28 Mar March 2017
Welcome to our March newsletter
The property market is in full swing in most states around the country. Auction activity reached record levels during February in our eastern states, but elsewhere market conditions varied. We are now seeing a two-speed property market across the country, which could create some great opportunities for savvy buyers and property investors over the coming months.
Interest Rate News
The Reserve Bank of Australia (RBA) met for its March meeting last week and elected to keep the official cash rate on hold at 1.5 per cent yet again.
Even though the RBA didn’t change the interest rate this month, there are several reasons why you should check in with us:
- Lenders are continuing to adjust rates outside of RBA movements. It will pay to see us for a home loan health check now, particularly if you’ve had your home loan for a while.
- Property investors are facing tougher criteria from some lenders, particularly on interest-only products and refinances due to controls imposed by APRA last year. Make sure you consult us about your finance if you plan to invest.
- With the property market on the move, it is important to get pre-approval on your home loan before you hit the auctions.
Property Market News
We’re seeing people rushing out in droves in Melbourne and Sydney to place their bids. For the week ending Sunday March 5, Victoria had a huge 1,542 auctions with a clearance rate of 78%, and NSW 1,133 auctions with a clearance rate of 75%. Conditions were also good in the ACT which had a clearance rate of 71%.
Other areas were not looking quite so robust, with clearance rates in Queensland, Western Australia and South Australia all sitting below 65% for the same weekend.
The interesting two-speed property market has also been evidenced in this month’s home value figures. Sydney home values jumped 2.58% in February, showing a huge 18.41% increase year on year and in Melbourne, home values rose 1.46% in February and showed an increase of 13.11% year on year.
Other areas showed more conservative rises and in some cases, falls. Adelaide showed a slight home value increase of .63% last month and was up 3.5% year on year, Hobart showed an increase of .98% last month and an increase of 5.83% year on year and Brisbane/Gold Coast showed a marginal decrease for the month of .05% and growth of 3.47% year on year. By contrast, both Perth and Darwin home values fell in February.
Low interest rates are looking set to continue and with an abundance of housing stock in most markets, we’re anticipating an exciting and dynamic property market for the first half of 2017. Remember, we’re here to help you find the right finance product for your needs, whether it is for your first home, your next home, an investment property, or even refinancing to get a better rate. Call us today for a chat about your plans, we’ll be happy to help.
How to sell your home above market value!
When you decide to sell your home or investment property, it’s natural to want it to fetch the highest sale price possible, but it’s also important to be realistic when setting your price or you risk scaring the buyers away.
Here are some pointers to help improve your chances of selling above market value, whilst not overpricing your property. And remember, when you do decide to move on and buy your next property, we can help you find the right home loan to meet your current and future financial needs.
1) Find a reputable real estate agent
Selecting the right real estate agent is an important part of achieving a desirable sale price, as they provide the necessary advice throughout the sales process to help you reach your goals. You’ll also need someone you can count on to attract the right buyers and secure a sale price that’s on the higher end of the spectrum.
The easiest way to narrow down your search for the right real estate agent is to pose as a buyer yourself. Put the agent’s knowledge and people skills to the test, and research how they are performing in the local area. Their knowledge of the local property market is key. To get the maximum price, they need to have a very sharp understanding of where the local home values are headed and have the skills to persuade prospective buyers that your property is still a bargain, even though you are asking maximum price. The right candidate should be a good communicator, efficient and adaptable.
2) Clean, de-clutter and repair
Prior to selling, it’s imperative to go through your property with a fine-tooth comb. Clean meticulously, de-clutter ruthlessly and repair anything that needs fixing. Buyers will be more likely to pay your price if they know it will be years before they have to spend any more money on maintenance. This is particularly true of property investors – who also don’t want the hassle. Ensuring the property is looking its absolute best will make the next step easier.
3) Style to sell
The goal is to make the buyer fall in love and for your property to be so irresistible, they simply have to accept the price tag. The more attractive a home looks, the more likely a buyer will pay top dollar for it. The key is to showcase your property’s strong points and to make it ‘pop’ in the eyes of prospective buyers.
When it comes to décor, tastes vary widely, so it’s a good idea to stick to neutral or popular choices. Knowing your buyer profile will help you style the property appropriately, but if in doubt, hire a professional stylist. Subtle touches can help drive up the final price.
4) Invest in marketing
Your marketing efforts can make all the difference to your sale price. The more people interested in the property, the higher the competition and the more likely the property will sell above market value.
The quality of the photography is essential to getting a higher price. If you use a professional stylist to set up the property, they often have their own professional photographer. If your real estate agent is taking care of the photos, check the quality of the photography they’ve used with past clients. If they take unacceptable photos of your property, then insist on doing another photoshoot with a better photographer, until you reach a better result. Lastly, use enticing copy to hook buyers and advertise through several avenues to increase your property’s exposure. A good real estate agent will help you with all this!
5) Choose your timing wisely
Timing is everything and choosing when to sell, based on the property market in general, the wider economy, and even the season, is important. It’s all about supply and demand, and if you want to sell your home above market value, you need to wait until the supply is low but the demand is high locally for properties similar to yours. Keep an eye out for your competitors and avoid putting your house on the market at the same time as others in your suburb offering the same features. Your home will get a greater price if it seen as a rare commodity.
Along with timing, deciding whether to do a private sale or an auction can impact what price you fetch. Your real estate agent will be able to provide insights about which sales technique would suit your property and location best, and recommend a starting price that will lure the right buyers.
In order to sell your home or investment property above market value, your property must be beautifully presented and effectively marketed. When you are ready to move on from your current home, we can help you find the right home loan product for your next property. As your mortgage and finance broker, we will guide you through the transition period, and locate a home loan that’s right up your street. Happy selling and good luck!
7 Easy steps to buying a home if you’re self-employed
There’s nothing quite like the sweet satisfaction that comes from holding a shiny new set of keys to your very own home!
If you’re a self-employed borrower, you’ve no doubt worked hard to get where you are and you deserve to enjoy the fruits of your labour. Here are our best tips for buying a home when you’re self-employed – but be warned, you may feel tempted to break out a spontaneous “happy dance” when you secure your new digs. It’s that exciting!
1) Save the nest egg
If you’re considering buying property in the not-so-distant future, it’s a good idea to start saving and planning the purchase well in advance. Lenders like to see a solid savings history over several months when assessing home loan applications.
While you may be able to borrow up to 95% of the property’s value by using your personal and business tax returns from the last two years to verify your income, you will be subject to Lenders Mortgage Insurance (LMI) if you have less than 20% for your deposit. LMI protects lenders if you default on your home loan and it can be costly, so it’s a good idea to aim to save a deposit of 20% or more.
2) Be fastidious about financials
As a self-employed borrower, one of the best ways to maximise your chances of approval is to make sure your financial records are up-to-date and accurate. Lenders are typically more careful about granting home loans to self-employed borrowers, as your income streams fluctuate more than PAYG applicants and it’s more difficult for lenders to gauge whether you can meet repayments into the future. The Australian Securities and Investments Commission (ASIC) also requires lenders and mortgage brokers to ensure you are able to repay your loan without suffering financial hardship.
Lenders like to see consistency of income, and if your financial record-keeping is top-notch, it will be easier to illustrate your earnings and ultimately have your loan application approved. If you’re self-employed and thinking about buying a home, it’s a good idea to have your last two years’ financial statements, income tax returns and notices of assessment ready to go.
3) Get your accountant on the job
One challenge self-employed borrowers may face is not being able to prove they can service a loan because their accountant has been clever about reducing their taxable income. While you may save money on your tax bill, reducing your taxable income can also affect your ability to apply for credit and invest in property. It’s important to talk to a qualified accountant about your home buying aspirations and the tax implications. We have some great contacts, so let us know if you need a referral.
Often there are business expenses that can be added back to your taxable income to work out your borrowing capacity. These “add-backs” include larger stand-alone costs, non-cash expenses like depreciation, additional super contributions, and interest on loans being refinanced. Talk to us about whether “add-backs” could improve your chances of being approved.
4) Provide the necessary documentation
If you’ve been self-employed for more than two years, you can verify your income by providing two years of personal tax returns and the correlating ATO notices of assessment, two years of tax returns for all entities (company, trust, Self-Managed Super Fund), and two years of profit and loss statements (if applicable).
If you’ve been self-employed for less than two years, the income requirements on Alternative Documentation loans include: six months of Business Activity Statements, six months of business account statements, six months of personal bank account statements, confirmation of ABN and confirmation of GST registration. You will also need a letter from your accountant confirming your full legal name, trading name, how long the accountant has serviced you, gross taxable income for the past three years and any relevant deductions.
5) Talk to us about pre-approval
Organising pre-approval before you begin looking for a property will make the process a whole lot easier, as it will give you a realistic idea of how much you can afford to borrow, so that you can put a budget on your search and find the home you want sooner. We can help you establish your borrowing power and determine your eligibility for finance. We’ll explain the merits of each lender and which loans could work for you.
As part of the pre-approval process, we will approach your lender of choice, who will check your credit history and verify your income. Pre-approval gives you an assurance from the lender that you can take out a loan up to a certain amount – handy ammunition when trying to convince real estate agents and vendors you’re serious about buying.
6) Find your property
Once you’ve organised pre-approval, it’s time to find the right property. Remember, this is one of the biggest decisions of your life, so it pays to do plenty of research before choosing ‘the one’. Make sure you get a building inspection done to check for issues such as structural movement or plumbing problems, as well as pest inspections for termites and other unwanted guests. A solicitor or conveyancer will be able to take care of the legalities involved in buying the property.
7) Apply for your home loan
As your mortgage broker, we will find the right home loan to suit your financial situation and future objectives. As a self-employed borrower, we can help you find ways to make your cash flow work harder. If you are a contractor or sub-contractor, you may be considered ‘an employee’ rather than self-employed by some lenders, so it’s worth asking us to check.
If you’re self-employed and looking to buy a home, it’s a good idea to consult a mortgage broker like us to discuss your options. Lenders’ policies vary widely when it comes to self-employed applicants, but we know which ones will view your application most favourably. We’ll explain your buying capacity, provide advice about which application method would work best (given your income and documentation), and help maximise your chances of approval. Best of all, you’ll feel confident in the knowledge your home loan is structured correctly from day one, so that it works for you.
PS. We won’t judge you if the “happy dance” happens in our office. We may even capture it on video and post it on our Facebook page!
Property investment jargon explained
If you’re new to property investment, understanding all of the jargon involved can be tricky.
As your mortgage broker, our mission is to help simplify and support you through the process of investing in property, which is why we’ve put together this handy list explaining the key lingo you’re likely to encounter. Right, students, pens at the ready, it’s time for some learning!
A bank valuation is the bank’s estimate of the value of a property. When you apply for a home loan, your lender will send an independent valuer to appraise the property. The bank valuation is usually more conservative than the market value, because it’s designed to limit the lender’s risk and indicates the amount they can expect to recoup if the property is repossessed. It’s important to note that a bank will not accept your valuation of the property, even if you obtain your valuation from an independent valuer.
Capital gain is the term used to describe the profit on the sale of the property, once all expenses have been deducted. Capital Gains Tax (CGT) is applicable to capital gains on investment properties purchased on or after September 20, 1985, but does not apply to your principal place of residence in most instances.
The tax you pay is based on the sale price minus the cost involved in acquiring and holding the property (your cost base), and any gain is included in your assessable income in the financial year you sell the property. There may be several exemptions for paying capital gains tax (CGT). For example under the ‘Temporary Absence Rule’ – if you move out of your home and rent it out, the property may still be treated as your principal residence for up to six years and you are exempt from CGT. However, the exemption rules may vary from state to state, so it is wise to speak to your accountant about CGT and ask them to explain any exemptions that may be applicable to you.
Capital growth is the increase in value of the property over time. The supply and demand in an area impacts the capital growth. If there is high demand from buyers and limited supply, the prices are likely to rise.
Current market value
Not to be confused with the listing price, nor the most recent offer on a property, the current market value, as defined by The International Valuation Standards Council, is: “The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.”
Depreciation is the decline in the value of an asset over time. As an investor, you may be able to claim depreciation on the property buildings and the items within it against your taxable income, but again you should check with your accountant to see what tax deductions are applicable to you. In order to claim depreciation, you will need to employ a qualified Quantity Surveyor to prepare you a depreciation schedule. The tax office will not accept a depreciation schedule that you prepare yourself.
Equity is the current market value of a property minus any outstanding mortgage repayments. Investors can use the equity from the increasing value of an investment property to purchase a new property – if you are interested in doing this, talk to us about refinancing your current loan.
Lenders Mortgage Insurance (LMI)
This is a fee charged by lenders to protect themselves against borrowers who default, in case the net proceeds of a foreclosure do not cover the loan. LMI may be applicable to borrowers who do not have a deposit of 20% or more.
Loan-to-value ratio (LVR)
The LVR is the proportion of money borrowed versus the value of a property. Lenders take into account the LVR when assessing mortgage applications, as the lower the LVR, the lower their risk. Usually lenders will require you to pay LMI if they’re lending more than 80% of the value of the property.
Negative gearing applies when the property’s expenses surpass the rent earned. These expenses can be used to reduce your taxable income. Positive gearing is when the rent exceeds the costs and the property pays for itself.
The rental yield is the annual rental income, expressed as a percentage of the property’s value. It’s often quoted when examining a property’s rental potential, and may be calculated as a gross percentage (before expenses are subtracted), or as a net percentage (accounting for purchasing or transaction costs). The rental yield can help investors determine the potential income and cash flow involved in purchasing a property.
Suburb growth refers to the capital growth of properties within a particular suburb. As an investor, it a good idea to thoroughly research a suburb’s profile, including its capital growth potential, before purchasing a property.
The vacancy rate is the amount of properties vacant in an area. It is a useful way for investors to assess the rental demand of a suburb before purchasing. Investors usually prefer a suburb with a low vacancy rate, because it indicates a likelihood of being able to find tenants quickly and easily.
Zoning refers to government laws specifying how property can be used. Properties may be zoned for residential, industrial, business, or other purposes. It’s important to be aware of zoning, as it affects the home loan you take out, capital growth potential, plus future renovation plans.
Investing in property is exciting, but it can also be confusing with so much new terminology to digest. We can help you make smart investment decisions and alleviate the stress by helping you decide the right structure for your property investment loan and by guiding you through the loan application and settlement process.