TEN TIPS FOR BUYING YOUR FIRST HOME

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Property prices may go up, but there are ways to get onto the property ladder.

We love property in Australia―it’s part of the Australian dream1. About 70% of us live in our own homes. But owning property can seem an impossible dream for first homebuyers with research revealing they hold less than 12% of all home loans2.

Don’t lose heart. Our tips for home ownership may help.

  1. Build your plan – The earlier you start planning, researching and saving, the better off you’ll be.
  2. Work out what’s most important for you in a property – Shortlist suburbs and properties that meet your needs.
  3. Can you take advantage of potentially undervalued suburbs? You may be better off with a more affordable house in a different location that may prove a good investment over time.
  4. Work out costs – Make sure you understand the upfront costs of buying property—for example, stamp duty and lenders mortgage insurance (if it applies). Consider the ongoing costs like loan-interest charges and any relevant strata fees. Our cost of home loan calculator can provide information about other costs.
  5. Gather your deposit – When it comes to saving, work out your income and how much you can save while meeting day-to-day needs—use our budget planner. Then how long it will take you to save your deposit—consider AMP’s savings accounts for competitive interest and ready access to your money.
  6. Work out how much you’re likely to borrow and how you’ll repay the home loan – Use our loan repayments calculator.
  7. Some states may still provide first home buyer grants – Contact your state revenue office.
  8. Choose your lender – Visit several lenders and when you’ve found the right one, arrange financial pre-approval. With a pre-approved home loan from AMP you can benefit from competitive interest rates and terms, and be ready to bid or buy when you find the right property.
  9. Find out more at Q&AMP where we cover all things property.
  10. Consider seeking financial advice. Tailored Lifetime Solutions team of Financial Planners and our dedicated Mortgage Broker are here to help. Contact our office on (03) 9851 0300 to arrange a meeting.

THE AUSTRALIAN ECONOMY STILL IN THE DOLDRUMS

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Through 2013-14 it seemed the Australian economy was starting to transition away from a reliance on mining investment to more broad based growth.Unfortunately this transition has wavered a bit recently and growth has remained below trend. Fortunately, the RBA has recognised the problem and resumed cutting interest rates. This note looks at the outlook for growth and rates and what it means for profits and investors.

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SMSF MISTAKES TO AVOID

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It pays to avoid making mistakes when running your own superannuation fund. The government imposes severe penalties on self-managed super funds (SMSFs) that breach the strict legislation governing SMSFs.

The Australian Taxation Office (ATO) has identified the four most common breaches made by SMSFs and they’re outlined in the table below.

One of the most common breaches relates to in-house assets and the sole purpose test. Every SMSF must comply with the sole purpose test. That means the fund must be run for the sole purpose of providing superannuation benefits for members in retirement (or for member’s dependants if the member dies before retirement).

That means, any asset—for example, artwork or an investment property—purchased by an SMSF cannot be used by any member or his/her family in any way before retirement.

Who can help me meet my SMSF obligations?

It can be challenging to ensure that every aspect relating to the running of your SMSF complies with superannuation law.

If you’d like to speak with us about the ways we can help you manage your fund’s administration and compliance obligations, call (03) 9851 0300 to speak to one of our SMSF specialists.

Article originally published by AMP Ltd.

SOCIALLY RESPONSIBLE INVESTING

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You can invest your super in an ethical way without affecting your bottom line.

Socially responsible investing has come a long way over the past 15 years or so. It used to be a marginal activity, confined to government agencies and activists, and focused more on ‘negative screening’ by excluding companies that take part in activities like arms, tobacco, pornography, alcohol and gambling. There was also the perception that it could negatively affect your bottom line.

Now socially responsible investing is increasingly common as ordinary investors realise the power they hold to influence companies for the better. As such, it’s moving towards ‘positive screening’ with investment in companies whose products and services have a positive and sustainable effect on society and the environment. What’s more, investors are realising that socially responsible investments can perform just as well as other types of investment. As Peter Shergold, AMP Limited Director, asserts “[i]f you look at most socially responsible funds through the Global Financial Crisis and beyond, they’ve actually done pretty well compared to other funds.”

So you may be able to more closely align your investment strategy with your ethical beliefs without affecting the performance of your super. In addition, there are links between an organisation’s environmental and social impact, the quality of its corporate governance, and its long-term business success.

What is socially responsible investing today?

Socially responsible investing takes environmental, social, ethical or governance considerations into account. It can involve investing in businesses and funds engaged in solving challenges such as:

  • helping the working poor buy a home through microlending
  • developing sustainable agriculture in developing countries
  • building energy-efficient infrastructure like wind farms.

AMP Capital—making a difference

At AMP we like to talk about Environmental, Social and Corporate Governance (ESG) investing. And the issues are as important to us as they are to you.

As Australia’s largest responsible investment manager, our AMP Capital investment experts have over a decade of experience integrating ESG factors into investment decisions. A deeper understanding of ESG factors provides greater insight into areas of potential risk and opportunity that can impact the value, performance and reputation of the investments we make on your behalf.

Back in 2007 we were among the first companies to sign on to the Principles for Responsible Investment. We are committed to extending ESG integration across our mainstream investment activities.

So you can rest assured we are working to hold the companies in which your money is invested to account.

Take control of your super

If you want to make sure your money is invested in a way you are comfortable with, you should ask the hard questions. Remember, it’s your money. So you get to decide how it’s invested. And at Tailored Lifetime Solutions we can help you take control of your super and own your tomorrow.

If you’d like to know more, call us on (03) 9851 0300 to talk to one of our financial planners.

Article originally published by AMP Ltd

 

OFF-THE-PLAN PROPERTY ON THE MONEY?

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In this article, reader Melissa Huang asks Dr Shane Oliver about the pros and cons of buying off-the-plan property.

As house prices continue to rise, is it a good idea to buy an off-the-plan property for capital growth?

When it comes to investing in property or any investment for that matter, there’s no such thing as a free lunch. So the key is to go in with your eyes wide open.

Three reasons to buy off the plan…

There can be benefits in buying off-the-plan property if you do your homework and you’re not buying at the top of the market. If you’re a first-home buyer it’s not a bad way to get into the market. And if you’re an investor it’s not a bad way to start building a portfolio, particularly if you can pick up the property at a discount.

1. You may pick up a bargain

In order to get a loan from the bank, developers often have to show there is interest in the property. And they also like to get a degree of certainty before they start putting the development up. So they will try to sell a certain number of properties off the plan.

This means you may be able to get a good price and you usually only need to pay a small deposit, like 10% or so.1 And depending on your lender, you may not need to pay a deposit if you agree to guarantee the property against other assets.

2. You may benefit from being a first-home buyer

The benefits of buying off the plan vary state by state and can depend on whether you’re a first-home buyer or not.
For example, there are stamp duty concessions in most states and if you’re a first-home buyer, you may also get a grant because it’s a new development.

3. You may get other incentives

Some developers may provide short-term rental guarantees to attract buyers. And you may be able to customise the property to your needs by choosing:

colour schemes
fixtures and fittings
new appliances like dryers, stove tops and ovens.
…and three reasons to think again

When you buy off the plan, you are taking on more risk than if you buy an established or completed building.

1. You may get an unpleasant surprise

You can’t inspect an off-the-plan property… and things can change.

If something goes wrong while the building is going up—like interest rates rising or banks cutting back on financing—it can create financial problems. It’s not unheard of for developers to fall over when the market crashes. The building may eventually be completed many years later or it may never get off the ground.

So you should make sure the developer:

has sound financing
doesn’t have too much short-term debt
has a good track record.
But there are no guarantees. Developers have gone bust in the past and people have lost their deposits with no building to show for it.

And even assuming the development is completed, the property:

may not be quite what you think it was going to be—and it could be hard to get the developer to fix any defects
may be harder to rent than you think, despite seemingly attractive short-term rental guarantees.

2. You may be able to get a better return elsewhere

When you buy an established dwelling, you may pay more up front but you’re potentially earning rent from day one.
But when you buy off the plan, your deposit usually won’t earn any rental income for the construction period.
Even when you’re earning rent, the net rental yield can be less than you might imagine once you factor in your costs. Right now, the typical net rental yield is around 1–2% (Source: Real Estate Institute of Australia and AMP Capital).

And don’t forget that, like other investments (aside from holding cash in the bank), you’re likely to be liable for capital gains tax when you sell the investment property, assuming you’re making a profit.

3. You may see your property fall in value

If you’re buying off the plan now and the building isn’t completed until a few years later, there’s a risk the property will be worth less than you agreed to pay for it.

Home prices are rising now, as can be seen in the chart below, for many reasons including low interest rates and greater buyer confidence, as well as high demand relative to supply.

While they are likely to continue to rise for the next six to nine months, there will come a time (probably next year) when the Reserve Bank will start to raise interest rates. If that happens, it will act as a dampener on the property market.

Over the past few years there have been two significant downturns when home prices fell on average between 5% and 10%—just after the GFC and through 2011–2012 (Source: Real Estate Institute of Australia and AMP Capital ). And more risky developments would have experienced greater falls.

Get advice

It’s important to get advice before buying off the plan. Tailored Lifetime Solutions dedicated Lending Specialist and our team of financial planners are here to help. Call our office on (03) 9851 0300 to arrange a meeting.

1 A 10% deposit is usually required to secure the property in the development before it is completed, and the balance or at least 20% of the property’s value as equity is required at completion, as lenders’ mortgage insurance will usually apply to loans with a loan to value (LVR) ratio of greater than 80%.

Article originally published by AMP Ltd.

 

ANOTHER 21 GREAT INVESTMENT QUOTES

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Investing can be profitable as well as fun, but it can also be unnerving and unprofitable if you don’t understand markets and don’t have the right mindset. The basics of successful investing are timeless and some experts have a knack of encapsulating these in a way that’s insightful. A year ago I wrote on 21 investment quotes I find useful, here are some more.

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THE 10 MOST COMMON TYPES OF HOME LOAN

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There are so many types of home loans on offer; it can be hard to make sense of them all. Here are just a few of the loans you might find on offer.

1. Principal and Interest (P&I) loan: Your repayments cover both the principal (the amount you borrow to buy the property) and the interest (what you’re charged by the lender for borrowing the principal).

2. Interest-only loan: You only need to make regular repayments on the interest, not the principal – but remember, fees and charges might apply. Interest-only loans can be attractive for investors who think the property will rise in value. They pay the interest and any applicable bank fees (they may receive a tax deduction for doing so) and, if the property rises in value, they can build their equity without paying a cent of the principal loan amount. But if the property falls in value they may end up owing more than the property is worth because the outstanding loan amount would exceed the value of the property.

3. Fixed rate loan: Gives you the certainty of knowing your regular repayments will stay the same for a specific period. You can generally fix the interest rate for up to five years, sometimes longer. At the end of the fixed term you can arrange for another fixed term or move to a variable rate. But if you want to change lenders or pay off your home loan during the fixed term you may be charged break costs.

4. Variable rate loan: Your repayment amounts will change when the lender adjusts its rate—up or down. You can pay off your loan early without paying a penalty and you can also transfer your loan to another lender without break costs. Sometimes, a feature called an off-set account can be provided that allows your savings to reduce the balance of your home loan for the purpose of calculating interest charges. It’s a simple tool that can help you save thousands of dollars over the life of your home loan.

5. Split rate loan: The certainty of a fixed interest rate and the flexibility of a variable rate in one home loan. You choose how much you repay at variable and fixed rates. You can pay off part of your loan sooner and have some protection against rate increases.

6. Basic home loan: Variable home loan without regular fees and offering a low variable rate of interest. But depending on your bank you might face some restrictions, as an example you can’t pay off extra amounts, vary repayments or redraw on your funds.

7. Equity loan or line of credit: Allows you to tap into the equity in your account. You can borrow up to an approved limit, and pay interest on the debit balance once you draw upon the funds. Interest rate is slightly higher than a normal home loan.

8. All-in-one account: Brings separate accounts—savings, cheque, credit card and home loan—under one umbrella. Usually a refinancing option that allows you to reduce your home loan using funds that would otherwise sit in low-interest accounts.

9. Construction or renovation loan: Designed especially for homeowners looking at building a new home or making improvements to their existing home Allows you to draw down money as you need it to make progress payments.

10. Reverse mortgage/equity release loan: Allows asset-rich but cash-poor retirees to unlock the equity in their home. Doesn’t involve regular monthly repayments and allows borrowers to continue living in their own home. Lenders only seek repayment when the borrower vacates property. It’s important to check the lender has a ‘no negative equity guarantee’, so repayments won’t exceed the cost of your home.

With so many options out there it can be hard to work out which loan is best for you. Our dedicated lending specialist will guide you through the process and find the best loan for your individual needs. Contact us now to arrange a meeting.

Original article sourced from AMP Ltd. https://www.amp.com.au/news/2015/february/Guide-to-types-of-home-loans

WIN $25,000 TOWARDS YOUR PROPERTY DREAM

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What would $25,000 mean to you? Boosting your deposit? Paying off your home loan sooner?

For a chance to win,click ‘Enter the competition’ button below and watch ‘This week’s financial reveal’ video. Then answer the question and enter your details. And remember to watch the Block for more financial reveals and chances to win.

Enter the Competition

 

THE THREAT OF GLOBAL DEFLATION

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While a constant concern since the Global Financial Crisis (GFC) has been that easy monetary policies would cause surging inflation it simply hasn’t occurred. The absence of inflationary pressures is a good thing, as it means the global “sweet spot” of okay economic growth, with low interest rates and bond yields can continue. But what if we end up with sustained deflation? A renewed plunge in bond yields over the last year to record or near record lows is warning of just that.

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WILL YOU HAVE ENOUGH TO RETIRE ON?

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Research shows Australians’ savings rates are among the worst in the world.

The global survey of 16,000 showed Australians expect their retirement to last an average of 23 years, but their savings and investments are on track to run dry within 10 years, making it the largest gap in Asia and the fourth largest globally.

The research also revealed more than half of the nation has never saved specifically for retirement outside of compulsory superannuation.

Globally, an average of 39 per cent of people have not saved or are planning to save for retirement, compared to 53 per cent in Australia.

With wage growth in Australia now slowing to 2.6 per cent per annum, the lowest rate of growth since 1998, many Australians were struggling to afford retirement.

One in six people believe they will never be in a financial position to fully retire.

The research found more than a third of retirees felt their preparation was insufficient and half feel they should have started saving at age 30.