Finance Update January 2024

I hope you had a lovely Christmas. We’re now a few weeks into 2024 and there’s been plenty of big news:

  • Investor borrowing up 18%
  • Property prices rise 8.1%
  • Building approvals rise
  • How to be better at money

Every state has recorded a rise in property investor borrowing over the past year, with Western Australia leading the way.

Throughout Australia, investors took out $9.72 billion of home loans in November 2023, which was 18.0% higher than the year before, according to the most recent data from the Australian Bureau of Statistics.

Looking at the individual states, the year-on-year increases in investor borrowing ranged from 3.5% in Victoria to 42.1% in Western Australia.

This strong increase in property investor activity might be because investors are enjoying a double wealth gain right now: during 2023, investors enjoyed increases in both the national median property price (by 8.1%) and national median rent (by 8.3%), according to CoreLogic.

One of the key things to remember with investor loans is that your outcomes can vary significantly from lender to lender. Depending on your financial position and the property you want to buy, different lenders will offer you different loan products, loan sizes and interest rates. As your broker, I will compare the market for you and shortlist lenders that suit someone with your specific scenario.

Australia’s median property price reached a record $757,746 at the end of 2023, after another year of growth.

The median price rose 3.0% during the pandemic year of 2020, surged 24.5% in 2021, contracted 4.9% in 2022 and then climbed another 8.1% in 2023, according to CoreLogic.

The median price for the combined capitals ended 2023 at record levels, while the combined regions were just 1.5% off peak.

December was the 11th consecutive month of price gains (see graph) – however, as CoreLogic research director Tim Lawless noted, it was also the smallest of those monthly gains, at 0.4%.

“After monthly growth in home values peaked in May at 1.3%, a rate hike in June and another in November, along with persistent cost of living pressures, worsening affordability challenges, rising advertised stock levels and low consumer sentiment, have progressively taken some heat out of the market through the second half of the year,” he said.

As interest rates move up and down, so does the average person’s borrowing power. Borrowing power tended to decline in 2023 and is likely to change again in 2024 as rates evolve. The other point worth mentioning is that your borrowing power can vary significantly from lender to lender. The good news is that I can match you with a bank that wants to lend to someone with your situation.

More owners and developers are planning to construct new homes and renovate existing properties, according to the latest home building approvals data.

In January 2023, only 12,185 building approvals were issued. But after trending higher throughout the year, the number of approvals reached 14,529 in November, an increase of 19.2%.

Please contact me before you start a building or renovation project, so I can explain how the finance works.

Unlike with a regular home loan, where you receive the money in a lump sum, a construction loan involves a series of progress payments (typically five) as your project proceeds. The advantage of this approach is that instead of paying interest on the whole loan amount, you pay interest only on the portion received.

Another difference is that construction loans typically start as interest-only; you can then switch to paying principal and interest once the project is complete.

Becoming a better budgeter can help you save more, invest more and get ahead on your home loan.

To stay on top of your finances, there are two broad approaches you can take.

The first is to plan how much you’ll spend on each category (groceries, entertainment, etc) each month. If you stick to your budget, you’ll know in advance how much you’ll save.

The second approach is to throw out the budget and focus on saving instead:

  1. Decide how much money you want to save each month
  2. Set up an auto-transfer to move this amount of money from a transaction account to a savings account whenever your salary gets paid
  3. Spend whatever is left in the transaction account, however and whenever you like

The first approach suits people who want to pay close attention to their money, while the second is for people who want to ‘set and forget’ their savings.

Whichever approach you take, a good place to begin is to review your last 12 months of expenses, to see how much you’re spending and on what things. You can use that information to identify areas of wastage and set savings targets.

Finance Update December 2023

Here are some interesting stories about home loans, interest rates and property investing to round out 2023:

  • 23% of buyers from interstate
  • RBA gives cash rate hint
  • Borrowing rises 5.6%
  • Credit scores rise

An increasing number of property investors are buying interstate, potentially because they’re chasing affordability, diversification or stronger returns.

PropTrack has reported that, over the course of this year, 23% of all buyer enquiries on realestate.com.au have come from people based in a different state. That compares to 17% in 2022, 15% in 2021 and 11% in 2020.

South Australia is the state that’s received the most interstate enquiries this year, at 29%, followed by Queensland (27%), Western Australia (25%), Victoria (23%) and New South Wales (15%).

If you’re a property investor who doesn’t want to self-manage your asset and doesn’t feel the need to drive by the home from time to time, it makes sense to at least consider buying throughout Australia rather than just locally, so you have more options.

Get in touch if you’re thinking about buying an investment property, whether locally or interstate. I’ll help you get a home loan pre-approval, so you know your budget.

Reserve Bank of Australia (RBA) governor Michele Bullock has outlined why the RBA might be forced to make another increase to the cash rate.

The challenge, as she explained in a speech to the Australian Business Economists, is that inflation has entered a new phase, which will make it hard for the RBA to reduce inflation from 4.9% now to its target range of 2-3%.

Governor Bullock said the initial surge of inflation, during which inflation rose from 2.1% in July 2021 to 8.4% in December 2022, was largely driven by international supply-chain disruptions. Now, though, the remaining inflation challenge “is increasingly homegrown and demand-driven”. We know that because:

  • Inflation is broad-based
  • Prices for services (such as hairdressers and dentists) are “rising strongly”
  • Companies are struggling to keep up with customer demand
“This point is important because it has implications for the appropriate policy response,” Governor Bullock said.
 

If inflation was still being driven by international supply-chain disruptions, raising the cash rate would have little effect. “However, a more substantial monetary policy tightening is the right response to inflation that results from aggregate demand exceeding the economy’s potential to meet that demand,” she said.

Home loan borrowing activity is increasing among both owner-occupiers and investors.

Owner-occupiers committed to $17.23 billion of mortgages in October, according to the latest data from the Australian Bureau of Statistics. That was 5.6% higher than the month before and 1.4% higher than the year before.

Investors committed to $9.52 billion of home loans, which was up 5.0% on the previous month and 12.1% on the previous year.

Collectively, Australians signed up for $26.75 billion of mortgages, which was 5.4% more than the previous month and 4.9% more than the previous year.

Meanwhile, borrowers refinanced $17.35 billion of existing home loans with new lenders. That was high by historical standards, but was 7.0% lower than the month before and 5.0% lower than the year before, as refinancing has declined from the record levels experienced between March and July.

Despite rising interest rates, Australians have improved their credit score over the past year.

The national average credit score rose from 846 in 2022 to 855 in 2023, according to an analysis of more than two million credit scores by credit bureau Equifax.

That means the average Australian has improved from ‘very good’ to ‘excellent’, based on Equifax’s gradings:

  • Excellent = 853 to 1200
  • Very good = 735 to 852
  • Good = 661 to 734
  • Average = 460 to 660
  • Below Average = 0 to 459

Lenders generally check your credit score when you apply for a loan – and the higher your score, the more likely your application will be approved and you’ll get a lower interest rate.

To build and protect your credit score, Equifax recommends:

  • Establishing a rainy-day fund
  • Paying bills, loans, credit cards and rent on time
  • Checking your score regularly (you can order a free copy of your credit report every three months)
  • Closing unnecessary credit accounts
  • Limiting the number of credit applications you make
  • Contacting your lender if you’re worried about falling behind on payments

Finance Update November 2023

Friendly reminder not to leave your Christmas shopping too late! As we approach the end of the year, here’s what’s happening in the home loans and property markets:

  • Home loans activity rises
  • Fixed-rate transition continues
  • Property market keeps growing
  • Bank funding costs increase

There’s been a big rise in home loans activity over the course of the year, with investors leading the way.

Between February and September, the total volume of mortgage commitments rose 9.5% to $25.0 billion, according to the latest data from the Australian Bureau of Statistics.

Owner-occupied borrowing climbed 6.1% to $16.1 billion, while investor borrowing jumped 16.0% to $9.0 billion.

Three other key facts:

  1. The number of loans taken out by owner-occupier first home buyers increased significantly between February and September, rising 18.4% to 9,213 loans.
  2. Refinancing with external lenders fell 7.1% to $18.5 billion, although that figure was still well above the long-term average.
  3. Borrowing for alterations, additions and repairs increased 9.4% to $502 million.

I love helping all kinds of borrowers, from first home buyers and investors to renovators and refinancers. Reach out if you need assistance.

The great transition of the mortgage market, from having a heavy share of fixed-rate loans to now being dominated by variable-rate loans, has gathered pace, according to Reserve Bank data.

During 2020 and 2021, when interest rates fell to record-low levels, enormous numbers of borrowers took out two-year and three-year fixed loans at very low interest rates. Many of those loans then expired as rates started rising, meaning that many borrowers have been reverting from ultra-low fixed rates to significantly higher variable rates.

“The fixed-rate share of total outstanding housing credit declined to 22% in September, well below its peak of just under 40% at the start of 2022,” the Reserve Bank reported in its recent Statement of Monetary Policy.

Over recent months, the number of fixed loans that have expired have outweighed the number of new fixed loans that have been initiated, by a ratio of more than five to one.

“Most of the remaining fixed-rate loans are expected to expire by the end of 2024,” according to the Reserve Bank.

Housing Australia has not only taken control of the HGS, but also the National Housing Infrastructure Facility, which provides loans and grants for critical infrastructure to unlock and accelerate new housing supply.

A new report from CoreLogic has found that median property prices increased in 82.4% of local markets in the three months to October, based on a sample of 4,506 suburbs across Australia.

That included price increases in 83.1% of house markets and 80.6% of unit markets.

Focusing just on house markets, prices increased in:

  • Perth – 99.7% of suburbs
  • Adelaide – 99.0%
  • Brisbane – 98.7%
  • Sydney – 91.4%
  • Melbourne – 80.8%
  • Canberra – 71.1%
  • Hobart – 59.1%
  • Darwin – 59.1%

CoreLogic’s head of research, Eliza Owen, said many housing markets across the country were growing, despite high interest rates and weakening economic conditions.

“It’s often noted that Australia is not ‘one housing market’ and we’re currently seeing increased diversity in capital city market performance,” she said.

“That’s reflected in city-wide growth rates, the various levels of supply that’s available in some cities over others, and it’s reflected in the different suburbs we analyse in this report.”

While interest rates have increased significantly over the past 18 months, this increase, thankfully, has been less than one might have expected, due to competition, according to the Reserve Bank.

Between April 2022 and September 2023, the cash rate increased by 4.00 percentage points. However, banks increased their variable rates by, on average, only 3.32 points for owner-occupiers and 3.28 points for investors. This was due, in part, to “the effect of competition between lenders on variable-rate housing loans”.

Meanwhile, banks’ funding costs increased further between the June and September quarters, which is likely to lead to higher interest rates and more pain for households.

The increase in funding costs came “as banks replaced maturing bonds issued at much lower rates and average deposit rates increased”.

Banks generally ‘buy’ funding on the wholesale market, add a margin and then on-sell this money to borrowers in the form of home loans (and other loans). So when banks’ funding costs increase, they generally have little option but to increase rates as well.

 

 

 

Finance Update October 2023

I hope you and your family are safe and well. Here are some important home loans, property and tax stories:

  • Refinancing tops $20bn
  • How interest rates have evolved over the past 18 months
  • How govt is helping new buyers
  • Tax deadline nears

With lots of people coming off fixed rates right now, it’s no surprise that an enormous amount of refinancing is occurring, as borrowers look to switch to lower-rate loans.

The latest Australian Bureau of Statistics (ABS) data has revealed that borrowers did $20.60 billion of refinancing in August – which was 3.9% lower than the month before but 12.4% higher than the year before.

Meanwhile, the ABS also revealed that the value of all new home loan commitments in August was $24.82 billion, which was 2.2% higher than the month before.

Owner-occupier borrowing rose 2.6% to $16.07 billion, while investor borrowing rose 1.6% to $8.75 billion.

That said, home loan activity has fallen on a year-on-year basis:

  • Total borrowing down 9.4%
  • Owner-occupier down 12.5%
  • Investor down 3.0%

The latest Reserve Bank of Australia (RBA) data has shown the impact the RBA’s cash rate rises have had on the mortgage market.

The key is to compare average interest rates for all outstanding loans in April 2022 – the month before the first rate rise – and August 2023 – the most recent month for which we have data.

During that time, the RBA increased the cash rate by 4.00 percentage points. Interest rates for outstanding loans have, on average, increased by less than that amount, in part because some loans were fixed at lower rates.

For owner-occupied loans, rates have increased by an average of:

  • 2.82 percentage points for principal-and-interest loans
  • 3.31 percentage points for interest-only loans

For investment loans, rates have increased by:

  • 2.83 percentage points for principal-and-interest loans
  • 2.73 percentage points for interest-only loans

Future interest rate hikes can’t be ruled out. The conflict in the Middle East may lead to higher oil prices, and therefore higher petrol prices and higher inflation. In the RBA’s cash rate meeting earlier this month, board members noted that “some further tightening of policy [i.e. rate rises] may be required should inflation prove more persistent than expected”, according to the meeting minutes.

A new report, from Housing Australia, has revealed that about one in three of all first home buyers in the 2022-23 financial year used the federal government’s Housing Guarantee Scheme (HGS) and its three different assistance programs.

Here’s what the typical participant looked like, according to Housing Australia:

  1. First Home Guarantee: the median participant was in the 30-34 age bracket, had a household income of $76,000 and bought a property worth $459,000.
  2. Regional First Home Buyer Guarantee: participants were aged 25-29, earned $71,000 and bought a $389,000 home.
  3. Family Home Guarantee (for single parents): participants were aged 35-39, earned $70,000 and bought a $422,000 home.

Meanwhile, Housing Australia is the name of the new agency that has just replaced the National Housing Finance and Investment Corporation and assumed its responsibilities.

Housing Australia has not only taken control of the HGS, but also the National Housing Infrastructure Facility, which provides loans and grants for critical infrastructure to unlock and accelerate new housing supply.

The Australian Taxation office (ATO) has reminded taxpayers to lodge their taxes by the October 31 deadline or engage with a registered tax agent to avoid late lodgement penalties.

If you have simple tax affairs, you can lodge online, often in under 30 minutes, through the myGov portal. Most of the information you need will already be pre-filled – just check it’s correct, add any additional income and claim your legal deductions.

The ATO has also stressed the importance of making sure any claims you make for work-related expenses are accurate, which means you can’t just automatically copy/paste the previous year’s claims.

“We want people to get their deductions right on the first go and claim what they are entitled to – nothing more, nothing less. We have a series of 40 occupation and industry-specific guides which you should have a look at,” ATO assistant commissioner Rob Thomson said.

“It may be tempting to boost your refund by leaving out income or inflating your deductions – but remember, we have sophisticated data analytics that will pick up returns that look suspicious.”

Finance Update September 2023

Isn’t it great to see the days getting longer and the weather getting warmer? Here are four stories making headlines in the early days of spring:

  • Property market milestone
  • FHB scheme working
  • Why prices are so high
  • Savings rates fall

The combined value of Australian real estate reached $10 trillion at the end of August, according to CoreLogic, which is the first time it’s reached this level since June 2022.

The increase resulted from a combination of more properties being built and the value of Australia’s housing increasing.

Soon after reaching the $10 trillion mark last year, the property market began a 10-month downswing, during which the national median property price fell 9.1%. Since March, prices have risen in six consecutive months, increasing by a combined 4.9%. However, the outlook is uncertain, according to CoreLogic.

“While there is a growing expectation that the RBA board is done hiking the cash rate, borrowing remains constrained by a relatively high serviceability buffer,” CoreLogic said.

“APRA [banking regulator] data to June showed the weighted average home loan assessment rate was just below 9%, and Australian Bureau of Statistics housing lending data shows mortgage lending has fallen for three of the past four months.”

The federal government’s Home Guarantee Scheme (HGS) is helping first home buyers on modest incomes enter the market with small deposits, according to research commissioned by the National Housing Finance and Investment Corporation.
 

Some of the key findings from the research were:

  • The average annual income of individual HGS participants was $108,000 compared with $117,000 for the broader first home buyer market
  • The average deposit paid by first home buyers since 2020 increased by 3.4% (from $35,200 to $36,400) for HGS participants but 46.7% ($108,400 to $159,000) for the broader first home buyer market
  • The average loan amount since 2020 increased by 4.7% compared with 13.4% for the broader first home buyer market

The research also found that the average HGS property has enjoyed an equity gain of $82,000.

Under the HGS, first home buyers can enter the market with just a 5% deposit – but conditions apply. I can tell you whether you’re eligible and help you apply for a loan.

 

Interest rates influence property prices, but they are not the reason that Australia has some of the highest housing values in the world, Philip Lowe said in a speech just before standing down as Reserve Bank governor.

Mr Lowe said it’s true that the lower interest rates that Australia has experienced for much of the past 30 years have contributed to the increase in property prices.

“But the reason that Australia has some of the highest housing prices in the world isn’t interest rates, which have been at roughly similar levels across most advanced economies. Rather, it is the outcome of the choices we have made as a society: choices about where we live; how we design our cities, and zone and regulate urban land; how we invest in and design transport systems; and how we tax land and housing investment,” he said.

“In each of these areas, our society and politicians have made choices that lead to high urban land and housing costs. It is by tackling these issues that we can address the high cost of housing in Australia, which I view as a serious economic and social problem.”

Household savings have now fallen for seven consecutive quarters, suggesting some consumers are finding it harder to save for a home deposit due to rising cost of living.

The latest Australian Bureau of Statistics data show that the share of income that households save fell significantly between the quarters of September 2021 and June 2023:

  • Sep-21: 19.3%
  • Dec-21: 12.9%
  • Mar-22: 11.3%
  • Jun-22: 8.1%
  • Sep-22: 7.2%
  • Dec-22: 4.4%
  • Mar-23: 3.6%
  • Jun-23: 3.2%

This decline in saving has been partly caused by the pandemic: people spent less during lockdown, because they were stuck at home, and then engaged in ‘revenge spending’ after being released. But it’s also been caused by the high inflation we’ve experienced during that time, which has forced consumers to spend more money just to buy the same items.

If you have a mortgage and you’re struggling to make repayments, get in touch so we can speak to your lender. Lenders tend to be more flexible with borrowers who get on the front foot about any financial problems they may be experiencing.

 

Finance Update August 2023

Great to be with you for another month! Here are four home loans and property stories that are making news right now:

  • Refinancing jumps 12.6%
  • Interest rate data revealed
  • Rental shortage set to linger
  • Govt sets homebuilding target

“Refinancing activity has remained at record highs in recent months, as borrowers continued to switch lenders amid interest rate rises,” according to the Australian Bureau of Statistics (ABS).

Owner-occupiers and investors refinanced a combined $20.2 billion of loans with external lenders in June, the ABS reported.

While that was 3.1% lower than the month before, it was 12.6% higher than the year before.

 

More significantly, the last 14 months have been the 14 biggest months in refinancing history.

Unfortunately, interest rate rises are affecting a lot of households at the moment. That’s why refinancing can be such a smart strategy. I can take a look at your existing loan and situation, compare the market and potentially present some options that may save you money.

 
Despite the interest rate rises that have occurred since last year, rates are lower than one would expect due to “strong competition between lenders”, according to the Reserve Bank.

Between May 2022 and June 2023, the cash rate increased by 4.00 percentage points. But during that same period, the average interest rate for outstanding variable-rate loans increased by only 3.37 percentage points.

When all outstanding loans (variable and fixed) are taken into account, the average interest rate increased by 2.75 percentage points during the same period. That’s because some borrowers still have low-rate fixed loans that were issued before the rate hikes began.

“The share of borrowers rolling off fixed-rate mortgages – taken out two to three years ago at low interest rates – onto much higher rates peaked at just under 5.5% of outstanding housing credit in the June quarter; it will stay high for the rest of this year, before declining in 2024,” the Reserve Bank said.

“These expiries will see the average outstanding mortgage rate continue to increase as the effect of the rise in the cash rate since May 2022 flows through to a greater share of borrowers.”

 

Property investors in much of Australia are enjoying very low vacancy rates – and one leading property researcher has forecast that is unlikely to change anytime soon.

The national vacancy rate in July was just 1.3%, according to SQM Research, which means there are very few untenanted rental properties right now. That makes it relatively easy for investors to find tenants and means renters will often accept higher rents to secure accommodation.

“Clearly, acute rental shortages remain with us. And besides more people grouping together to share the burden, there is no significant solution on the horizon,” SQM managing director Louis Christopher said.

Christopher added that the main cause of the tight rental market and fast-rising rents had been strong population growth. “Australia currently has, by far, the fastest growing population for any OECD country and clearly the rampant increases are currently breaching the country’s capacity to house all our people.”

The federal government has increased its housing construction target, in a bid to increase supply and improve affordability.

Prime Minister Anthony Albanese, after meeting with the National Cabinet recently, announced a new national target to build 1.2 million well‑located new homes over five years, from 1 July 2024. That replaces the original target of 1 million homes, which was announced last year.

Only 10,000 of those homes will be built by the federal government. The vast majority will be built by the private sector. Some will be built by the states and territories. As a result, the government also announced $3 billion of performance‑based funding for states and territories that achieve more than their targets and conduct reforms to boost housing supply.

The government also announced an additional $500 million competitive funding program for local and state governments to kickstart housing supply.

An increase in the housing supply should lead to a decrease in demand, which should put downward pressure on property prices and make housing more affordable.

 

Finance Update July 2023

As we reach the end of July, it’s time to reflect on the biggest news of the month. Here are four finance, property and tax stories that really stood out:

  • RBA reforms cash rate
  • HomeBuilder extension
  • Property listings rise
  • How to get tax help

The Reserve Bank of Australia (RBA) has unveiled a series of reforms, in response to an independent review commissioned by the federal government.

Starting in 2024, the RBA board will meet eight times per year to assess the cash rate, rather than the current 11. Meetings will last longer; and, before each meeting, board members will have the opportunity to speak with a broader range of RBA staff.

“The less frequent and longer meetings will provide more time for the board to examine issues in detail and to have deeper discussions on monetary policy strategy, alternative policy options and risks, as well as on communication,” RBA governor Philip Lowe said.

“Likewise, the staff will have more time for analysis, with less time spent preparing summaries of recent developments.”

In another change, the governor will hold a media conference after each cash rate meeting, which “will provide a timely opportunity to explain the board’s decisions and to answer questions”.

Meanwhile, the federal government has decided not to grant Governor Lowe a second seven-year term. As a result, the current deputy, Michele Bullock, will assume the top job in September when Governor Lowe’s term expires.

The deadline for existing HomeBuilder applicants to submit supporting documentation has been officially extended to 30 June 2025.

The deadline was previously set at 30 April 2023, but, in March, the federal government proposed to extend it, subject to the agreement of states and territories – which has now been secured.

This extension applies only to people who had already received formal approval under the HomeBuilder scheme for off-the-plan purchases or renovations. Applicants do not need to do anything to access the extension – it will automatically apply.

The reason the government extended the deadline was to support people who had entered into financial commitments on the basis they’d received the grant, but, through no fault of their own, were unable to use it due to supply constraints and construction industry delays.

Applications for HomeBuilder closed in April 2021. States and territories administer the scheme on behalf of the federal government.

 
In good news for buyers, there’s been an increase in the number of properties listed for sale, as well as an increase in the total number of properties on the market.

SQM Research has reported that the number of new listings (i.e. those less than 30 days’ old) in June was 1.6% higher than the month before.

At the same time, the number of for-sale properties – which includes both new listings and older ones – was 1.8% higher than the month before.

So more homeowners are listing their property for sale and those homes are taking longer to sell.

 

With more properties on the market, buyers have more choice, which means they don’t have to compete as hard on price. In the month to 4 July, there was a 2.0% reduction in prices being asked by vendors.

Given that market conditions are favouring buyers in many parts of the country, this might be a good time to buy. Contact me if you’d like me to find you a great home loan.

If you’re feeling confused about preparing your tax return, the Australian Taxation Office (ATO) has advised you to seek help from its digital self-help tools.

 

“We get lots of calls from the community about topics that can be easily resolved through our digital self-help tools, so it may be better to not wait in a queue to speak to someone when you can do it yourself, at a time and place that suits you,” ATO chief service delivery officer David Allen said.

“Our website has a wealth of information that you can refer to, including specific pages that explain what’s new this tax time for individuals and tax professionals. There is even a virtual assistant called ‘Alex’ that can help you track down the information you need.”

The ATO also provides digital tools, including myTax and the ATO app, which you can use to answer questions and perform specific actions on accounts. You can also seek help from the ATO Community, an online, peer-to-peer platform.

Online tax returns will take up to 14 days to process, according to the ATO.

Finance Update June 2023

There’s been an enormous amount of finance, property and tax news since my last newsletter. Here are four of the biggest stories right now:

  • Fixed-rate cliff explained
  • ATO warns property investors
  • Regulation coming to BNPL
  • Tax scam warning

 

Australia’s mortgage market is experiencing a significant shift, with many homeowners coming off two-year and three-year fixed-rate loans onto much higher variable rates today.
 

Starting during the 2020 pandemic, there was a boom in fixed-rate borrowing, as lenders slashed their fixed rates to record-low levels and many borrowers took advantage. At the peak, almost 40% of outstanding home loans in early 2022 were fixed, which was “roughly twice their usual share from prior to 2020,” according to a research paper published by the Reserve Bank of Australia (RBA).

 
As of March 2023, about 25% of fixed-rate loans outstanding in early 2022 had expired. By the end of 2023, another 40% will expire; and by the end of 2024, another 20%. This is what the media has been referring to as the ‘fixed-rate cliff’.
 
Here are three tips if you’re about to revert from a fixed to a variable loan:
 
  • Start budgeting right now for higher interest rates
  • Contact me to discuss whether you could refinance to a new lender with a more suitable fixed or variable rate
  • Limit your spending to increase your chances of qualifying for a new loan
 
 
The Australian Taxation Office (ATO) has revealed it will have three key focus areas this tax time – one of which will be deductions claimed by property investors.

 

The reason property investors are being targeted is because an ATO review found nine in ten property investors were filing faulty tax returns. Common errors included:

  • Leaving out rental income
  • Making mistakes with property-related deductions – like overclaiming expenses or claiming for improvements to private properties

As a result, the ATO said it would match investor tax returns with data from home loan providers and insurance providers, to ensure investors don’t omit income or inflate deductions.

“Around 80% of taxpayers with rental income claimed a deduction for interest on their loan, and this is where we’re seeing mistakes,” ATO assistant commissioner Tim Loh said.

“For example, you can’t refinance an investment property to buy personal items, like a holiday to Europe or a Tesla, then continue to claim the interest expenses as a tax deduction.”

The ATO’s other two focus areas will be work-related expenses and capital gains tax.

 

 
The federal government will change the law so buy-now-pay-later (BNPL) products are regulated as credit products, like home loans.
 
The reason BNPL services are regulated differently is because, technically, they’re not a form of credit, as consumers are not charged interest.
 
However, as Minister for Financial Services Stephen Jones told the Responsible Lending & Borrowing Summit: “BNPL looks like credit, it acts like credit, it carries the risks of credit.”
 
“We have heard that some people are opening multiple BNPL accounts, to access far more debt than they’d be able to get on a credit card or a payday loan,” he said.
 
However, Minister Jones also said BNPL had done a lot of good for the economy, and provided a lot of benefit to both consumers and businesses.
 
As a result, he said the government’s legislation would be “a proportionate solution” that would allow consumers to continue enjoying BNPL while establishing “appropriate safeguards”.
 
The government plans to release exposure draft legislation later this year and introduce the final bill to parliament by the end of the year.

 
Consumers have been warned to expect heightened scam activity and new tax scams now that tax season is almost upon us.
 
The Australian Taxation Office (ATO) received about 20,000 scam reports in the first 11 months of the 2022-23 financial year, according to Minister for Financial Services Stephen Jones.
 
Minister Jones said impersonation scams – in which criminals pretend to be from the ATO – were common at this time of year.
 
Under these scams, fraudsters will contact people by unsolicited phone calls, emails, text messages and social media messages. They may offer to answer tax questions, promise fake tax refunds or direct users to fake myGov login pages. Often, their aim is to collect as much personal information as possible.
 
The ATO will never send you a link to login to their online services or ask you to send personal information via text, email or social media.
 
Do not respond if you receive any suspicious contact. Instead, call 1800 008 540 to check if it was the ATO speaking with you.

Finance Update May 2023

These are interesting times, with interest rates appearing to be close to their peak and housing prices rising again. Here’s what’s making news in finance and property:

  • Property prices rising
  • RBA to be reformed
  • First home buyer update
  • Unit rents surging

Australian property prices look to be trending upwards again, judging by the latest data from CoreLogic.
 
After the national median price fell 9.1% between May 2022 and February 2023, it has since risen in consecutive months – by 0.6% in March and 0.5% in April.
 
“Not only are we seeing housing values stabilising or rising across most areas of the country, a number of other indicators are confirming the positive shift,” CoreLogic’s research director, Tim Lawless, said.
 
 
“Auction clearance rates are holding slightly above the long run average, sentiment has lifted and home sales are trending around the previous five-year average,” he said.
 
Mr Lawless said it was notable this housing turnaround was occurring despite interest rates remaining elevated.
 
“The last time we saw housing values trending higher through a rising interest rate environment was during the mid-to-late 2000s when the mining boom was underway. This period was also characterised by surging net overseas migration that contributed significantly to housing demand,” he said.
 
 
The Reserve Bank of Australia (RBA) is set for a shake-up, following a review commissioned by the federal government.
 
The review made 51 recommendations, including specific measures to create a clearer monetary policy framework and stronger monetary policy decision-making.
 
Treasurer Jim Chalmers said the government agreed in-principle with all the recommendations and would work with the RBA and parliament to implement them.
 
Subject to consultations with the opposition, the Treasurer said the government would introduce legislation to:
 
  • Reinforce the independence of the RBA in the operation of monetary policy
  • Split the RBA board into two – with one board to oversee monetary policy and the over governance
  • Strengthen the RBA’s mandate
  • Clarify that Australia’s monetary policy framework will aim for both price stability and full employment
Treasurer Chalmers also said the government would institute a more transparent process for appointing external members to the RBA boards.
 
 
It’s too early to say first home buyers are back, but they’ve certainly made a welcome return to the market, according to the latest data from the Australian Bureau of Statistics.

The number of new owner-occupier first home buyer loan commitments rose 15.8% in March, after reaching a five-year low in February.

That said, first home buyer activity was 21.8% lower than the year before and 50.5% lower than the January 2021 high.

Now that property prices appear to be rising again (see first story in newsletter), it might be wise for first home buyers to enter the market sooner rather than later, before prices rise further. Saving a deposit can be hard, but there are two ways to speed up the process.
Under the First Home Guarantee, the federal government helps eligible first home buyers purchase a property with just a 5% deposit without having to pay lender’s mortgage insurance. Income and price caps apply.

First home buyers who have parental support can use a guarantor home loan to enter the market with, potentially, a 0% deposit. Again, conditions apply.

I love helping first home buyers get on the property ladder. Contact me for expert advice.

Things are looking up for owners of units, whether owner-occupiers or investors.

After the national median unit price fell for 10 consecutive months, it increased in both March (0.6%) and April (0.7%), according to CoreLogic.

CoreLogic economist Kaytlin Ezzy said this could signify “the start of a slow recovery phase, with inflation seemingly moving past its peak and consumer sentiment rising from near-record lows”.

Meanwhile, unit rents are not only surging (up 14.8% over the year to April), they’re growing significantly faster than house rents (8.4%).

“The mismatch between [unit] rental supply and demand has seen capital city rental growth reaccelerate, which will be unwelcome news to many tenants already struggling to find affordable rental accommodation,” Ms Ezzy said.

“While units across each of the capitals and rest-of-state regions still offer a more affordable rental alternative compared to houses, the stronger rental growth seen in the medium to high-density sector, in part due to their relative affordability, has seen the gap narrow.”