mid-2019, a fall of about 12 percent from the peak of $1.2 million in June 2017.

"On our forecast, the price falls for Melbourne and Sydney will be the biggest since the late 1980s," Mr Wiltshire said.  Over the past four weekends, more than 1100 properties across the city have failed to sell at auction across Sydney.

Mr Wiltshire said this combination of high supply and fewer buyers typically brings lower prices.

For apartments, however, he said prices will continue to fall by an average three percent this year, and are expected to rise by the same amount next year and then a further five percent in 2020.

MELBOURNE

There's some good news for Melbourne home owners following a turbulent twelve months for the city's property markets.  After a nine percent fall in house prices this year, the Domain research shows a further decline of about one percent next year, before growing by around four percent in 2020.

"That's probably driven by things like the royal commission, and tighter bank lending standards playing out into 2019," Mr Wiltshire said.

The house market peaked at the median price of $910,000 in December last year, with Domain's report forecasting it will bottom out just above $800,000 in mid-2019; a level equivalent to late 2016.

Unit prices are expected to grow by about one percent in 2019 and 2020, after a fall of up to two percent this year.

BRISBANE

Thanks to a slow down in construction and a strong population growth, Domain said Brisbane median house prices should rise by four percent in 2019 and five percent in 2010 after a flat year to date.

The rise puts Brisbane right near the top of Australia's fastest growing markets.

"For Brisbane, we see some of the strongest price growth in the nation over the next couple of years," Mr Wiltshire said.

"That's a lot to do with people moving from New South Wales and Victoria to Queensland due to more affordable housing."

After falling by about six percent this year, unit prices in Brisbane are also expected to grow over the period to the end of 2020.

"We see a bit of a turn-around coming in 2019 after a few years of price falls, and we're predicting unit prices in Brisbane to increase by about three percent over the next couple of years," Mr Wiltshire said.

Elsewhere in Queensland, some areas are already experiencing growth.

In Caboolture, prices have grown by almost 10 percent in the last year and unit prices have jumped by 17.5 percent.

ADELAIDE

Adelaide house prices will continue to rise steadily over the next two years.  The Domain property report shows South Australia has performed well this year, compared to other mainland states.

"We're seeing house and unit price growth to maintain at about two percent over 2019 and 2020 and this slow and steady growth is a continuation of what's been happening in the Adelaide market for the last few years," Mr Wiltshire said.

Domain is cautious about Adelaide's population and employment growth.

SA has fewer property investors, with two thirds of new bank loans being taken by owner-occupied homebuyers.

For units, there has been a one percent price drop this year, but that's expected to turn around with a two percent rises in 2019 and 2020.

PERTH

Domain expects Perth house prices will grow faster than most other markets in 2019 and 2020 after falling in recent years.  Prices are predicted to level out by early 2019 after falling 13 percent from the 2014 peak of $616,000, including a five percent fall this year.   Prices will then grow by five percent in 2019 and another three percent in 2020, Domain predicts.

Unit prices are expected to fall by about six percent in 2018, before growing by about two percent in each of 2019 and 2020.

With prices falling in recent years after the end of the mining boom, Domain attributed the incoming growth to better economic conditions such as higher commodity prices and population growth.

HOBART

The Tasmanian capital is on track for the fastest growth in the country in 2018 at 12 percent.  That would leave house prices 40 percent higher than the start of 2016, but Domain predicts the growth will slow to two percent over the next two years as mainland housing becomes better value for buyers.

Unit prices in Hobart should remain stable in 2019 before seeing some modest growth in 2020.

CANBERRA

The research suggests house prices in the nation's capital will grow by about two percent in 2018 and then four percent in each of the next two years.  Low unemployment and strong population growth underpins Domain's forecast for price appreciation.  The forecast for unit prices in Canberra are more uncertain but Domain predicts slower growth than houses.

Contact Geoff to discuss your lending needs.

PROSPERA FINANCE — Geoff Norman

MOBILE LENDER PROVIDING MORTGAGE BROKERING SERVICES TO NORTH SYDNEY | CROWS NEST | ST LEONARDS | GLADESVILLE — FINANCING HOME LOANS — FIRST HOME BUYER LOANS — CAR LOANS — LOW DOCUMENTATION LOANS — EQUIPMENT LEASE

IS BUYING TO ‘FLIP’ STILL VIABLE IN TODAY’S MARKET?

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With the property boom of recent years and the popularity of TV renovation shows like The Block and House Rules, increasing numbers of Australians have been ‘buying to flip’ – buying a property, renovating it and selling it at a profit.

Buying to flip can be lucrative when property prices are rising rapidly, but is it still a viable option in today’s softer market?  The answer is it can be.  You will, however, need to:

• do your own research and due diligence

• be in a strong financial position

• consult a mortgage broker for the best finance arrangements.

WHAT SHOULD POTENTIAL ‘FLIPPER’ BE AWARE OF?

Buying ‘the right’ property

What’s the right property for you to flip?  The answer to that may come from research into the local area to work out exactly where good value may lie.  Ask yourself questions like:

• What are the historical values for this property and others on this street?

• How much can you spend before overcapitalising?

• Is the property attractive to the demographic of the area?

• Is the property structurally sound?

• How long are properties sitting on the market for?

• What is the area the property is in zoned for – one-level residential only or multi-level dwellings?

You’ll also want to find out whether there is anything planned that could stimulate future demand.  Are there any new developments – such as investments in infrastructure, or schools or shopping centres under construction – that could attract new people to the area and drive up property prices?

The costs involved in buying and selling

Property is typically not a short-term investment – it’s time-consuming and expensive to buy and sell.  When buying a property to flip, the following costs need to be covered:

When buying

• Loan establishment fees

• Building and pest inspection reports

• Legal fees

• Stamp duty

While renovating

• Labour and materials

• Mortgage repayments

• Rates for holding period

• Accommodation costs (if you have to move out for a period)

• Storage costs (for any furniture)

When selling

• Marketing costs

• Real estate agent fees

• Legal fees

• Loan exit fees

• Mortgage repayments and rates

Therefore, it makes sense to be in a strong financial position and be confident you can add value quickly and easily.

WHAT ARE THE POTENTIAL RISKS IN BUYING TO FLIP?

Timing the market

Property is typically a long-term investment.  So, if you’re looking to make money on it in the short term, you’ll usually need to add value to the asset and benefit from a rapidly rising property market.

In reality, the market can cool quickly if changes to lending policies or higher interest rates come into play.  These factors can be hard to predict. If you need to make a sale and your property sits on the market longer than expected, it’s perceived value can erode with each passing day.

Costs blowing out

Clearly you want your renovation completed as quickly and efficiently as possible, but sometimes there can be costly and time-consuming surprises to address. One way to limit this is by getting a comprehensive pest and building inspection.  Unfortunately, you usually won’t add value through remedial work; buyers will pay a premium for lifestyle and aspiration – less so for a new roof!

SOME THINGS TO CONSIDER

The work that needs to be done

Flippers need to consider whether simple cosmetic improvements and good styling will be enough to entice buyers.  Will a paint job, new flooring, stylish lighting, a kitchen and bathroom refresh, and some garden work be enough to showcase the property and its lifestyle potential?

Financial and tax implications

As with any project, funding is what will keep it afloat. How will you cover all the costs you incur?  Will you be financially stretched to achieve your goals for the property?  And can you afford to hold onto it if you can’t sell it for what you’d like?

Another consideration is Capital Gains Tax (CGT).  Given this will be payable on any profit you make, it may make sense to consider strategies to minimise the amount payable.  These could include holding the property for at least one year to access a 50 per cent CGT discount, or selling in a low-income financial year. For more information on this, you may want to seek independent tax advice from an appropriately-qualified professional.

Advice from experts

Getting quotes from tradespeople to fully cost out the work is key to planning a renovation and running a project to budget. It may also be more efficient to get professionals to carry out the work, rather than trying to be the expert in all areas.

Likewise, it makes good sense to consult a mortgage broker experienced in financing buy-to-flip acquisitions.  This will help you get the right loan for your needs – such as one that offers a honeymoon period of lower repayments at the start of the loan.  Getting the right loan in place can help set you up for success!

PROSPERA FINANCE — Geoff Norman

MOBILE LENDER PROVIDING MORTGAGE BROKERING SERVICES TO NORTH SYDNEY | CROWS NEST | ST LEONARDS | GLADESVILLE — FINANCING HOME LOANS — FIRST HOME BUYER LOANS — CAR LOANS — LOW DOCUMENTATION LOANS — EQUIPMENT LEASE

WHY SOME INTEREST-ONLY BORROWERS ARE KEEN TO SWITCH

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New government regulations mean interest-only loans are on the decline.  Given the changes, it may be time to reconsider your own loan structure.

Rewind a few years and many people would have confidently assured you that an interest-only loan – a home loan on which you only have to make interest payments for a set period of time – was the way to go. Its benefits were clear to many owner-occupiers and investors.

For those buying their first home, for instance, it provided an opportunity to get on top of the initial costs of buying a place before they were hit with the full force of principal and interest (P&I) repayments.  For those investing in property, it was a great chance to get a tax break, without tying up all their funds in the one asset.

Interest-only on the wane

In early 2017, however, the Australian Prudential Regulation Authority (APRA) put a cap on the number of interest-only home loans banks could offer, down to 30 per cent of all new mortgage lending.  As a result, competition intensified and interest-only rates jumped well past P&I rates.

Since then, far fewer people have taken up interest-only loans while a growing number have made the switch to P&I mortgages – whether or not their interest-only period had officially ended.

As a result, the stock of interest-only loans in total housing credit declined noticeably over the past year, from close to 40 per cent of all loans to almost 30 per cent.  This represented a $75 billion reduction in interest-only loans from about $600 billion in late 2016.

Doing the sums

It’s not surprising that a significant portion of the Australian population has swapped from interest-only loans given the interest rate differential. But it’s not the only reason to rethink your options.

In fact there are a number of reasons to rethink your interest-only loan, once you sit down and do the sums:

Your total interest bill - It’s worth considering the interest you’ll pay over the life of the loan.  The longer you wait to chip away at that principal, the more interest you’ll be paying in the long run. For instance, a $450,000 loan over 25 years with an interest rate of 5 per cent could see you paying an extra $36,055 in interest if you took out an interest-only loan for the first five years.

Go for low - Today’s interest rates are very low – for now.  Why not take the opportunity to reduce your mortgage before its hit by higher rates?

Build equity - If the housing market takes a dip, you risk being left with little to no equity in your home. That leaves you vulnerable to losing your family home.

Know your budget - Can you afford your repayments over the long term?  Inevitably the interest-only period will end and you’ll be faced with paying the principal and interest. Plus, with less time to pay it off, your repayments are likely to be quite a bit higher.

Save today - It may be that you’ve got used to having the additional cash, spending it on a mix of day-to-day necessities and luxuries instead of investing it or paying down debt.  That might leave you ill-equipped to handle higher repayments and worse off in the long run.

Avoid a fire sale - Come 2020, about two-thirds of interest-only loans are due to expire.  While the Reserve Bank of Australia plays down the effect this will have on Australia’s economy, it does acknowledge that some of these borrowers may experience genuine difficulties in meeting their higher repayments and as a result will be forced to sell.  That’s not a situation any owner-occupier wants to be in – especially as a good number of other people will be forced to sell at the same time.

Contact Geoff to discuss any of your lending needs.

PROSPERA FINANCE — Geoff Norman

MOBILE LENDER PROVIDING MORTGAGE BROKERING SERVICES TO NORTH SYDNEY | CROWS NEST | ST LEONARDS | GLADESVILLE — FINANCING HOME LOANS — FIRST HOME BUYER LOANS — CAR LOANS — LOW DOCUMENTATION LOANS — EQUIPMENT LEASE

WHEN IS THE BEST TIME FOR BORROWERS TO FIX THEIR INTEREST RATE?

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Borrowers unsure on whether to lock in their interest rate should be reviewing their mortgage now as more rock-bottom fixed-rate deals appear.

Variable rates are still cheaper than the best three-year fixed rate terms available but customers need to be prepared for rate rises at any moment.  In the past few weeks Westpac, ANZ and the Commonwealth Bank have all pushed up their variable rate deals.

New analysis by financial services firm Canstar has revealed for a borrower with a $300,000 30-year home loan deal the lowest variable rate deal is 3.44 per cent.  This compares to the cheapest three-year fixed rate at 3.69 per cent.

Canstar’s finance expert Steve Mickenbecker said there has been many rate fluctuations in the market recently making it “a good time to consider fixing all or part of your borrowings.”

“On an average loan of $300,000 over 30 years the difference between the highest and lowest three-year fixed rate offers can be as much as $240 per month or close to an extra $3000 per year,” he said.

“Right now lenders have been moving fixed rates down for the spring/summer selling seasons.”

Three-year fixed rates are typically a popular term for borrowers to lock in their rate.

The Reserve Bank of Australia has failed to move the cash rate from 1.5 per cent since August 2016 but despite this lenders are still moving rates up and down as they please.  So for borrowers looking for security against rising rates fixing is a good option or alternatively borrowers can lock in a portion of their loan.

However there are break costs if a customer is looking to break the loan early, for example if they need to refinance or selling up.

Aussie Home Loans’ chief executive officer James Symond said borrowers should definitely be reviewing their loan to see if now is the time to fix.  “With interest rates edging up it is definitely worth borrowers inquiring about whether to fix part or all of their mortgages,” he said.  “Fixed rates provide certainty of repayments so households can budget their monthly expenses accurately.”  Mr Symond said he believes the next move for official interest rates will be up and borrowers need to be prepared for this.

Contact Geoff if you wish to discuss fixing all or part of your home/investment loan or if you have any questions.

PROSPERA FINANCE — Geoff Norman

MOBILE LENDER PROVIDING MORTGAGE BROKERING SERVICES TO NORTH SYDNEY | CROWS NEST | ST LEONARDS | GLADESVILLE — FINANCING HOME LOANS — FIRST HOME BUYER LOANS — CAR LOANS — LOW DOCUMENTATION LOANS — EQUIPMENT LEASE

WHAT YOU SHOULD KNOW ABOUT YOUR CREDIT HISTORY

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Have you ever taken out a personal loan, owned a credit card or purchased an item on store credit? If you answered yes to any of these questions, chances are you have a credit report and credit history stored on file.

The big question is: How does your credit file represent you as a potential borrower?

We explain why it’s important to know what your credit file says about you.  It will affect your chances of getting a good interest rate on your home loan, or even if you can get a mortgage at all. 

What is a credit file?

Your credit file details your financial history and outlines your previous dealings with credit providers, such as credit card companies, as well as listing late payments you may have made.

It will contain information regarding all credit applications you have made in the past five years, any existing loans or outstanding debts, and default notices where payment has not been made in over 60 days.  It will also contain fraud convictions and bankruptcy orders.

Why it matters

When it comes to taking out a home loan, lenders will assess your credit file to determine your eligibility as a borrower.  If you’ve ever missed a credit card repayment or let a phone bill slip, these minor instances may be recorded on your credit file.

Although they may appear harmless, a credit file with multiple missed payments can say a lot about your credit habits and potentially limit the amount a lender is willing to offer you.

It’s therefore essential to keep your credit file as squeaky clean as possible to maximise your chances of being approved for the loan you need.  You can do this by making regular repayments on any loans and ensuring all bills – even the smallest ones – are paid on time.  Setting up a direct debit arrangement might help.

If you’re concerned about the health of your credit file, you can request a free copy from www.mycreditfile.com.au

Fixing a bad credit rating

If you do have a bad credit rating or a missed or defaulted payment listed in your credit file, it’s best to try and deal with that before you start applying for home loans.  The first thing you need to do is pay off your debt.  Contact your financial institution and work out a payment plan, or if you have multiple debts, see what you can do about consolidating your debt. 

If you’re worried about not being able to pay off your debt, you should contact a financial counsellor or advisor. 

Notices on your credit file will remain there for five years, so it’s worth thinking about your finances sooner rather than later. 

Get the right advice

A mortgage broker can talk to you about how your credit rating will impact your home loan. 

Talk to Geoff about finding the right home loan for you.

PROSPERA FINANCE — Geoff Norman

MOBILE LENDER PROVIDING MORTGAGE BROKERING SERVICES TO NORTH SYDNEY | CROWS NEST | ST LEONARDS | GLADESVILLE — FINANCING HOME LOANS — FIRST HOME BUYER LOANS — CAR LOANS — LOW DOCUMENTATION LOANS — EQUIPMENT LEASE

MORE THAN HOME LOANS: WHY A BROKER CAN HELP YOU WITH COMMERCIAL AND ASSET FINANCE

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Mortgage brokers have expertise in residential and other property loans. They can also play an important role in helping businesses find and secure commercial and asset finance at competitive rates, by leveraging their network of lending institutions.

With so many lenders and products to choose from, it’s important to get the right business funding mix from the outset. Many brokers have a deep understanding of the commercial sector and the wide range of products available. They’re well placed to identify the most appropriate financing structures for you, based on your type of business and specific needs.

Here are some advantages to having a broker manage your commercial and asset finance.

Managing cash flow

For any business, big or small, good cash flow is vital. You need the financial capacity to meet day-to-day operational costs.

Mortgage brokers can help with cash flow finance. This is essentially a way for a business to get cash before your customers actually pay. It may be through invoice discounting, which allows a business to access a proportion of your debtors’ unpaid invoices through the lender. It could be through invoice factoring, where the lender takes responsibility for chasing your business’s debts.

Mixed funding for manufacturing assets

Businesses involved in manufacturing need the right plant and equipment to remain competitive. They also need financial arrangements designed to suit the industry.

Manufacturing equipment may be purchased from offshore vendors or made to order. This could initially require short-term financing arrangements, to be later replaced with longer-term asset funding. Additionally, a manufacturer with specialised equipment will probably need a more long-term solution than a business needing to purchase an asset such as a motor vehicle, or one that needs funds to complete a shop fit-out or to buy a commercial property.

Mortgage brokers can play a crucial role not only in financing your manufacturing assets but in recommending the most appropriate lending facility.

Range and flexibility

With dozens of different lenders in the market, mortgage brokers are in a strong position to compare and find the most competitive commercial and asset finance products.

When necessary, they also have the flexibility to use multiple lending facilities to suit different business purposes. For example, a business may need a chattel mortgage for its plant and equipment, but a finance lease for other assets.

Using a mortgage broker means you have all the available lending options at your fingertips.

One-stop finance

Mortgage brokers do much more than arrange finance for home loans; they’re also an invaluable resource for developing businesses. Brokers can help to identify and secure commercial and asset funding to enable your growth, while at the same time preserving your operating cash flow.

Your broker can be a one-stop-shop for your financing needs. Contact yours to find out more about how they can help you with commercial and asset finance.

PROSPERA FINANCE — Geoff Norman

MOBILE LENDER PROVIDING MORTGAGE BROKERING SERVICES TO NORTH SYDNEY | CROWS NEST | ST LEONARDS | GLADESVILLE — FINANCING HOME LOANS — FIRST HOME BUYER LOANS — CAR LOANS — LOW DOCUMENTATION LOANS — EQUIPMENT LEASE

Investing Interstate

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When people think of buying an investment property, many only think locally. Investing in a property interstate could possibly be a smarter idea, potentially resulting in a better return on your investment.  It may also be a potential way to snaffle a bargain. You could be buying into an area with greater potential capital growth compared to your home state – as each state reaches different stages of the property cycle at different points.

Some of the key issues to keep in mind include:

The logistics of property management

Some may find it hard to manage their investment property from another state.  It can be costly maintaining a property and finding tenants if you regularly need to travel between states. Although employing a property management service may be able to help here.

Property managers undertake several jobs that can be difficult for an interstate investor to do. They can screen your tenants, source the best local tradespeople for repairs and, by inspecting the property on your behalf; can save you the expense of flights for site visits.

While you may be recommended a property manager by your real estate agent, it’s a good idea to shop around, given there’s usually some variation in the nature and quality of the service that managers provide.

Some, for example, might provide an annual market rent review but others might go to the next level and give you feedback on how you can optimise the rental income on your interstate investment.  Not all property managers will be as effective at managing the property or screening tenants - while others could be better qualified and so the fee they charge for their services could vary.

Get a pre-approval

Pre-approval is important because it informs you about barriers you can encounter when you seek to arrange finance for an interstate investment.

Certain lenders can be restrictive in the terms and conditions they attach to loan approvals in different parts of the country.

The location of the property could impact the amount you can borrow from a lender – and it’s important to remember different states have different fees and taxes.

Getting a pre-approval can give you the confidence you need to make a sound investment decision.

Visiting the property

Visiting the property and seeing it is more telling than simply viewing pictures.  But the travel and cost associated with investing in interstate property obviously imposes limits on the time you can spend seeing the property.

A buyer's agent is one potential fix, but it's costly to pay a buyer’s agent to tell you a property is potentially a poor investment once, let alone several times.  Likewise, it's expensive to make the discovery yourself after you shell out for flights and associated travel expenses, so it pays to research the property and area as diligently as possible prior to undertaking closer physical checks.

The internet is a great source of valuable information, including property guides and market updates.

As with any property, local or interstate, there are pros and cons and you need to conduct your due diligence to ensure you make a good decision.

To decide if interstate property is a suitable investment for you, it's worthwhile consulting with a finance broker about the considerations to be mindful of before applying for finance.

When you're confident you’ve identified a suitable interstate investment property, a broker will be on hand to support you to get an appropriate loan for your needs.

PROSPERA FINANCE — Geoff Norman

MOBILE LENDER PROVIDING MORTGAGE BROKERING SERVICES TO NORTH SYDNEY | CROWS NEST | ST LEONARDS | GLADESVILLE — FINANCING HOME LOANS — FIRST HOME BUYER LOANS — CAR LOANS — LOW DOCUMENTATION LOANS — EQUIPMENT LEASE

Buying A Tenanted Investment Property

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There are plenty of upsides to buying an investment property that already has a tenant, as well as a raft of risks. Here’s how to minimise them.

  • Purchasing an investment property that already has a tenant means you collect rent from day one, with no vacant period and no lease fees to find a new tenant. The lease just carries on as it did before you purchased the property. Sound good? Of course it does. There are some possible problems to be aware of though.

  • It’s very important to check whether the lease on your prospective investment is current or the tenants are on an expired lease. If the tenants are off-lease, they can give a short period of notice and vacate the property, so those upsides mentioned above could come to nought.

  • A current lease, on the other hand, offers security, it also means that you are stuck with the lease, its conditions (or lack thereof), the current rental return and the tenants.

    There are steps you can take to minimise your risk:

  • Make sure the bond has been lodged properly. Your agent will arrange for the bond guarantee to be transferred into your name on settlement.

  • Check the property condition report, making sure that it is a complete and accurate record of the property as you inspected it.

  • Ensure there are no rental arrears. If there are, or if a landlord has agreed that rental arrears can be taken out of a bond payment, stipulate that this amount is deducted from the purchase settlement amount.

  • Ask the leasing agent about the tenants and their payment record. You cannot demand that you meet the tenants, but attending the open house will give you a sense of how they live in the property. If possible, sight the tenants’ original application for the property and rental ledger.

  • Look at the yield for rental properties in the area and compare them to yours. You won’t be able to increase the rent until the end of the lease.

  • Be aware of any concessions or conditions that are either in the lease or have been agreed with the landlord or property manager, because these will become your responsibility. For example, does rent include electricity or other utilities? Has the landlord agreed to install a new oven or paint a room?

  • Of  course, if you love a property but have doubts about the tenants, the lease or the managing agent, all is not lost. You can easily change the managing agent when you settle. You can also make vacant possession of the property a condition of settlement. You may need to wait until the lease expires to settle, but you aren’t taking on the previous owners’ problems and responsibilities.

If your only problem with a tenanted property is the rental yield, keep in mind that increasing rent on a good, long-term tenant may well drive them away anyway, so do your sums. Work out whether the amount you’d like to increase the rent by equates to more over the year than the lease fee plus any rent lost if your property is vacant for a few weeks.

PROSPERA FINANCE — Geoff Norman

MOBILE LENDER PROVIDING MORTGAGE BROKERING SERVICES TO NORTH SYDNEY | CROWS NEST | ST LEONARDS | GLADESVILLE — FINANCING HOME LOANS — FIRST HOME BUYER LOANS — CAR LOANS — LOW DOCUMENTATION LOANS — EQUIPMENT LEASE

CONFUSED ABOUT HOME LOAN PRE-APPROVALS?

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Ready to buy a property? You’ll need to show the seller you have enough money. For most people, this will mean getting a loan, and the first step to getting one is obtaining pre-approval for it.

Pre-approval – also known as conditional approval or approval in principle – is an indication from a lender as to how much you can borrow. If you have pre-approval, vendors and agents know you’re serious about buying. Here are the steps you need to follow.

Gather your financial information

To get an idea of how much you can borrow, and therefore what you can afford to buy, you need to give the lender a comprehensive picture of your finances. This includes your income and assets, and your financial obligations such as existing debts and living expenses (including ongoing bills, entertainment, food and car expenses, etc).

You’ll need evidence of everything:

  • Pay slips and tax returns for your income.

  • Title deeds for tangible assets (i.e. physical items such as buildings, machinery and inventory), and portfolio statements for intangible assets (non-physical items such as copyrights and patents).

  • Loan statements for existing loans.

  • Credit card statements showing your credit limit. If you already stick to a budget and have a regular savings history, you may want to provide bank statements to demonstrate this.

You can use all of this information to get an idea of how much you may be able to borrow. There are a number of free mortgage tools and calculators that can help.

Meet a lender or broker

Make an appointment to speak to a lender or mortgage broker. Most will provide a list of what you need to bring with you, such as the evidence explained above and the required forms of ID.

At the appointment, the lender or broker will use your information to calculate an approximate borrowing figure. If you want to proceed, you can fill in a pre-approval application form.

Undergo a credit check

The lender will arrange for an independent credit bureau to perform a credit check on you. This may affect whether or not you can borrow money, and how much.

Receive conditional approval

Assuming your credit rating allows you to borrow, you’ll then receive a conditional approval certificate from the lender. The certificate is usually valid for 90 days. This is an indication, not a guarantee, of the amount you can borrow.

Use this figure to work out how much you can spend on a property, taking into account the size of your deposit. Factor in expenses such as conveyancing fees, stamp duty and so on. Also consider that you may not be able to borrow as much as the conditional approval certificate indicates.

Securing pre-approval will allow you to house-hunt with confidence.

What happens next

Once you’ve put in an offer on a house – whether at auction or a private sale – you’ll need to get full approval on a loan. Contact your lender or mortgage broker with details of the property, and they’ll work through the home loan application process with you.

Obtaining pre-approval for your loan is an important part of the home-buying process. Contact your mortgage broker today for help with finding out how much you can borrow.

PROSPERA FINANCE — Geoff Norman

MOBILE LENDER PROVIDING MORTGAGE BROKERING SERVICES TO NORTH SYDNEY | CROWS NEST | ST LEONARDS | GLADESVILLE — FINANCING HOME LOANS — FIRST HOME BUYER LOANS — CAR LOANS — LOW DOCUMENTATION LOANS — EQUIPMENT LEASE

HOW TO NEGOTIATE IN A SOFTER HOUSING MARKET

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Seller expectations are high but buyers want low prices – what’s to be done? Two real estate agents detail how to negotiate in a declining market.

After years of rapidly rising house prices, the recent slowdown took many people by surprise – not least those with a home to sell.

“For a while we had a situation where buyers were aware the market was dropping while sellers still assumed it was strong, so there was a big gap between their expectations,” says Anton Zhouk, Director of the Buxton Real Estate Group at Boroondara in Melbourne’s eastern suburbs.

“Now people have had time to adjust so, when it comes to negotiation, the gap isn’t quite so wide.”

Whatever the state of the market, every negotiation is based on the same premise – vendors want to receive the highest possible price while buyers want to pay as little as possible. Both, however, need to give careful thought to how they approach a negotiation when the market is in decline.

Be realistic

“From a vendor’s point of view, it’s crucial that you price your property correctly from the start,” Zhouk says. “The most incredible homes in the world won’t sell if they’re overpriced.”

Jane Booty, Principal of Stone Hills District Real Estate in Sydney, agrees that vendors must be realistic.

“Some potential buyers are waiting for prices to fall even further so there fewer actively looking,” she says. “They have more properties to choose from so it’s harder to convince them to pay a premium price. And the longer a property stays on the market, the less likely it is to sell at a higher price – buyers can look up how long it’s been for sale and will use that against you.”

She suggests that vendors try not to think in terms of losing money.

“Unless you bought in the last two years or so, you’re probably going to get a higher price than you paid,” she says. “And, of course, if you’re selling to buy, you’ll be paying less yourself. It can be more helpful to think in terms of the changeover price, rather than fixate on the price you may have been able to achieve a few months ago.”

Take offers seriously

If a property is on the market now, it’s there for a reason.

“This isn’t a time to be testing the market or selling a property if you’re not in a hurry,” Booty says. “If you do need to sell you should be prepared to take every offer seriously, even if it’s not at the level you were hoping for. At least enter into negotiations to see how far you can get your potential buyer to go.”

When buyers have the upper hand, presentation is particularly important.

“You need to be clear about the attributes of your home – the unique selling points that make it desirable,” Booty says. “It’s also worth spending some time and money on minimising anything that would cause concern. You don’t want potential buyers to go away with the impression that there are another five homes they’d be equally happy with.”

A good agent can help you identify your property’s strengths and weaknesses then demonstrate and sell its strengths.

“In a softer market, it’s vital that you start by getting good advice on everything from pricing to presentation,” Zhouk says. “The right agent will also help you market the property effectively. This needs to be considered on a case by case basis – for example, advertising in print media may work well for some but, for others, it would be a waste of money.”

Be ready to act

As a buyer today, you’re well placed – but you shouldn’t be too complacent.

“If you see a property that appeals to you, it’s also likely to appeal to other people so you can’t afford to sit back and wait in the hope that the price will fall,” Booty says. “At least throw your cap into the ring and start the negotiation process.”

Zhouk believes that today’s buyers are in a fortunate position now that the market has settled – though no one knows for how long.

“The only way you can tell when the market’s hit the bottom is when it starts to come back up,” he says. “By then, you could be too late.”

Some tips to help get the best results from your negotiation

If you’re selling

  • Set a realistic price from the outset

  • Find a real estate agent you trust and act on their advice

  • Take extra care with presentation – you want potential buyers to fall in love with your property

If you’re buying

  • Do your research – be clear about a realistic market price

  • Let the agent know if you’re interested in a property

  • Don’t wait too long for a bargain – the market could turn at any time

 

PROSPERA FINANCE — Geoff Norman

MOBILE LENDER PROVIDING MORTGAGE BROKERING SERVICES TO NORTH SYDNEY | CROWS NEST | ST LEONARDS | GLADESVILLE — FINANCING HOME LOANS — FIRST HOME BUYER LOANS — CAR LOANS — LOW DOCUMENTATION LOANS — EQUIPMENT LEASE

WHY YOU ARE THE BEST PERSON TO SELL YOUR HOME

why-you-are-the-best-person-to-sell-your-home-sydney-prospera-finance-mortgage-broker-refinance-home-loans

Expert Observer

We’ve just entered what is traditionally the busiest time of the year for selling and it’s going to be a tough season.  Property markets are cooling causing an increasingly tight and competitive market for those looking to sell.  To achieve the best possible price in the current environment it is essential that sellers have greater control and visibility over the entire sales process – but how do you do this when you’re not actually in control?

Doing it yourself (DIY), is the best way to position yourself at the centre of a sale, and achieve the best outcome for you.  You are actually the best person to sell your home as only you have your best interests at heart.

The benefits of selling, yourself

We’ve often heard that vendors believe they need a professional to facilitate the sale of their largest asset.  Our response to that is with that much at stake, shouldn’t you, the seller, maintain control?  It’s a level of transparency that is very difficult to achieve with an agent, though can be achieved by taking the property to market yourself.

North America and Europe boast a significant portion of the market as DIY sales, with 23% of homes sold privately in Canada, 9% in the USA, and 44% in France.  This sees vendors successfully transacting directly with the buyer market, realising the significant benefits of control, visibility and savings on commission.  Whether selling yourself, or engaging an agent, information is power.

Dedicated service

As the vendor, you are selling one property – your property.  You have only one motivator; to sell your property at the best possible price.  This means you can choose when you have open for inspections whether it’s during the week, after work, on weekends – it is completely up to you.  You won’t need to limit potential buyers to a quick 30 minutes on a Saturday afternoon or the middle of the day when everyone is working.

Property knowledge

Agents will tell you no one knows local real estate like they do, and when it comes time to market the property, vendors are asked to leave their property so as not to “scare off” any potential purchasers.  However, no one knows your property and your street like you do.  You will always have a knowledge advantage over any agent, whether it be electricity costs, sunniest spot in the garden, or Joe across the road who keeps an eye on the place when you go on holidays – buyers love to hear these insider details from you.

Further, sellers are reliant on agents to tell them how many people attended, how many are interested and how many requested a copy of the contract.  You never actually get the chance to engage with interested parties as they’re the property of the agents – agents who are not only responsible for the sale of your home, but the raft of other properties on their books.

Open for inspections continue and interest builds, still, the vendor has no contact with these ‘interested’ parties.  The entire sales process is in the hands of the agent, a person who hasn’t slept a single night in the home and doesn’t know the unique benefits and quirks of both the property and the surrounding environment which make for outstanding sales attributes.

Money, money, money

The costs you will need to pay an agent upon the successful sale of your property can vary – often between 1.8 and 3 percent of the sale price.  On a $600,000 home, that’s almost $20,000 you need to pay out of the sale of your home, out of your pocket.  That’s a lot of money that could go to better use.

Immediate response to buyers

Provided you give them the privacy to look around, buyers appreciate the opportunity to ask questions of the owner directly, rather than filtering through an agent which draws out the process.  You can manage open for inspections well by giving a quick outline of the house layout and advising buyers to come to you should they have any questions.  Invariably the buyers have queries, whether it’s about recent renovations or a tree in the backyard so best to deal with these efficiently, and honestly.

Negotiation

Negotiation is often the major hurdle between choosing an agent or the DIY path due to the fear factor.  However, it isn’t as complicated as it seems.  By choosing to DIY you are able to be honest about your needs, and buyers can be honest about their own.  In our experience, vendors who have elected to DIY report the process is less combative than it is using agents as the go-between.  And when a rapport has been established between buyer and seller, it can make negotiation a pleasant and friendly experience.

If this isn’t for you, then there are services that can be offered where a professional can handle the negotiation component of the sale for you.

Overall, many first time DIY sellers advocate the experience as being a lot of fun.  Being complimented on your home as well as achieving an agreement on price provides a huge sense of accomplishment and joy.  Not to mention what can be done with the thousands of dollars saved in agent commissions.

PROSPERA FINANCE — Geoff Norman

MOBILE LENDER PROVIDING MORTGAGE BROKERING SERVICES TO NORTH SYDNEY | CROWS NEST | ST LEONARDS | GLADESVILLE — FINANCING HOME LOANS — FIRST HOME BUYER LOANS — CAR LOANS — LOW DOCUMENTATION LOANS — EQUIPMENT LEASE

PREPARATION CHECKLIST FOR INVESTING

preparation-checklist-for-investing-sydney-prospera-finance-mortgage-broker-refinance-home-loans

Property investment is a lengthy and involved process. To ensure you have considered all that is required before making the big purchase, we’ve outlined the steps you need to take. 

Commit yourself

A property investment must be a long term commitment in order for it to be worthwhile, so the very first step is to evaluate your budget, constraints and future obligations.

“Consider your future as far ahead as you can,” says an MFAA broker. “You need to ensure that your ability, commitment and financial capability can withstand a minimum of five to ten years, as that’s what generally brings premium results.”

Seek Professional advice

The next step is to seek professional advice. It is your opportunity to ask as many questions needed to alleviate any uncertainty you may have.

“Whether you’re chasing a great rental return, maximum capital growth or tax effectiveness, speaking to a broker will help you make the correct property investment choice,” says the broker.

Having an accountant, financial planner, solicitor and property manager on your team will also assist in ensuring that you’ve made the right choice.

Personal advice

Talking to friends, family and acquaintances who have, or are currently considering investing, provides a fantastic world of advice, advises the finance broker.

“Anecdotal truths is least impacted by gain, so you can learn a lot from their advice and also from their mistakes.”

Paperwork

As well as proof of your current income, employment, debts and loans, gather any paperwork that helps support your character in the application. For example, if you have been a long-term tenant, get a 12 month tenancy legibility that proves your ability to make regular repayments. Before applying for a loan, minimise your current debt load, and if possible reduce the limit on any credit cards you have, as this is perceived by lenders as potential for debt.

It is also advisable to have a fully assessed pre-approval before you start your search, as this will allow you to make an offer once you’ve found a property you like.

Key things to consider

Rowlands recommends choosing a property based on whether or not you feel like you could live in it. “It’s not an emotional decision, it’s still a business decision. But you also have to adopt the mindset that you could be selling to an owner/occupier down the track, which could be an emotional purchase.”

If however you plan to rent the property, your decision should be based on what would appeal to the type of individual who wants to reside in the area.

PROSPERA FINANCE — Geoff Norman

MOBILE LENDER PROVIDING MORTGAGE BROKERING SERVICES TO NORTH SYDNEY | CROWS NEST | ST LEONARDS | GLADESVILLE — FINANCING HOME LOANS — FIRST HOME BUYER LOANS — CAR LOANS — LOW DOCUMENTATION LOANS — EQUIPMENT LEASE

DO YOU NEED A FINANCE BROKER OR A FINANCIAL PLANNER?

do-you-need-a-finance-broker-or-a-financial-planner-sydney-prospera-finance-mortgage-broker-refinance-home-loans

When taking the plunge into the world of home loans and property investment, the challenge often lies in knowing which expert to approach for help. Brokers and financial planners, although similar in their professional outlook, cater to different financial endeavours.

Brokers that deal in home loans must be qualified and licensed loan advisers with in-depth knowledge of home loans and options suitable for a range of different financial situations. They negotiate with lenders to arrange loans and help manage the process through to settlement.

“When it comes to talking about a client’s debt structure or interest rates, or the best way to set up a loan, it’s really something that needs to be done by a mortgage broker who is qualified to give credit advice,” says the finance broker.

In contrast, financial planners assist with anticipating and managing longstanding financial outlook. They help sort through and select options for investment and insurance, with attention paid to retirement planning, estate planning and investment analysis.

“Planners take care of more of the long-term, wealth-creation strategy, as well as super and life insurance, and other sorts of wealth protection insurances,” the broker says.

A financial planner’s work is wide-reaching and important to your long-term financial health and stability. Options relating to loans and refinancing can only be recommended by qualified brokers.

There are some situations where it would be best to include both types of financial professional. For instance, if your broker is helping you refinance your loans in order to undertake a financial investment, a financial planner can step in to help you to assess the best investment option for you.

“There is rarely a time when I am dealing with a client, just on the loan side of things, where I’m not thinking about how it fits with what the financial planner is talking about,” the broker explains.

“In terms of whether the client’s choice is a viable investment strategy or whether it fits in with their long-term wealth goals, that’s something that we absolutely have to refer back to the planner to make sure that it fits in with their broader plan,” the broker adds.

The answer? It depends on your situation - for loans, see a broker, for investment advice, a financial planner. Of course, your broker can always refer you to a planner if you need one.

Contact Geoff to find out how he can help you secure property or commercial finance, and ask him to recommend a financial planner they trust.

PROSPERA FINANCE — Geoff Norman

MOBILE LENDER PROVIDING MORTGAGE BROKERING SERVICES TO NORTH SYDNEY | CROWS NEST | ST LEONARDS | GLADESVILLE — FINANCING HOME LOANS — FIRST HOME BUYER LOANS — CAR LOANS — LOW DOCUMENTATION LOANS — EQUIPMENT LEASE

FINANCE BROKER OR BANK?

finance-broker-or-bank-sydney-prospera-finance-mortgage-broker-refinance-home-loans

When you’re looking for a home loan, you could go to a finance broker or to a bank. While a bank will only offer you its own products, a finance broker is an industry expert who will take the guesswork out of finding the mortgage product that suits you and your needs.

It’s understandable that finance brokers are now the number one choice for consumers who are seeking a home loan or to refinance an existing loan. Businesses are also engaging finance brokers to help them with their finance needs from car and equipment leasing to loans to help their businesses expand. 

What can a finance broker do for you? 

The leg-work

Finance Brokers already know the industry, the lenders, their products and their requirements, saving you a lot of time and energy on research. They will also put the time into finding out about your particular credit situation and have a wealth of experience to draw on to help you simplify it.

Translate industry jargon

Finance brokers are able to make sense of what loan documents and lenders are saying – put it into lay-person’s language, so to speak. 

Get you what you want

Advisers will determine your borrowing needs and fiscal ability, and choose the only an appropriate product to suit your requirements. 

Give you a broader choice

Finance brokers can offer a larger selection of loan products.  While a bank can only offer you its own products, finance brokers can help you choose from a selection of loans provided by different lenders. 

Help you compare apples, oranges and the whole fruit basket

Finance brokers have the knowledge and tools to compare often hundreds of products and you get a loan suitable for your circumstances and needs. 

Find you a good deal

Loan providers are always spruiking a special deal or two, and these could make a big difference to your repayments or success rate.  A finance broker will know which of the deals on the market at the moment will be appropriate for you. 

Act as your advocate

A good finance broker wants the best for you, the client.  They will be your cheer squad, middle-man, team player and coach throughout the process. 

They’re in it for the long haul

A finance broker won’t just love you and leave you – they will oversee and manage the loan’s progression right through to the end on your behalf.  By the way, ‘the end’ isn’t when you sign the documents and buy your property; you can expect your finance broker to keep track of you and your changing needs, helping you should you need to switch products or wish to purchase another property. 

The key is to choose a finance broker who is MFAA-accredited.  The Mortgage & Finance Association of Australia (MFAA) is the peak national body representing professional finance brokers across Australia, and all members must adhere to professional development standards and a stringent code of conduct.  

As an MFAA Approved Finance Broker, Geoff is much more than your average mortgage broker. 

PROSPERA FINANCE — Geoff Norman

MOBILE LENDER PROVIDING MORTGAGE BROKERING SERVICES TO NORTH SYDNEY | CROWS NEST | ST LEONARDS | GLADESVILLE — FINANCING HOME LOANS — FIRST HOME BUYER LOANS — CAR LOANS — LOW DOCUMENTATION LOANS — EQUIPMENT LEASE

WHAT TO BE AWARE OF WHEN BUYING OFF THE PLAN

what-to-be-aware-of-when-buying-off-the-plan-sydney-prospera-finance-mortgage-broker-refinance-home-loans

The rise of new apartment developments in our cities provides greater opportunities for potential home owners to buy off the plan. There are benefits to this, but also a number of things to be mindful of. We look at some of the things to consider when buying off the plan.

The benefits

A major benefit of purchasing off the plan is that you’ll own a brand new property. There are also financial benefits. For example, you’ll have the security of knowing how much you’ll pay for the property in the future, even if its value increases. Construction usually takes a year or two, so there’s time to save before you settle.

If you need to borrow money for the deposit, speak to your broker about how to best structure the purchase. Most home loan lenders won’t approve a loan for a long settlement period, but a broker can provide advice about what assurances you can get regarding the amount you may be able to borrow when it comes time to settle.

Depending on which state or territory you’re in, you may have access to stamp duty and tax concessions, or government grants. If you’re purchasing the property as an investment you may also be eligible for tax benefits. You should consult with your accountant for personal financial advice specific to your circumstances.

Things to look out for

Off-the-plan contracts try to cover future issues. Check that certain scenarios, such as construction delays or if you want to withdraw, are clearly addressed. Once the building is complete it might not meet your expectations. Speak to a legal advisor before signing the contract to avoid any surprises.

Find out whether the developer has taken out home warranty insurance. Depending on the relevant state or territory laws, builders may be required to include a certificate of insurance in the contract. Even if this isn’t the case, you can ask the developer for proof of insurance before you settle. Your broker or home loan lender may help with this as part of the lending process.

The property might be everything you dreamed of, but there’s always a risk the market may have changed by the time you settle. While you can’t avoid this, you should do some homework before you buy. For example, look at properties being built in the area to work out if there’s likely to be an oversupply. Some lenders may look at the value of your property, rather than what was paid for it when considering how much they will lend you. It’s worth speaking to your broker about how your property may be valued and what your home loan options are.

By exercising a little due diligence you can minimise the risks and reap the benefits of buying off the plan. 

PROSPERA FINANCE — Geoff Norman

MOBILE LENDER PROVIDING MORTGAGE BROKERING SERVICES TO NORTH SYDNEY | CROWS NEST | ST LEONARDS | GLADESVILLE — FINANCING HOME LOANS — FIRST HOME BUYER LOANS — CAR LOANS — LOW DOCUMENTATION LOANS — EQUIPMENT LEASE