gkfinancial | October 2018
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October 2018

Welcome to our October Newsletter

The last weekend in September was a little quiet in our property markets, as buyers took time off to watch the AFL and NFL Grand Finals. We hope your team won and you’re now back on the open inspection circuit – there are plenty of bargains up for grabs in our Spring property market and who knows how long the current buyer’s market will last?

Interest Rate News

At their October meeting, the Reserve Bank of Australia left the official cash rate unchanged at 1.5% making this the 25th month in a row where no action was taken on rates by the RBA. However, lenders continued to make rate adjustments throughout September to account for their increasing borrowing costs, and we can now expect interest rates to remain relatively stable for some time.

Property Market News

The latest report from Moody’s Analytics and CoreLogic indicated we can expect price declines in Sydney and Melbourne of about 5 – 10%, but foresees all markets returning to positive annual growth territory by mid 2019. Over the past year, prices have trended higher in Hobart, Canberra, Adelaide and Brisbane, but are lower in Perth, Darwin, Sydney and Melbourne. Generally speaking, more expensive properties are the weakest segment in all markets, so there may be opportunities for those looking to grab a bargain at the top end of the market.

Compared to this time last year, Sydney home values have fallen by the highest margin at -6.09% YOY followed by Darwin at -3.71%, Melbourne at -3.37% and Perth at -2.77%. The outstanding home value growth performers over the last year have been Hobart at +9.30% and Canberra at +2.02%, followed by Brisbane and Adelaide which experienced growth around +0.75%.

In September, the biggest decline in home values was in Melbourne, where prices fell -0.89%. In Perth, values dropped -0.65%, while Sydney recorded a monthly decrease of -0.60%. Prices in Darwin fell by -0.37% and Adelaide -0.24%. Brisbane/Gold Coast experienced a rise of +0.10%, Canberra +0.25% and Hobart showed the strongest growth at +0.40%.

Auction clearance rates are trending lower across all markets and the number of properties up for auction has declined significantly since this time last year. More sellers are choosing the private sale option as it allows them to hold out for their desired price, however this tactic also gives buyers more room to negotiate.

If you’re serious about buying a property this Spring, don’t wait to ask us to arrange pre-approval on your home loan. Knowing your ceiling price will give you more confidence to negotiate and a pre-approval will reassure vendors you’re serious about purchasing. It’s also a good time of year to get a home loan health check or to consider a home loan refinance, so please don’t hesitate to get in touch for a chat about your circumstances and requirements today.

Sources:
https://www.realestate.com.au/auction-results/
https://www.corelogic.com.au/research/monthly-indices

6 negotiation tactics for Spring property buyers

With home values and auction clearance rates softening in our Spring property marketsbuyers will have the upper hand when it comes to negotiating on price. So, it’s a good idea to arm yourself with some sharp bargaining tactics before diving in.

Nobody wants to pay more than the current market value for a home. Here are six negotiation tactics to help you get the right price on your Spring property purchase.

1. Research the market value in advance

When it comes to the sale price, it pays to do your research. Knowing the correct market value of a property will allow you to negotiate the price with confidence. It’s important to make a fair and educated offer that reels the vendor in, whilst avoiding overspending.

2. Know your ceiling price

Before you begin negotiating, it’s important to know your spending limit. The easiest way to find out is to speak to your mortgage broker, who can research your borrowing power. This is the amount a lender may be willing to let you borrow, given your personal financial circumstances.

Knowing your ceiling price is particularly important when bidding at auction. With private treaty sales, you can insert a ‘subject to finance’ clause in the contract that will allow you to back out if a lender won’t come to the party. But once the hammer goes down at an auction, you cannot pull out without being in breach of the contract and out of pocket for the deposit.

3. Be confident of your finances

When negotiating, you’ll be more confident if you know your finances are good to go. Pre-approval gives you that peace of mind and it gives you an advantage over buyers who don’t have their finance in order. (If you’re new to buying property, pre-approval is an indication from a lender that you qualify for a home loan up to a certain limit).

4. Understand the seller’s motivations

Find out why the vendor is selling. If the sale is time-sensitive, you may be able to offer a shorter settlement period for a discounted price. This is often the case if the vendor is in a hurry to relocate for work or family reasons. Try to close the deal by changing the settlement terms or conditions to suit their needs, or perhaps the deposit arrangement (for example, you could offer a larger cash deposit).

5. Use your building and pest inspection report as a negotiation tool

If your building and pest inspection reports come back with a few surprises, it may give you leverage to get the vendor to lower the price. Of course, you may not want to buy a property that’s infested with termites, but if the issues are minor, you may consider buying anyway.

6. Know when to walk away

The number one rule when buying property is not to get emotional. When you determine the fair price for a property, be firm. If the vendor isn’t budging on price and is unwilling to meet the market, you may have to walk away. Once you do, you may find they turn around and agree to accept your offer.

There’s an art to successfully negotiating the purchase of a property. However, with careful research and preparation, you can come out on top. Before you begin shopping for a home or investment property, remember to talk to your mortgage broker about getting your finance pre-approved so you’ll be all set to negotiate with confidence.

Happy property hunting!

This article provides general information only and has been prepared without taking into account your objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances and your full financial situation will need to be reviewed prior to acceptance of any offer or product. It does not constitute legal, tax or financial advice and you should always seek professional advice in relation to your individual circumstances.  Subject to lenders terms and conditions, fees and charges and eligibility criteria apply.

Choosing a contractor to build your home

Building your own home gives you the freedom to design it exactly to your taste, from the ground up. And if you’re a first-home owner, there may be some useful government incentives available to help get your project off the ground. Here’s what you need to know about building your own home and choosing a contractor.

Government incentives

If you’re a first-home owner building a new property, you may be entitled to the first-home owner grant (FHOG). The amount for this one-off grant varies by state.

You may also be eligible for stamp duty exemptions or concessions, so be sure to check what’s available in your state. Remember, stamp duty can run into the tens of thousands of dollars, so an exemption or concession could save you a lot of money.

You can find details about state-specific incentives for first-home buyers here: http://www.firsthome.gov.au.

DIY vs Using a contractor

Being a DIY owner-builder can potentially save you money. However, mistakes may be time-consuming and costly if you don’t know what you’re getting into.

Before going down this road, check out the requirements for becoming an owner-builder with your local building authority. Keep in mind you’ll be responsible for obtaining building permits, supervising or undertaking the building work, and ensuring the work meets building regulations and legal codes. You’ll need to know how to:

  • review building plans
  • estimate the cost of materials and labour
  • schedule deliveries of materials.

If it all seems too hard, it’s probably best to hire a contractor. These professionals can take care of the entire building process for you.

Types of builders

  • Production builders (volume home builders): Often offer home and land packages with predesigned homes. You can usually walk through a model home to get a feel of what to expect. This option may be cheaper than custom-building your home.
  • Custom builders: If you want to design your home from scratch, you’ll need a custom builder to create something totally unique for you.
  • Semi-custom builders: These builders work off a plan, but you can adjust the plan and customise it to some degree.

Tips for choosing a builder/contractor

  1. Ask to tour similar homes they have built to check the quality of their work.
  2. Ask plenty of questions. You’ll want to know about everything from the materials they use, to the type of warranties you’ll receive upon completion.
  3. Check online reviews and request referrals.
  4. Know what you want. If you require something specific like a built-in cellar for your wine collection, you’ll need a custom builder rather than a production builder.
  5. Request quotes from several builders and find out what method they use to come up with their bid:
    • Square foot pricing is based on an average price for each square foot of space but won’t necessarily cover all the costs.
    • Assembly pricing is more realistic and looks at the cost of building each component.
    • Unit pricing covers the cost of all the supplies for the build, so it’s the most accurate type of method.
  1. Find out how the builder accounts for unforeseen expenses. Do they build a buffer into their bids? If not, ask what will happen if they go over budget.
  2. Have your conveyancer check the paperwork before committing to anything.

Financing your new home build

Most home builders require a construction loan. Construction loans are different from regular home loans. Instead of getting the money in a lump sum at settlement, the lender releases portions of the loan in stages as the property is built.

During the construction phase, you usually pay interest-only. Once the property is completed, the loan converts to principal and interest.

Building your own home is exciting and nothing compares to finally seeing it finished! If you’re ready to get started, talk to your mortgage broker about the right construction loan for your needs. They can help you find a competitive option that fits with your particular construction plans and maximises any grants you may be eligible to receive.

 

This article provides general information only and has been prepared without taking into account your objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances and your full financial situation will need to be reviewed prior to acceptance of any offer or product. It does not constitute legal, tax or financial advice and you should always seek professional advice in relation to your individual circumstances.  Subject to lenders terms and conditions, fees and charges and eligibility criteria apply.

4 Important property investment finance tips

Since the lenders cracked down on popular options like interest-only loans, finding creative finance strategies for growing your property investment portfolio has become more important than ever.

As an investor, how you set up your finances can have a huge impact on the success of your property portfolio. In this article, we share a few property investment finance tips that every savvy property investor should know about.

1. Take precautions to keep your own home safe

Many people make the mistake of using their own home as the initial collateral in a property investment finance strategy, however it’s a good idea to keep your own home separate. If your investment strategy should go belly-up (in the worst-case scenario), you won’t find yourself having to move back in with Mum and Dad.

It’s a much better idea to refinance your home loan to access the equity in your own home and use that as a deposit on an independent property investment loan. Keeping things separate will also help you to maximise the tax advantages that property investment brings. (Talk with your accountant for more information).

2. Use multiple lenders and stand-alone loans

Cross-collateralisation is when more than one property is used to secure a loan or multiple loans. You can also be at risk of cross-collateralising if you use the same lender for all your loans, even if you finance them independently of each other.

Cross-collateralisation can lead to several problems:

  • If property prices should fall, the lender may ask you to top up your deposits on all your investment properties at once.
  • It may limit the way sale proceeds can be used (for example, the lender might insist that you use the funds to pay down other loans in your portfolio).
  • All the properties in a cross-collateralised portfolio may need to be re-valued whenever one is released or refinanced, which can be costly.
  • The lender may limit the type of products on offer as your debt with them increases (for example, restricting future loans to Principal & Interest).
  • Lender fees may be higher with cross-collateralised loans.
  • There may be constraints with equity access.

The answer? Use a variety of different lenders for your finance and insist on stand-alone loans using each individual property as security. A good mortgage broker can save you a considerable amount of time researching and approaching suitable lenders.

3. Invest in different states and locations

Australia is made up of hundreds of property markets, all performing differently. If you invest in multiple states and locations, you’ll help to minimise the risk of all your investment properties experiencing a value downturn at the same time – which could bring your investment strategy to a grinding halt. For example, property values in Melbourne and Sydney are experiencing a temporary dip right now, whereas property values in Hobart are still experiencing growth.

If you also finance your loans with a number of different lenders in each state where you invest (as mentioned above), you’ll be able to access equity from investments in capital growth areas to purchase more property. Even if some of your properties are experiencing value declines, you’ll still be able to continue investing. You may even be able to use your equity to grab bargains in markets where property prices are experiencing a temporary dip, as an additional flexible strategy to maximise your long-term returns.

4. Get professional advice

Property investment can be a good way to build wealth when done right. It’s always a good idea to speak to a financial planner and tax accountant before making any property investment decisions. Your mortgage broker can help with your financing strategy and will work with your other professional advisers if necessary. They provide invaluable advice to help you structure your loans correctly to protect your interests and to suit your investment goals. If you’d like to know more, please get in touch with your mortgage broker today.

 

This article provides general information only and has been prepared without taking into account your objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances and your full financial situation will need to be reviewed prior to acceptance of any offer or product. It does not constitute legal, tax or financial advice and you should always seek professional advice in relation to your individual circumstances.  Subject to lenders terms and conditions, fees and charges and eligibility criteria apply.