19 Feb 2019
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.
- 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!
12 Feb 2019
We hope you survived all the madness of back-to-school week and returning to work after the summer holidays at the end of January! While February is certainly a busy time of year in most households around the country, it isn’t always the same story in our property markets. The quiet season has resulted in falling home values and low auction clearance rates in almost every capital city around the country.
Interest rate news
This month, the Reserve Bank of Australia (RBA) met for its first meeting for the year and elected to keep the official cash rate on hold at 1.5%. Meanwhile during January, some lenders increased home loan interest rates slightly to account for the rising costs of borrowing, while several smaller lenders reduced rates to make their offer more competitive.
Property market activity
Whilst there was a significant drop in new property listings in December 2018, SQM Research revealed the total number of property listings in our major capital cities surged. This is an indication that property is taking significantly longer to sell, with more vendors favouring private sales with no time-limit in order to achieve their desired price.
For the last weekend of January, Victoria held only 44 auctions with a 59% clearance rate, however there were 850 private sales. NSW held 17 auctions with an 82% clearance rate, and there were 963 private sales. ACT held 17 auctions with a clearance rate of 82% but there were only 56 private sales. South Australia held 142 auctions with a 42% clearance rate and private sales reached 229. Western Australia held 57 auctions with a 40% clearance rate and there were 335 private sales. Queensland held 24 auctions with a 71% clearance rate, but there were a whopping 832 private sales. Northern Territory had no auctions and 7 private sales, whilst Tasmania had only one auction and 155 private sales.
Home value movements
When property prices are stagnant or falling, conditions tend to favour property buyers as vendors are more likely to negotiate. According to figures released by CoreLogic, vendors are now having to offer bigger discounts to sell their properties – the median discount was 6.1 percent across the last three months to the end of January 2019.
As a result, during January home values fell in every capital city month-on-month, except Canberra where there was a small increase of 0.22%. Victoria experienced a drop of 1.60%, NSW 1.35%, QLD, 0.26%, SA 0.34%, WA 1.06%, NT 1.69% and Tasmania 0.16%.
If you’re in the market to buy a home or invest in property, there are certainly bargains to be had. Thorough research can help you determine locations that are still experiencing capital growth. If you need help with finance or would like to consider refinancing your current home loan, please don’t hesitate to give us a call.
Mike & the Element Finance Team
24 Jan 2019
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.
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!
According to a recent news report, more than 900,000 interest only (IO) home loans will come up for refinance during the first quarter of 2019. This kind of loan is very popular with property investors, however, the recent tightening of lending conditions in this area of the market may make it difficult for some people to refinance to another interest only period on their loan.
So, what are IO home loans, what are they used for and how can your broker help you if the IO period on your home loan is about to come to an end?
What is an IO home loan?
An IO mortgage is where your repayments only cover the interest on the amount you have borrowed during the interest only period. That means the principal (the amount you have borrowed) does not reduce. This IO period can be from 1 – 10 years and after it has ended, the loan reverts to a principal and interest loan unless you refinance it.
What are IO home loans used for?
IO home loans are not recommended if you plan to live in the home you purchase, as they only provide short-term benefits and could cost you more in interest over the long run. This kind of home loan offers benefits for property investors because the interest is usually tax deductible. (Always consult an accountant to be sure this applies to you.) It also helps to lower the amount of the repayments in the short-term, which may help property investors to maximise the income from the property.
It should be noted that the principal (amount borrowed) will need to be repaid at some point. There is a risk that the property’s value could fall during the IO period, which could potentially cause a you to make a loss if you were to sell it. It could also make it difficult to refinance the loan at the end of the IO period without topping up the equity in the loan.
Why could it be difficult to refinance for some?
In 2016, the Australian Prudential Regulation Authority (APRA) – which is the regulator for the home loan industry – imposed a cap restricting IO home loans to 30 per cent of bank’s new mortgages and at the same time, imposed a 10 per cent annual growth cap on lending to property investors. These restrictions mostly applied to the big banks, as APRA felt they were over-exposed to risk if the property market should suffer a down-turn. This has caused a general tightening of lending criteria for property investors across the board.
In December last year, APRA lifted their restrictions. However, the tighter lending criteria for property investors and IO loans are still in place with the big banks, which could make it difficult for some to refinance or extend their IO period on their loan.
What if your IO period is about to end?
As your mortgage broker, I can help you access a wider variety of lenders, which could give you more options if you are looking to refinance your IO loan this year. We have access to Australia’s leading lenders, including the usual big banks and credit unions, as well as smaller, private lenders you can only access through a broker. Not all mortgage brokers can offer you such a comprehensive variety of loan options, so you can be sure that we will be able to access loan products that suit your needs and give you value for money.
Refinancing could potentially be of benefit to you in a variety of different ways in your personal situation, so please talk with us about your needs and goals. Your consultation is complimentary, so please just give us a call at Element Finance if you’d like to talk about your options.
18 Jan 2019
Did your Christmas spending get out of hand this year? You are not alone! According to a recent news report, our 2018 Christmas spending binge is expected to leave us with a $29.7 billion credit card debt – that’s equivalent to $1,863 per credit card!
The good news is that mortgage and finance brokers don’t just organise home loans – we’re also fully qualified credit advisors. If you need help to get your debts under control, here’s some info that may help.
What is debt consolidation?
Pay day loans, credit cards, store cards and credit facilities like after-pay accounts often carry high interest rates that can eat up your income and make it difficult to pay off the debt.
Debt consolidation is a way of potentially reducing the amount of interest you pay, making your debts more manageable. Put very simply, the idea is that you take out a low-interest loan and use it to pay off all your high-interest debts, rolling everything into one loan.
What are the options?
There are a couple of ways to consolidate debt. You can:
Refinance your home loan
Refinancing your home loan could help you to access the equity in your home to pay off your debts. Basically, you take out a new home loan that is larger and you keep some of the money to pay off your debts.
Take out a personal loan
This involves using the funds from the personal loan to pay off all your other debts. This is a good option if you want to pay off your debts in a shorter time frame (which could potentially save you much more interest than refinancing your home loan).
What are the benefits of debt consolidation?
It makes debts easier to manage
Instead of having to get keep on track with multiple repayments to multiple parties, debt consolidation means you’ll only have to make one convenient repayment.
Potentially save money on interest
Different types of debt come with different interest rates. For example, credit cards usually have sky-high interest rates, as they are a form of unsecured debt. Home loans and personal loans, on the other hand, usually come with lower interest rates. That potentially means less of your money will be gobbled up by interest payments.
Debt consolidation gives you the option to spread your loan repayments out over time, which could make personal budgeting and repaying your debt easier. You may even be able to get a loan that allows you to make extra repayments and pay off your debt sooner.
To consolidate or not to consolidate?
Using your home loan for debt consolidation purposes is not necessarily right for everyone – it all comes down to your financial situation and goals. Some people, for example, may end up paying more interest on their debt over the life of the loan (25 to 30 years), even though the home loan interest rate is lower than a credit card.
What’s more, by turning your unsecured debt into secured debt (i.e. your home loan), you could lose your home if you default on the repayments. For these reasons, it’s important to speak to a professional credit advisor before proceeding.
Are there other options?
Absolutely! If debt consolidation isn’t right for you, we may be able to suggest other ways to manage your debt – like creating a budget and repayment plan, for example.
If you’ve blown the budget this Christmas, it’s important not to panic. There are many ways to regain control of your finances, so get in touch. If you think your debt levels may affect your capacity to make your home loan repayments – don’t wait! It’s important to get things under control before you miss any repayments. Please call us at Element Finance today.