How do interest rate changes affect you?

For many Australians, a rise in interest rates will mean increased repayments on mortgages, loans and credit cards. With less disposable income, many people may need to tighten their belts.

Interest rate rises can be tough for families and small businesses, as increased mortgage and debt repayments can make life more difficult and expensive. While lower interest rates can mean a respite in terms of lower debt repayments, or provide an opportunity to get ahead on your mortgage.

When reviewing your finances make sure you look at how interest rates are tracking and if necessary, build in a buffer for further increases that might affect your repayments. It may also be worth looking at consolidating your debts and renegotiating your current interest rates to protect yourself from future increases.

The below summarises some of the economic consequences of interest rate changes.

Increase in interest rates

  • Increases the cost of mortgage interest payments
  • Reduces personal disposable income
  • Increases incentive to save rather than spend
  • Strengthens the value of the Australian dollar
  • Reduces consumption and investment

Decrease in interest rates

  • Makes mortgage interest payments more affordable
  • Increases personal disposable income
  • Encourages spending
  • Weakens the value of the Australian dollar
  • Encourages investment in property

Interest rates rises are generally good news for people with savings. For those looking to invest in term deposits or bonds, an increase in interest rates will generally mean higher rates of return. Term deposits usually offer higher returns in a rising interest rate environment and lower returns in a falling interest rate environment. This is the reason investors may hold a diversified investment portfolio including asset classes, less sensitive to immediate interest rate changes.

With the interest rate rises, you may want to consider reviewing any home or business lending. Talk with us today to discuss how the interest rate changes impact your financial situation.

property lending

Tighter lending restrictions on the way

Tighter lending restrictions will be introduced within two months, as announced recently by Federal Treasurer Josh Fyrdenberg. Australia’s financial regulators are expected to restrict the size of new loans, with expectations that borrowing capacity could soon be capped at below six times the borrower’s income.

The changes raise concerns after many borrowers have taken out loans larger than six times the size of their income as property purchasers attempt to keep up with sky-rocketing prices.

It has never been a better time for buyers and investors to take out a loan with interest rates at record lows, however, the focus is on whether borrowers will be able to service this debt once interest rates begin to rise and we move into ‘COVID normal’.

According to the Australian Purdential Regulation Authroity (APRA), high debt-to-income (DTI) ratios are those over six times the applications gross taxable income. Currently, 22% of all new lending applications in the June 2021 quarter were more than six DTI, which is a 50% increase from June 2020, where only 11% of total applications were greater than six DTI.

Statistics show that Australians on average are earning a yearly salary of $83,000 meaning if borrowers were limited to six times their income, they could only borrow just over $500,000.

When looking at the average price of residential properties in Australia, the Domain median national house price is $955,927. The new borrowing cap will mean the average Australian would be priced out of all major capital cities.

It’s expected these DTI limits will impact investors with existing property portfolios and first home buyers trying to maximise their borrowing capacity the most. Although we may see some leniency for first home buyers as the intention behind introducing these DTI limits is to curb speculative investment rather than hamper affordability for first home buyers.

APRA has tightened lending standards twice in the past and on both occasions the property market proceeded to fall 2-8% in the following 12 months, indicating a similar fall in growth may come in 2022.

As a result of the new lending restrictions, it is expected that the local and national housing price growth will slow from 20% in 2021 to 7% in 2022.

 

If you have any questions regarding the new lending restrictions, or would like assistance securing finance, please give us a call on 03 5434 7690 or email endeavor@endeavorbendigo.com.au

first home owner

Client stories in the 2020-21 financial year

Over the past 12 months we have worked side-by-side with many clients to support them in making life changing purchases. We get satisfaction out of securing finance to fund purchases that will never be forgotten.

Below is a review of just some of the people we have helped over the last year and a summary of how we assisted them in securing their new property.

Having the right mortgage advice from an honest adviser makes what can be a daunting process a walk in the park. If you would like assistance in securing finance to fund your next property purchase or refinance please give us a call on 03 5434 7690 or email endeavor@endeavorbendigo.com.au

 

Eloise

Eloise settled on her first home after we assisted her with securing finance and navigating through the range of First Home Buyer benefits available at the time. The First Home Buyer Stamp Duty exemption allowed Eloise to save $15,000 on stamp duty for the purchase of her established home.

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Jake and Laura

We assisted Jake and Laura at the end of 2020 to purchase some vacant land. The couple then begun their build which is now complete. Exciting times ahead! They were able to take advantage of both the regional First Home Owners Grant of $20,000 and the $25,000 New Home Builder Grant which were available at the time.

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Erin and Ryan

Erin and Ryan settled on the purchase of their first home in the middle of this year. This was particularly exciting as we were able to secure them the $20,000 regional First Home Owners grant, even though the house was already built. Pretty good perk for new eligible properties, particularly when you can move in straight away.

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Tom

When Tom’s parents decided to move interstate he couldn’t pass at the opportunity to purchase the house he grew up in! Often when a sale happens between family members, the State Revenue Office (SRO) will not allow for the first home buyer stamp duty waiver if the house is sold under market value.

We worked with Tom, his parents and the SRO to ensure the house was purchased at a price which would allow for Tom to still be eligible for the stamp duty waiver.

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Albert and Quynh

We assisted Albert and Quynh by working through their borrowing power and arranged finance prior to attending an auction in a hot market, allowing the newly engaged couple to bid with confidence. Being prepared before the auction proved useful given their complex self-employed income and existing investments.

The couple were successful in winning the auction, a good result for all involved!

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McKinley Builders

Working with McKinley Builders involved “owner builder” which many banks aren’t comfortable with even for self-employed licenced builders. This also involved bridging finance which allows clients to build and move in to their new house before selling their existing house.

Better than living in a rental while you build and needing to move twice!

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Tom

We guided Tom through the regional Victoria $20,000 First Home Owners Grant and also the $25,000 Home Builder grant to help him finance his new home. He was referred to us by his employer, McKinley Builders, who are in the story above.

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Dill and Georgia

We helped Dill and Georgia take advantage of both the regional Victoria $20,000 First Home Owners Grant and the $25,000 Home Builder Grant. The couple were referred to us by their accountant as Georgia had become newly self-employed.

We worked with her and formed a plan of attack and timing for her and Dill to get their build off the ground.

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Hayden and Tilley

We helped Hayden and Tilley take advantage of the regional Victoria $20,000 First Home Owners Grant as well as the $25,000 Home Builder Grant. The couple were referred to us by their friends Georgia and Dill, the clients in the story above. They recommended Hayden come and talk to us, and we also later found out that we had been recommended to Tilley by one of her colleagues who is also an exciting client! So they knew they were in good hands.

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non-bank lender

Why choose a non-bank lender?

Whether you’re looking to grow or refinance your portfolio, non-bank lenders could be the best choice for your wealth creation journey.

A common misbelief is that non-bank lenders are tied to the strict rules that apply to more traditional finance lenders, but the truth is that non-bank lenders have the same obligations as the more conventional lenders.

Non-bank lenders are able to provide a much more personalised service to customers, often allowing customers to deal directly with the broker as opposed to the support staff at a bank. Non-bank lenders are also more likely to listen to the individual story of every borrower, rather than purely making assumptions as many conventional lenders do.

Many people are surprised to discover that non-bank lenders are very competitive on rates in the investment space and are able to help borrowers when their current lender is not willing to provide finance for them.

Given that speed to market is currently key for property investors looking to pounce on a purchase, conventional lenders are becoming less enticing for borrowers.

In fact, stories of people missing out on a great deal because of lengthy turnaround times are becoming more and more common.

Momentum Intelligence’s Broker Pulse survey for March 2021 found that CBA’s average turnaround for broker-lodged loans was 12.7 days; NAB’s was 9.4 days; Westpac’s was 13.7 days; and ANZ’s was 16.4 days (business days). These are generally the best case scenario for simple applications whereas it can often take twice as long for self-employed applicants.

This is where non-bank lenders can provide a helping hand within a few business days at competitive rates. Endeavor Finance work with a number of non-bank lenders from around the country to secure the best loans for our customers.

 

If you are after a second opinion or want to know more about the non-bank lenders available, speak to Adam or Llewe at Endeavor Finance. Call 03 5434 7690.

first home buyer builder

Support for first home buyers and builders

The First Home Loan Deposit Scheme is an Australian Government initiative to support eligible first home buyers to build or purchase a first home sooner.

From 1 July 2021, an additional 10,000 spots will be in place for the First Home Loan Deposit Scheme, as well as new property price caps. These spots will be allocated on a first in, first served basis.

The scheme ensures that purchasers are only required to put down a 5% deposit on the purchase price of the property, with the government guaranteeing the remaining 15% of the deposit.

Purchasers are required to borrow the remaining 95%, however, you can save up to $17,000 by not being required to pay Lenders Mortgage Insurance.

For more information regarding the scheme, including guidelines and full eligibility criteria, click here.

Purchase Price Thresholds

New property price caps for the First Home Loan Deposit Scheme will come into effect from 1 July 2021. For Bendigo and other regional Victorian areas, this is great news! The price cap for these areas, which was previously set at $375,000, is now being increased to $500,000.

Click here to view the new price caps for all Australian regions.

 

We can help you take advantage of the First Home Loan Deposit Scheme and smoothen out the process of you building or buying your first home. Give us a call on 03 5434 7690.

home buyer

Federal Budget boost for single parents

Under the proposed Family Home Guarantee, single parents will now be able to purchase a property with a deposit of just 2%, with the government guaranteeing the remaining 18%.

The Family Home Guarantee is limited to 10,000 places which will be spread evenly across four financial years, equating to 2,500 spots per year.

The scheme is open to first home buyers, as well as those who have previously owned a home.

The Family Home Guarantee aims to help single-parent families get onto the property ladder or re-enter the property market. The scheme was announced as part of the 2021-22 Federal Budget.

Eligibility

To be eligible for the scheme, you must:

  • Be a single parent with a dependant(s)
  • Earn less than $125,000 per year
  • Be an Australian citizen
  • Be above 18 years of age.

Apply

The Family Home Guarantee will commence from 1 July 2021, subject to legislative approval. Further information about the scheme will be available over the coming days on the National Housing Finance and Investment Corporation website.

 

In a separate measure, the government has also announced an expansion of the New Home Guarantee scheme with an additional 10,000 places. The scheme allows first home buyers to build a new home, or purchase a newly built home, with as little as a 5% deposit.

 

If you have any questions regarding the Family Home Guarantee, or would like assistance determining if you are eligible for the scheme, please give us a call on 03 5434 7690.

Low interest loan scheme available for SMEs

The Small and Medium Enterprise (SME) Recovery Loan Scheme is designed to support businesses who received the final round of JobKeeper payments. It has also been expanded to assist businesses that were affected by the March 2021 floods and are located in specific disaster zones within New South Wales and Queensland.

Under the Scheme, businesses will have access to low-cost bank loans up to $5 million where the Government guarantee will be 80% of the loan amount. Lenders are able to offer businesses a deferral on repayments for up to 24 months and loan terms can be up to 10 years.

The interest rate on loans will be determined by lenders, however, they will be capped at around 7.5%, with some flexibility for the interest rate on variable rate loans to increase if market interest rates rise over time.

The Scheme is enhancing lenders’ ability to provide cheaper credit, allowing many businesses access to vital funding to help them get through the impacts of COVID-19 and invest for the future.

Eligibility criteria

To be eligible, you must:

  • Have a turnover of less than $250 million and be a recipient of the JobKeeper payment between 4 January 2021 and 28 March 2021, or
  • Have been affected by the March 2021 floods and be locate in eligible Local Government Areas

For a full list of the eligible Local Governments Areas, click here.

Eligible loan uses

Loans issued under the Scheme can be used for a number of business purposes to support investment, including:

  • refinancing existing loans and pre-existing debt
  • purchasing commercial property
  • acquisition of another business.

Uses not permitted with the loan:

  • purchasing residential property
  • purchasing financial property
  • lending to an associated entry
  • leasing, renting, hiring or hire purchases of existing assets that are more than half way through their effective life.

How to apply

 

All loans backed by the Scheme will be available through participating commercial lenders. We work closely with a number of lenders on our panel to help clients secure funding for their business. If you’d like to discuss or need assistance in obtaining finance, we can help.

 

For full details on the SME Recovery Loan Scheme click here: https://treasury.gov.au/coronavirus/sme-recovery-loan-scheme

 

If you have any questions regarding the SME Recovery Loan scheme, please give us a call on 03 5434 7690.

First home buyer with government support; just how good can it get?!

At the moment there are a range of support packages available to first home buyers and we pulled off the ‘quadfecta’ for a recent client of ours.

The first home buyers had a combination of savings and gifted cash to compile together 5% of the land and build price, plus a clean and consistent rental history. The bank recognised this and were able to secure a land and build worth $440,000 with their deposit of $23,300 (or just over 5%).

Endeavor guided applicants in pursuing all available grants for first home buyers and builders and were successful in all applications, pulling off almost $60,000 in savings for the pair!

 

The grants the pair were eligible for included:

Grant

Grant amount
Cash saved as a result of First Home Buyer stamp duty exemption $4,370
Cash as a result of ‘First Home Owners Grant’ $20,000
Cash as a result of ‘Home Builder Grant’ $25,000
Cash saved as a result of ‘New Home Guarantee’ $10,000
Total benefit as first home buyers

$59,370

 

These outstanding results are a regular day at the office for our team. If you or a family member are looking to join the property market we highly recommend you speak to Llewe or Adam at Endeavor Finance to get the Endeavor Finance difference.

Call 03 5434 7690 or email endeavor@endeavorfinance.com.au

Phillip island finance success

Phillip Island Retirement Dream | Customer Success Story

Dreaming of warmer weather?

This house settled this month for one of our property investors who picked up a nice beach house in the tightly held market of Phillip Island, along the coast of Victoria.

It’s got us thinking about the beach and warmer weather! Great location, with the owner’s future intention to relocate there when they decide to retire.

Not only are we very active in the Bendigo property market; We help finance property Australia wide.

Phillip Island finance broker Phillip island finance success

Chasing yield in a low interest rate world

Low interest rates and unsettled sharemarkets make the chase for yield a challenging prospect. Yield is important, particularly for those approaching or already in the retirement phase as maintaining capital and enjoying a steady income stream are the two key factors to provide for comfort in the years ahead.

But how can you get a decent return when the cash rate is only 1.5% and the interest rate on many traditional fixed interest investments is not much better?

According to Canstar, fixed term deposits are offering an average of 2.69% for one year and 2.87% for five years.i While it is above the inflation rate of 1%, it’s still modest.ii

Of course, there are other conservative investments such as government bonds but even these offer only low returns. According to Bloomberg, 2-year government bonds have a yield of 1.59%, five-year 1.74% and 10-year 2.11%.iii

Corporate bonds

Corporate bonds generally offer better returns than government bonds, term deposits or cash because they carry a higher risk. With corporate bonds, you are lending money to a business in return for interest payments compared with shares where you become a part owner of the company. You can buy the bonds via a prospectus, but these days many are traded on the ASX.

You can currently get yields of around 2.75% for high quality, lower risk corporate bonds, however if you already have exposure to company shares on the market, then adding corporate bonds to your portfolio may reduce your level of diversification.

It is also worth considering investments such as hybrids, which have characteristics of bonds and shares, hence the name. You can currently get a yield of up to 6% in hybrid issues from household name companies including the major banks, ultilities, retailers and insurers.

As an alternative to selecting individual bond issues, a professionally-managed bond fund offers the opportunity to invest in a diversified portfolio of corporate and government bonds and cash.

Good returns from shares

Shares continue to be attractive for investors looking for regular income. The average dividend yield for listed companies is 4.2%; with capital growth, total returns are above 9%. In the latest reporting season some $24 billion was paid out in dividends from Australian listed shares.iv

One key advantage of shares is dividend imputation, where you may actually end up with a cash rebate on the tax that has already been paid by the company.

Stocks such as banks and telcos are often viewed as good sources of yield although concentrating your investments in one or two sectors reduces diversification and increases risk.

Similarly, focusing exclusively on yield may mean that your portfolio is not as diversified as it should be.

Property options

Residential investment property has featured as a major source of investment returns in recent years, but with house prices high and rents tightening the yield has been falling. Add to this the lumpiness of an investment in property – you can’t just sell the kitchen if you need quick cash – and property may carry increasing risk.

Commercial property may be a better option given that in the year to March the average annual return was 14%.v

As an alternative to direct property, listed Real Estate Investment Trusts (REITS) invest in a diversified property portfolio and can be bought and sold on the sharemarket. Since March they have performed quite strongly.v

The hunt for a decent yield in a low interest world is likely to be a feature of investment markets for some time. But your investments, and particularly those that constitute your retirement strategy, should be a long-term plan. Chopping and changing asset classes to try and get a good yield can prove costly.

Call us to discuss the best income-producing investments for your needs.

i www.canstar.com.au/term-deposits/the-current-term-deposit-environment/

ii www.tradingeconomics.com/australia/inflation-cpi

iii www.bloomberg.com/markets/rates-bonds/government-bonds/australia

iv www.commsec.com.au/content/dam/EN/ReportingSeason/August2016/ CommSec_Reporting_Season_August2016_Dividend-windfall-24billion-to-be-paid-out.pdf

v www.afr.com/real-estate/commercial/investment/commercial-property-the-top-investment- in-the-year-to-march-20160517-goxj63