It may be a buyer’s market, but when property prices are falling, buyer confidence often goes with it. However, the possibility of paying too much is not the only risk a home buyer or property investor can face when market conditions are undergoing significant change, as they are now. In this article, we outline some of the other potential pit-falls and tell you how you can avoid them when buying a home this Autumn.

1. Pre-approvals are more important than ever

A loan pre-approval means a lender has assessed your financial situation and determined how much you can borrow. It’s a good indication they’ll give you a formal loan approval later.

Banks have been tightening their lending criteria and this is one of the things influencing falling property prices. Fewer loans are being approved, and the size of loans being approved has also reduced. Home buyers who could easily get finance a year ago, are now facing much more rigorous tests to get loan approval.

Under no circumstances should you place a deposit on a property until your loan pre-approval is confirmed – otherwise you may risk losing your money.

2. Get lender approval on your property selection

Did you know that a lender can reject the property you want to buy, even if they have given you a pre-approval on a loan big enough to buy it? You can reduce the risk of lenders rejecting your home selection by asking us to confirm you have chosen a viable property before putting down your deposit.

There are several reasons why a lender may not give you final approval on a loan for the property you want to buy. The main reason is negative equity risk.

Negative equity is when the amount you have borrowed becomes more than the market value of the home. There is a risk this can occur due to falling home values. For example, in 2018 many off-the-plan homes were unexpectedly valued at less than the contract price upon completion and some buyers were unable to get the loan approval they needed to complete their purchase without topping up their deposit.

To avoid a negative equity situation, a deposit of at least 20% is recommended. If buying off-the-plan, it is also recommended you insert a clause in the sales contract confirming the final price will not be more than the market value of the property upon completion.

The other reasons a lender may not approve your loan is if the property is in poor condition, in a remote or unpopular location, or is too small (less than 52sqm).

3. Ask more questions

Research is key when buying in a falling market. Ask more questions about the underlying factors that drive capital growth to ensure the property will hold its value and you’re not paying too much – look at local employment rates, proximity to schools, public transport and other important amenities, rental demand etc. You can also contact us to access free reports that have this information.

4. Keep your broker in the loop!

Remember, it’s a buyer’s market and with careful research you can buy with confidence. If you want to secure a bargain this Autumn, then call us now to confirm your borrowing capacity and get pre-approval on a loan. In addition to helping to protect you from risk, a pre-approval will help you move quickly when you find the right property and negotiate strongly to get the right price. Call us for a chat about your plans today.

You may have heard the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry has made some recommendations about changing how mortgage brokers get paid. There’s been a lot of noise in the media, so we thought it might be a good idea to update you about what’s going on and how it may affect you as a home loan customer – but first, we’d just like to say that it’s business as usual for the time being.

We’re here to help you with great service for all your finance needs – and we’ll be keeping your best interests at heart, as always.

So, what’s going on?

The Royal Commission has recommended that lenders no longer pay mortgage brokers a commission and that borrowers should pay their mortgage broker a fee instead.

As a home buyer who understands all the benefits of using a mortgage broker, you may find this recommendation quite troubling. The last thing you need when you’re buying a home is to come up with more money for mortgage broking fees, right? And with the loan application requirements becoming increasingly complex, how would you get by without one?

Unfortunately, these are not the only considerations regarding the Royal Commission’s recommendation. Changing to a borrower-pays system could have a seriously negative impact on competition in the home loan market and this could prove to be disastrous for everyone.

How would reducing competition affect you?

Over the last 20 years, the work of mortgage brokers has driven competition in the home loan market. Our work in providing home loan customers with choice and value has forced banks to cut their own profit margins and keep your fees and interest rates down. Almost 6 out of every 10 (59.1%) home loans go through a mortgage broker and this keeps banks on their toes and working to constantly improve their loan products.

If the proposed changes were to become law, many consumers would not be able to afford our services and our businesses would struggle to survive. Without brokers:

• Too much power will go to the big banks, which could drive your loan costs up.
• Smaller lenders may have to exit the home loan market, reducing competition.
• This will result in less choice of loan products and less access to credit.
• You’ll get no assistance understanding increasingly complex loan criteria.

People who need a broker’s help the most – young people, low income earners, those who have difficulty understanding the home buying process – may never get the assistance they need to achieve the great Australian dream of owning their own home.

Changing to a borrower-pays system would not just be a tragedy for those people, it may put our entire economy at risk in the long-term. A healthy, competitive property industry is a major driver for Australian economic growth and provides a great deal of employment.

What can we do about it?

The mortgage broking industry has united to get behind mortgage brokers and to support the continuation of healthy competition in Australia’s home lending market. You may have seen the TV commercial from the Mortgage and Finance Broking Association of Australia (MFAA) promoting the service, value and choice that we mortgage brokers provide to you.

You can assist us, and all Australians, by pledging your support  for mortgage brokers at #ChoiceMatters, change.organd Your Broker Behind You.

Once we’ve collected enough pledges, the Government will be forced to listen to what we have to say about preserving broker commissions and upholding your right to a competitive lending market that provides you with genuine choice and personalised service.

Thank you for supporting our business. If you have any questions, please just give us a call.

When it comes to buying a home, bigger is better, right? Maybe not. All over the world, people are changing their attitude to the size of home they live in. This is particularly true amongst millennials, and if you’re looking to build your first home to take advantage of stamp duty concessions and first home owner grants, there may be many advantages to thinking small.

What are the benefits of building a small home?

• They cost less to build because they require less labour and materials
• Can often be pre-fabricated, so can be built more quickly
• A small home requires a smaller plot of land
• They use less energy – it’s easier to minimise your carbon footprint
• Less maintenance costs
• You can pay off your mortgage sooner

What qualifies as a small home?

A small home can be anything from a cabin in the woods to a city high-rise apartment, or a unit in the suburbs. The concept also paves the way for a much more creative approach to home design, and many smaller homes are made from re-cycled materials like old shipping containers, or wood and bricks from demolished homes.

If you’re interested in building a small home, you could consider employing a reputable builder of granny flats and/or modular homes. In Australia there are a great many to choose from, and this option has benefits like helping you build a more luxurious small space home, as you can collaborate on the design. These builders often create small space homes in the factory, then transport it to your site partially built, which helps to save on costs.

In Australia, it can be difficult to get a mortgage for a home or apartment that is less than 50 square meters and many councils will not approve plans to build homes or apartments smaller than this. Before you build or put down your deposit on a small home, you should check with your local council about relevant building regulations in your area and talk with your mortgage broker to ensure finance can be arranged.

What is the Tiny House Movement?

The Tiny House Movement is a group of people all over the world choosing to live in houses or apartments with no more than 50 square metres of interior space. That’s about one quarter of the size of the average home. In the USA, the movement is so popular that it’s driven at least three successful TV shows dedicated to tiny house living. However, here in Australia, if your tiny home has wheels, you could find it bogged down in red tape.

Things to note about building a tiny or smaller home

Almost all councils in Australia treat small homes the same way they would any other building on your property, however if it has wheels it may be considered a caravan or trailer, regardless of whether it is rurally located or in the suburbs. You need to check with local authorities first before you build anything and get the proper approvals on your plans.

Building regulations apply to all homes, not just small homes and ones with wheels. If you are converting a couple of shipping containers into a home, for example, you will still have to ensure you modify them in such a way that your new home meets local building codes.

Additionally, not all lenders have an appetite for financing tiny homes or small space apartments and units. It pays to chat with me, your mortgage broker, about your plans before proceeding. That way, we can get pre-approval on your construction loan with a suitable lender, so you can go ahead with confidence. There are several ways to finance a new-build home, whether it’s tiny or not, so please give me a call today to get the ball rolling.

Considering buying a property off the plan? It sounds good in theory, with the possibility of stamp duty concessions and other benefits for first home buyers. But in 2018 there were quite a few people who got caught out by the hidden risks. Read on to find out what you need to know if you’re thinking about buying off the plan this year, or if you’re having second thoughts about an off the plan purchase.

What does ‘buying off the plan’ mean?

When you buy ‘off the plan’, it means the property you’re buying is not built yet. Typically, you’ll only have to pay the deposit upfront, then the balance of the purchase price once the property is completed. Because an off the plan purchase is a new build home, you may qualify for stamp duty exemptions or first home owner concessions, depending on your circumstances. (Check your state or territory’s rules online).

What are the risks?

Lenders may offer conditional approval for off-the plan purchases, but they won’t lend you the funds until they have performed a valuation of the property upon completion. In 2018, many buyers were caught out because their off-the-plan property was valued at less than the agreed purchase price and the lender would not lend the amount required to complete the sale.

There may also be other risks with purchasing an off the plan property, including:

• The final product may differ from your expectations.
• There may be delays or the development may not proceed. Your deposit should be refunded if this happens, but in the meantime, your money will have been tied up.
• If the developer holds on to your deposit (rather than putting it in a trust account), your money may be at risk if the developer goes bankrupt.

Terminating an off-the-plan contract

Terminating an off-the plan contract can be tricky, but there may be grounds to do so. For example, if the vendor has engaged in misleading conduct or the developer doesn’t complete construction before the sunset date, you may be able to terminate the contract.

However, if you want to terminate the contract because a lender has valued the completed property at less than the agreed purchase price, you may have difficulty. You could potentially lose your deposit and may have to compensate the developer for any loss.

Seek legal advice about your options if you wish to terminate an off-the-plan contract. More importantly, ask your solicitor to examine any contract before you sign, to ensure you have appropriate exit clauses in place – more about this below.

Selling before settlement date

Some buyers decide they want to sell the property before settlement. This is legal under most off-the-plan contracts and can prove to be lucrative if the property’s value has gone up, but there are risks involved.

Key considerations:

• Have your conveyancer check that the contract allows for re-sales prior to settlement.
• Speak to your accountant about the tax implications of reselling the property (you’ll likely be up for capital gains tax).
• You’ll have to pay stamp duty, additional legal fees and any agent’s commission, so be sure to factor these costs into your calculations.
• If you find a buyer but your contract with them falls through, you’ll still be bound to settle with the developer.
• Ask the developer to include a clause in the contract that allows you to terminate it if the completed property is valued at less than the agreed price.

Talk with me before you get started

If you do decide to go ahead with your off the plan purchase, I can help to organise pre-approval on your home loan and help you choose a lender that will work with you on this type of purchase. I can also refer you to a reliable conveyancer or solicitor to help you avoid the legal pitfalls. If you’re having difficulty organising finance to complete an off the plan purchase, please get in touch asap!

How are your New Year Resolutions coming along? If you’re serious about achieving the goals you’ve set for yourself, creating a plan is the way to go. Of course, making a plan is easy when you’re talking about losing weight or exercising more (the world’s most popular choices for NY Resolutions every year), but achieving your property goals may take some professional support from your mortgage broker. Here’s how we can help.

NY Resolution #1: “I’m going to buy my first home in 2019!”

Buying your first home is exciting and 2019 could be the year to do it. Home values have ceased their rapid rise for the time being and home loan interest rates are still low.

Here’s how your broker can help you get on the property ladder for the first time:

Creating a budget for your purchase and a savings plan for your deposit.

Exploring alternative ideas for a deposit (like a guarantor’s home loan, for example).

Providing advice about clearing debt and/ or improving your credit report to make you a more attractive prospect for lenders.

Explaining your borrowing capacity (how much you can afford to repay and how much a lender will lend you based on your income and expenses).

Going through any grants, concessions or other initiatives like the First Home Super Saver (FHSS) scheme to get you into your own home sooner.

Explaining the different types of home loans and how you can use them to save money.

Comparing the market to help you find the most suitable home loan for your needs.

Referring you to reputable professionals such as valuators, conveyancers and solicitors, accountants etc.

Organising pre-approval on your home loan so you know how much you can spend and save time on your property search.

Overseeing all the loan application paperwork.

Offering support throughout your entire home ownership journey and beyond. We can answer your questions at any time to ensure your home loan remains competitive.

NY Resolution #2: “I’m going to move into my next home in 2019!”

Upsizing, downsizing, sea-change, tree-change – whatever your motivation for moving into your next home in 2019, just ask us to help you make it happen! Even if you already know the drill for purchasing a home, it’s worth having a professional on your team when buying your next place. There’s a lot more to consider. Ask us about:

Using the equity in your current home as a deposit for your next home.

The costs involved.

Bridging finance.

Property and suburb reports to help guide your purchasing decision.

NY Resolution #3: “I’m going to invest in property in 2019!”

A goodie for 2019! We can help with:

Working with your accountant and/or financial planner on your investment strategy.

Structuring your loan correctly to maximise the tax effectiveness of your investment.

Comparing the loan market to find the right loan products to meet your investment strategy.

Getting loan pre-approval and ensuring your loan application goes smoothly.

Crunching the numbers (for things like your anticipated rental yield or out-of-pocket costs).

Comprehensive suburb and property reports to help you choose the right property.

Accessing equity in your home or from another investment property to use as a deposit.

Offering referrals to reputable property managers and other professionals.

If you have a 2019 property goal, give me a call!

A goal without a plan is just a wish, so let’s start planning and make your goals a reality this year. Please get in touch with us at Element Finance today!