Finance brokers make the difference as banks tighten up

Access to finance has become difficult and time consuming, leading to a surge of enquiry to finance brokers, who are able to get a positive result efficiently by having market knowledge and access to dozens of institutions.

While major Australian banks are expected to face further scrutiny on their lending practices as a result of the Royal Commission, many smaller finance providers – who are far less impacted – have embraced the opportunity and are now growing their market share.

Non-bank housing credit has risen by approximately 13% over the past 12 months, compared to growth of just 4.8% for the big four Banks.

Growth in loans to housing investors has dramatically decreased with the big four banks too, jointly by the impact of the Royal Commission, but also due to the Australian Prudential Regulation Authority (APRA) placing a cap on interest-only lending, a favoured product for investors.

These policies do not apply to the entire market, leading to a sharp rise in interest-only investment home loan issuance among non-bank lenders who are able to offer the product and also at comparatively cheaper rates.

Obtaining finance will remain difficult for some time still, however the banking marketplace is large and knowing where to go for your particular circumstance is vital.

Endeavor Finance is available to help with a range of finance options. Whether you have been turned away by a bank or want to assess your options, they can assist. Call today to discuss what you need. 03 5434 7690.

What are white label loans and why you should consider one

White label loans are essentially a home-branded loan, much like the home-branded products you see in the supermarket. Like these products, white label loans aim to deliver many of the same great features as bank branded home loans, but for a lower cost. Read more

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Opportunities in the cooling property market

Things are looking up for first home buyers for the first time in years as house price growth begins to slow across the country. Read more

Tax and the family home

Australians love property and for the property owners among us, it’s been a nice feeling watching market values rise. It’s worth remembering though, the tax man could want a share if you sell.

Unless the property is your primary residence, you could find capital gains tax (CGT) taking a cut of your profits. CGT applies to investment properties, holiday homes and even vacant land.

What is CGT?

CGT is added to your tax bill in the financial year in which you sell an asset. It’s not a separate tax, but is part of normal income tax and is applied at your marginal rate in that particular tax year.  The tax applies to any increase in the value of an asset between the time you buy and sell it. Although most personal assets are exempt from CGT, many property assets are liable.

Calculating the cost

If a property is liable for CGT, the capital gain is determined by subtracting its ‘cost base’ from the sale price. The cost base is calculated as follows:

If you own the property for over 12 months, you receive a 50% discount on the amount payable.

An important factor to consider is the date of your property purchase, as assets bought before 20 September 1985 are usually exempt from CGT when they are sold.

CGT and the family home

When it comes to your ‘main residence’, CGT is generally not payable providing the home has not been used to produce assessable income (such as running a business or renting it out) and if the land is two hectares or less.

If you live in the residence but then choose to rent it out, you may be required to pay CGT on the periods when you were not the occupant. CGT is also payable if a family home is owned by a company or trust, or if the owner ceases being an Australian resident.

The ATO does not clearly define ‘main residence’, but it bases its assessment on a number of factors. For example, it looks at whether you and your family live in the dwelling and have your personal belongings there, if your mail is delivered there, whether you are registered to vote at the property’s address, or if you have phone, gas and electricity connected.

For your family home to remain exempt from CGT, you can only have one main residence at any time, unless you are in the process of selling your old home and buying a new one.

When this happens you are permitted a six month period where you can own two homes, but the second property must become your new main residence. You must also have lived in your original home for at least three continuous months in the year before you sell, and it must not have been used to produce assessable income during that period.

If you purchased your home after 20 August 1996, to be entitled to a full exemption you must have lived in the house when it was first bought and not have rented it out prior to moving in. Otherwise, the ATO will consider you bought it purely as an investment to produce income.

The 6-year rule

Even if you do move out of your family home and choose to rent it, you could still be exempt from CGT under the Temporary Absence Rule. Under this rule you can leave for up to six years, rent it out and not be liable for CGT. However, you must move back in for three months prior to selling.

If you leave your home but do not rent it out, you can claim a CGT exemption for an indefinite period.

When you buy another property and move in, you can elect to keep your original home as your main residence, but your new dwelling will be subject to CGT.

Inheritance and tax

Generally, CGT does not apply if you inherit a main residence and the property is sold less than two years after the owner dies. In some cases, it’s possible to apply to the ATO for an extension to this two-year period.

Take the example of Penny. As an only child, Penny inherited sole ownership of her mother, Shirley’s home when she died.

Shirley had lived in the house with her husband for the entire period since they first bought it in 1950.

Although she loves the home, Penny plans to sell the vacant property as she already owns a house closer to her work. If she sells within two years of Shirley’s death, any profit from the sale will be exempt from CGT. If she fails to sell within two years, Penny could be liable for CGT on the increase in the property’s value from the time of her mother’s death.

CGT is a complex area of taxation law and is dependent on your individual circumstances. If you have any questions about how CGT applies to your family home or assets, please call our office to discuss your situation on 03 5434 7690.

ATO to hand over details of business tax debt to VEDA

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Why choose a finance broker over a bank?

It’s a question that most people ask when needing a loan – finance broker or bank?

If you’re on the market for a loan chances are you currently bank somewhere and have been a loyal customer for 10+ years. They are the first place that comes to mind when you need a loan. They’re easy to talk to, know your history and have your trust. They’ll get you the best deal, right?

Wrong. Just because you have a ‘relationship’ with your bank doesn’t mean they have the best market rate and fees compared to other banks. Sure they’ll try their best to get you attractive rates available within the company, but their best might be higher than a bank two streets across.

This is where a finance broker comes in handy. A finance broker is your secret weapon. There are a number of reasons why it’s worth choosing a finance broker, here are a few:

Time

Going through the process of a loan can be tiring and frustrating. A finance broker is there to do all the work for you and present it in an easy-to-understand way.

Variety

Finance brokers are associated with a number of financial institutions and will explore a variety of options to find what is the most suitable for your unique situation.

Knowledge

Finance brokers do one thing – loans. They deal with banks daily and are aware of the latest market rates and fees between banks. They know what needs to be done to get the ball rolling and will help with all paperwork and applications.

Funds

Brokers don’t just look at the now, they consider where you will be in five years and whether this loan will still be the right one for you. That includes lower fees, lower rates and special features.

 

A loan can be one of the biggest financial decisions you will ever make so it’s worthwhile getting professional advice when trying to find a lending solution. Let us help you on the journey. Get in touch today.

Using tax for effective property investing

With Australian property remaining expensive and banks tightening their lending criteria, investors need to ensure their property investments are a financial success.

A key element is maximising the taxation benefits flowing from your investment. This includes correctly structuring the loan and ensuring your deduction claims don’t fall foul of the tax man.
Getting the structure right

As with any investment, having the correct ownership structure for a property asset is vital and can make a big difference to your tax benefits. For example, couples negatively gearing their investment property loan usually find it best to have a larger ownership percentage in the name of the higher income earner.

On the other hand, with a positively geared property, it may be better to have the lower income earner holding a larger ownership percentage. If the property is held jointly, all rental income and losses must be split in line with the ownership percentages and detailed records maintained to substantiate all claims for tax deductions.

Also consider whether either partner expects a career change that will affect their future income, as changing ownership structures down the track can be costly.
Managing the loan

Once the investment property loan is set up, there are more tax issues to consider. Property investors can only legally claim a tax deduction to the extent the borrowed funds are used for income producing purposes, regardless of the security offered to obtain the loan.

In cases where the loan monies are used for both private and income producing purposes (such as a property partly used for rental and partly as your home), you must split all expenses into deductible and non-deductible amounts.
Watch your deductions

Many property investors focus on tax deductions, but care is required as the rules are complex. For example, if you make extra repayments on your investment loan and then use the redraw facility to obtain money for private purposes, you cannot claim a deduction for the interest attributable to that money.

Normal tax deductions for a rental property include the cost of advertising for tenants, professional property management, interest, council rates, land tax and strata fees, building and landlord insurance, pest control and accounting fees. These costs, however, can only be claimed when the property is tenanted or available for rent.

Other points to watch include claiming a deduction for loan establishment fees. This must be spread over the term of the loan or a five-year period, whichever is shorter. If you claim travel expenses for inspections, the main purpose of the trip must be to visit the property; if there is a private portion all expenses must be split.
Depreciation or capital works?

Claims for depreciation, or the decline in value of assets with a limited effective life (such as freestanding furniture, washing machines and TVs), can be made each year, but deductions for any capital works must be spread over 40 years. Capital works include improvements or alterations such as removing an internal wall or replacing capital equipment such as old kitchen cupboards.

Investors need to be careful when claiming for the cost of repairs to their property. These are immediately deductible, but improvements such as replacing a damaged laminated kitchen bench top with a granite one must be claimed as capital works expenditure.
Check your CGT

CGT is another tricky tax area, but the key to minimising your bill is to ensure you identify all legitimate expenses that contribute to the cost base of the property used to calculate any capital gain.

The cost base includes the price paid for the property plus buying and selling costs like stamp duty, legal fees and the agent’s commission. Rental properties owned for more than 12 months attract a 50 per cent discount on any capital gain.

To ensure you are making the most of the tax rules relating to your investment property, call our office today on 03 5434 7690.

Property: Rent, buy or invest?

Buying a home has been heralded as the way to get ahead for generations of Australians. But with housing affordability a rising concern for would-be first home buyers and their parents, many younger Australians are beginning to weigh up whether it’s better to buy, rent or invest in residential property.

Despite record low interest rates, getting a foot on the property ladder has become increasingly difficult. In the year to June 2016, average house prices across major capital cities grew by 8.3%, more than four times faster than wage growth of 2%.i

Against this backdrop, it’s hardly surprising that the proportion of first home buyers has fallen to less than 14% of all home buyers, the lowest level in more than a decade.ii

As the numbers of first home buyers fall, many younger Australians are focusing on buying an investment property instead. A recent survey by Mortgage Choice found 50.8% of investors who purchased a first investment property were 34 or younger, up from just 33.8% three years ago.iii

So which is best – buy, rent or invest?
Home sweet home

One of the best arguments for buying a home is that it forces you to save. Most of us find it difficult to save money today for long-term goals, but that is what paying the mortgage forces us to do. The pay-off is eventual ownership of an asset that enjoys favourable tax treatment when you sell or when seeking eligibility for the age pension and other means-tested benefits in retirement.

Unlike rents, which rise along with the cost of living, mortgage payments are fixed to the initial cost of the property and tend to fall relative to rents for similar properties over time.

Buying also provides the security of being your own landlord and the flexibility to renovate. After building up equity in your home you may choose to borrow against it to kick-start an investment portfolio.

On the downside, saving for a home deposit and transaction costs is a major hurdle for first timers. Ongoing costs for rates, maintenance and insurance can also be significant. While mortgage interest rates are currently at record lows, buyers also need to factor in the possibility of higher rates over the term of the loan.
When renting makes sense

Renting has the potential to free up money to invest in assets with a higher return than residential property. For this strategy to work, your rent must be less than you would otherwise spend on mortgage repayments. You also need the discipline to invest the savings if you want to get ahead.

Renting rather than buying can be a profitable strategy when other asset classes provide higher returns. Yet over the past 10 years residential property has been the best-performing asset class with an average annual return of 8% a year compared with 5.5% for Australian shares. iv

While this is no guarantee of future performance, it helps explain why many would-be first home buyers are taking a new approach to the old rent or buy equation.
The middle way

First time buyers often find they can’t afford to buy in an area where they want to live. So to get a foot on the property ladder they continue living in rental accommodation – or at home with Mum and Dad – and purchasing an investment property.

The advantage of this strategy is that your tenants help pay off the mortgage. And unlike a home you live in, costs such as mortgage interest, repairs, rates and insurance are tax deductible.

At the end of the day, the decision to buy, rent or invest will depend on your personal financial situation, the state of the housing and rental markets, the returns available on other investments and lifestyle. The important thing is to have a long-term housing strategy that won’t disadvantage you in later life.

If you or your children are weighing up whether to buy, rent or invest in property, give us a call to discuss the options in the context of your overall investment strategy. 03 5434 7690

CoreLogic Home Value Index, June 2016ABS, Wage Price Growth, March 2016
ii ABS Housing Finance Australia, May 2016, 5609.0
iii Mortgage Choice, 2016 Investor Survey,17 June 2016
iv ASX Russell Investments 2016 Long-term Investing Report

Fast track your home loan

With interest rates on the rise, now is the time to look at ways to fast track your mortgage. After all, the sooner you pay off your mortgage, the less you will pay in interest.

That’s probably why nine out of ten Australian mortgage holders told a recent finder.com.au survey that they try to pay back their mortgage ahead of time.i

So what are the ways you can fast track your mortgage and minimise your interest payments?
Increase your repayments

The most popular strategy is to make extra payments. Rather than paying your designated monthly repayment, why not pay more? Not only does this reduce your interest charges but if rates should rise you will be able to absorb the increase.

You can also make extra payments if you get a windfall or a bonus at work. But if you have chosen a fixed home loan, you may find you can’t make extra payments, so check with your lender.

More frequent payments are also a good strategy. Instead of paying your mortgage off monthly, pay half the monthly amount each fortnight. After all, there are only 12 months in a year, but 26 fortnights, so you effectively end up paying an extra month each year.

Most home loans are structured so you pay mostly interest in the first five to eight years without making any inroads into the principal. If you can manage to pay some principal off too during that period, then you can cut the interest you’ll pay on an average 25-year loan.

Consider an offset account

An offset account can also prove useful. With your salary going into your mortgage account, the principal will drop and that means you will pay less interest. For instance, if you had a 100% offset account with $30,000, on a home loan of $400,000, you would see interest only calculated on a balance of $370,000 instead of $400,000.

If you’re looking at a honeymoon rate on a new home loan, do your homework and make sure that the rate you pay at the end of the honeymoon period is not substantially higher. If that is the case, it could eliminate any gains you may have made in that first year of lower rates. But be aware that switching to a cheaper loan might incur a high exit fee.

It’s always a good idea to review your home loan annually to make sure it’s still working for you. For instance, do you really need all the bells and whistles that are on offer? Often, you’ll be paying for these extras through higher interest rates.

Negotiate a better deal

If you are unhappy with your current rates, then talk with your existing lender to see if you can negotiate a better deal. But make sure you do your homework first and check out what other lenders are offering so that you are in a better negotiating position with your current lender. Most lenders would rather hold on to existing clients than lose them to a competitor.

When negotiating your home loan, you might be able to access a package from the lender giving you some beneficial extras such as discounted home insurance, fee-free credit cards or fee-free transaction accounts. Or you might be able to waive the fees associated with the loan.

When you initially take out a loan, consider making your payment before the due date. That way you are always ahead of the game.

With interest rates expected to rise in 2017, this may be a good time to consider fixing part of your loan to cushion yourself against future rises.

If you want to make sure that you are doing all you can to minimise interest payments on your loan and fast-track your mortgage, call us to discuss the financial strategies that might work best for you.

Checklist

  • Make extra repayments
  • Pay more frequently
  • Use an offset account
  • Review your mortgage annually

i ‘Aussies go above and beyond to pay down home loan sooner’, Nov 2016, finder.com.au