Renovating your home or investment property is a fantastic way to add value. But what’s the right way to finance the renovation project you have in mind?

There are several ways to finance a renovation – the option that will work best for you depends on the size of your project, your budget, financial circumstances and your goals. Your mortgage broker is an expert when it comes to helping you choose the right loan option for any renovation – here’s an outline of some of the finance options we recommend to get your renovation dreams off the ground!

Line of credit

The benefit of a line of credit is that you only pay interest on the money you use. The way it works is that you apply for a line of credit against your home with an approved limit, then simply use the funds as needed.

You can pay off the balance as you go, then use the funds again later for the next stage of your renovation – much like a credit card. If you want the freedom to pay tradespeople or buy materials whenever you need to, a line of credit may be ideal, particularly if your renovations are ongoing.

Personal Loan

A personal loan is a good option if your renovation costs are relatively small, or you plan to pay the loan off quickly. With a personal loan, you can secure the finance against an asset, such as property or term deposits, or opt for unsecured finance without collateral (this option usually has a higher interest rate). The application process is usually quicker than for a home loan and the money is deposited into your account for you to use as required.

Interest rates on personal loans are usually much higher than home loans, however we have access to competitive rates, so we can potentially help you save. Depending on how and when you plan to pay back the loan, you can choose a variable or fixed rate option. Many personal loans allow extra repayments so you can pay it off sooner and reduce the interest you’ll have to pay, so talk to us about the right one for your needs.

Construction Loan

Construction loans are a great option for larger renovation projects that require a builder. This could include anything from a small extension to a complete knock-down and rebuild. With a construction loan, the lender will use the final value of the property post-renovation to calculate how much you can borrow. Once approved, you can draw down periodic progress payments at different stages of construction.

A construction loan offers significant benefits for larger renovation or building projects:

• You only pay interest on the money you draw down.
• The payments are interest-only during construction.
• Each stage must be inspected and completed before you can draw down the funds for the next stage. This helps to keep your builder on track.
• The loan converts to a home loan of your choice after construction is completed.

Refinance to access equity

When you refinance your home loan to access your equity, you end up with a sum of cash to use as needed or to finance your renovation project. Refinancing your home loan could be a good idea if you’re ahead on your loan repayments, your property’s value has increased, or you’ve paid down your home loan considerably since you took it out. (It may not be a good idea if your property has fallen in value, or your financial circumstances have changed for the worse since you purchased it.)

Refinancing may also allow you to access other useful features such as a line of credit, or a redraw facility – which could be useful if your renovations are ongoing. It’s important to remember you may not be able to access all your equity – so talk with us and we’ll help you work out your borrowing power.

What’s right for you?

Whether you’re planning to make a few cosmetic improvements or give your property a complete overhaul, chat with us about the finance side of things. The right loan choice will depend on where you’re at financially and what you’re hoping to achieve. For example, the finance we recommend for those renovating their own home may be different from what we’d suggest for those renovating an investment property, or those flipping for profit.

If you’d like to find out more, just give us a call today.

Autumn is usually the busiest time of year for property auctions around the country. But this year, many more sellers seem to be preferring private sales to auctions. While the number of auctions may be down, there are still many great homes up for sale and you may have more power to negotiate the price!

Interest rate news
The Reserve Bank of Australia (RBA) decided to keep the official cash rate at 1.5% during its April meeting – taking a ‘wait and see’ attitude before the Federal Budget was released. The measures that were announced in the Budget to support economic growth are likely to influence the RBAs decisions in coming months. Many analysts are still calling for cash rate cuts, however this is probably a situation the RBA would rather avoid.

Meanwhile, last month some lenders cut rates on fixed rate home loan products. These are highly competitive at present and may be worth considering if you’re in the market for a loan.

Home value movements
Stephen Anthony, Chief Economist with Industry Super Australia was recently quoted as saying: “The housing price correction is really scaring the horses…” But despite this and similar commentary in the media, home value falls have slowed considerably over the past month. The ACT and Tasmania have even been enjoying home value increases in recent months.

A market correction is quite normal following a lengthy period of steady gains. This property market correction may be considered great news by those who have been waiting for a better time to get on the property ladder. Some areas are holding value better than others, so it pays to do your research before putting down a deposit.

Property market activity
The number of auctions and clearance rate figures continue to decrease as private sales numbers rise. The table below provides a snapshot of last month’s property market and home value changes during the last week of March, (according to CoreLogic on April 1).
Pre-approvals are more important than ever
In today’s market, it is very important to see us to get a pre-approval on your loan before you start shopping for a home. Don’t be tempted to put down a deposit before you see us – your borrowing capacity may have been affected by the more stringent lending criteria that have been put in place following the Royal Commission enquiries.

Remember, we have many lenders to choose from and are well placed to help you find the right home loan option for your needs. Please call us today to find out more.

Sincerely,
Mike & the Element Finance Team

Some property market analysts are predicting average national home values could fall by 11 per cent in 2019 – and say home values in some suburbs of Melbourne and Sydney have already fallen by more than 7 per cent since they reached their peak in late 2017.  Whilst this may seem like gloom and doom to some people, all over the country many prospective home buyers are feeling optimistic and getting ready to grab a bargain.

When it comes to buying a property, supply and demand determines who gets the upper hand on price. So now, with home values and auction clearance rates continuing to fall, is it officially a ‘buyer’s market’ yet?

What is a buyer’s market?

The term ‘buyer’s market’ usually applies when buyers have more power in the property market than vendors (or sellers) and therefore, have an advantage when negotiating the final price for a home. Basically, a buyer’s market occurs when there are more properties for sale than there are people willing and able to buy them.

Signs that we may be encountering a buyer’s market could include:

• Unusually high numbers of properties for sale in any given city, suburb or area
• Low auction clearance rates
• More vendors preferring private sales over auctions
• Property remaining on the market for longer
• Vendors more prepared to negotiate on price.

Does this mean it’s a good time to buy?

A buyer’s market could be a fantastic time to purchase a home, provided you research your purchase very carefully. There are some risks involved, but if you perform your due diligence and select the right property, you should be able to overcome them.

You will need to be careful not to overpay for any home you purchase in a buyer’s market, so the right property market data will be critical to your negotiations. Additionally, if the price of the property you buy should continue to fall, you may potentially find yourself in a negative equity situation – that’s where the home is worth less than you have borrowed to purchase it.  But careful research and a 20% deposit could help you avoid this situation too.

Generally, it makes good sense to purchase a home when prices are low. If you plan to live in the home for a while or hold it as an investment property in the long-term, then you will likely be able to wait out the peaks and troughs of home value changes to eventually come out on top.

Should you wait and see if prices fall further?

The problem with taking a ‘wait and see’ attitude is that it may cause you to miss the opportunity to save – home values won’t continue falling for very long. The great thing about a buyer’s market is that there are plenty of properties available and more time to explore them because they’re on the market for longer.

When researching which property to buy, the same rules apply as always – you need to look at what drives demand and capital growth in your area of interest:

• Is the property close to public transport, schools and amenities like shopping?
• Are there good employment opportunities?
• Is the local economy growing?
• Is there steady population growth?
• Is rental demand high in the area?
• Do the numbers add up – will the property give you a good return on your investment?

Get your finance in order first.

In our next article this month, we talk about why it is now so important to get pre-approval on your home loan and to confirm your borrowing capacity before looking to make a property purchase. As always, it’s a good idea to get your finance in order before you consider putting down a deposit or signing a sales contract, so please give me a call today.

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.