December 2012 Newsletter

 

Welcome to our December newsletter

Mortgage holders and home buyers received an early Christmas present this year, with the Reserve Bank slashing 25 basis points off the official cash rate and taking it to an all-time low of just 3 per cent.

In terms of interest rates, it has been a good year for borrowers, with more than 125 basis points cut from the cash rate over the past 12 months. In fact, we haven’t seen a cash rate this low since September 2009.

So, while the news came as little surprise to many leading economists, home owners and potential buyers have an extra reason to celebrate this festive season.

Several lenders have been quick to pass on the rate cut, with many more expected to make a move over the coming weeks.

Whether you are an existing mortgage holder or are looking to enter the property market soon, rate reductions can only mean one thing – savings.

As Christmas draws near, some economists are predicting an influx of activity in both the Australian real estate market and retail sectors as recent cash rate reductions filter through to consumers’ wallets.

HSBC chief economist Paul Bloxham said the Reserve Bank’s recent decision reflects the country’s need for increased spending in economically sensitive sectors such as retail and housing.

“Lower interest rates are needed to support a pick-up in the non-mining sectors of the economy so that Australia sees a smooth transition from mining investment-led growth to growth that is driven by the interest-rate sensitive sectors,” Mr Bloxham said.

“Australia’s growth needs to switch from being commodity-price driven to being credit-driven, and the 175 basis points of rate cuts the [Reserve Bank] has delivered in the past year or so will help to drive this.”

The question on everyone’s mind now is what’s coming next? Can we expect to see the Reserve Bank lower the cash rate once more early next year, and should we wait and see before considering entering the property market?

According to Mr Bloxham, you may be disappointed if you decide to take the ‘wait and see’ approach.

“The labour market remains a key focus for us, as do further signs of a pick-up in the housing and retail sectors over the Christmas period,” he says.

“At this stage, we think this may be the last of the Bank’s cuts in this easing phase.”

If you are looking to enter the property market, there may be no better time than right now.

We can expect to see an influx of discounted mortgage products available in the marketplace in coming weeks – with potential savings offering significant benefits to the hip pocket. Give us a call today to discuss your Christmas wish list and we’ll see what we can do for you.

Sincerely, Nick Foale


 

Renovation riches

If you are aiming to generate some serious cash from your next reno project, then be sure to pick a property that will maximise your potential profit

Renovations can be a relatively simple and cost-effective way to add value to your property – provided you follow some important guidelines.

Some of the commoner renovation strategies, such as modernising your existing kitchen or refurbishing the yard, can return some encouraging increases in value. However, the real profits lie elsewhere.

Have you ever considered purchasing a property based specifically on its renovation potential?

For many property investors and home buyers, renovation is no longer an afterthought but a major motivating factor at the point of purchase.

Some properties hold greater renovation potential than others and so choosing the right property can mean the difference between making a few thousand to making tens of thousands of dollars in profit.

If you are really looking to turn over some serious cash on your next reno, keep the following in mind.

What to look out for
Buying below market value and completing an extensive renovation is the most effective way to turn over a sizeable profit in a matter of months.

This strategy carries more risk than renovating the family home, but the potential rewards of doing so are certainly attractive.

When using the ‘buying to renovate’ strategy, it is important to remember that you are ‘on the hunt for a dump’.

You want to purchase a home that lends itself quite clearly to renovation and shows very few signs of previous improvement. Be sure to thoroughly assess the home’s floor plan.

You are after a flexible plan that could be modified to accommodate stylish, open plan living.

Also, take note of the number and size of the bedrooms and bathrooms as well as the kitchen and other living areas.

Generally speaking, the larger the home, the more money there is to be made. When buying to renovate, however, there is nothing more important than setting yourself a realistic budget that offers both flexibility and longevity.

A key thing to remember when renovating is that anything which can go wrong quite often will, so it pays to have some extra cash hidden away to deal with any problems that may arise.

When it comes to location, the property should be within close proximity to amenities such as schools, shops and hospitals.

Convenience for transport hubs such as rail stations and bus stops are also important considerations.

What to avoid
When buying to renovate, nothing is more important than knowing what you are actually purchasing.

Units and heritage-listed properties are not the best homes to purchase when using this strategy as they often have restrictions or even extremely strict guidelines on what can be done in a home modification or renovation.

Properties that are not in sync with the surrounding neighbourhood should also be avoided.

If, for example, a majority of the houses nearby have pools and yours doesn’t, then the value of the home will always remain below market value.

Finally, pest and building inspections are a must. As the aim of the game is to buy low and sell high, you want to be sure you are not forking out tens of thousands of dollars on repairs as opposed to renovation – or still worse, to find your new property is riddled with termites.


 

Counting the cost of late repayments

Did you forget to pay last month’s electricity bill? Or do you have an overdue phone bill? Chances are if you answered yes, it’s costing you more than you think!

Managing our lifestyles on credit has become much easier – ‘put it on the card’ seems to roll off our tongue increasingly frequently these days.

But be warned, late repayments and credit card debt can cost you a lot more than fees. It could cost you your home loan!

Even the smallest late payment will likely be recorded on what is known as your ‘credit file’, a record of your dealings with credit providers. Information from the file is available to home loan providers and they will use it when assessing your creditworthiness and making a decision about your home loan application.

The information will include credit applications made in the past five years, existing loans and debt, default notices, fraud convictions and court notices – to name but a few.

Lenders use this information to assess your borrowing capacity and your ability to pay back any loan that you might take out.

It is important that you keep your credit file as blemish free as possible so that when the time does come to buy a property, securing finance need not be a worry.

One late electricity or phone bill may not seem like a big deal, but any ‘black marks’ or blemishes remain on your file for up to five years. Serious incidences can remain on file for much longer.

Even if you aren’t considering applying for a home loan anytime soon, remember that a late repayment now could impact you years down the track.

Tackle any ‘black marks’ quickly. Repay any outstanding debts and speak to your credit provider to ensure your account is updated immediately.

If you have any concerns regarding your credit file, we can access it for you for a small fee. If you would like to know more about your credit file or are interested in a creditworthiness ‘health check’, please contact us today.


Don’t blow your Christmas budget

Don’t let the stress of bills and expenses ruin your Christmas this year. Here are a few ideas to keep your festive spending under control.

Christmas is a time for family, friends and a well-deserved break. But with all the excitement it can be easy to lose track of your finances and spend beyond your budget.

By the time the Christmas pudding has settled, many people will be left scratching their heads wondering, where did all the money go? Unfortunately, that includes plenty of borrowers with significant home loans.

The good news is that saving money on Christmas presents is a lot simpler than you might think.

You don’t have to splurge on pricey gifts to impress family and friends, so why not try baking treats or dabbling in the arts and crafts for a personal and thoughtful present.

Christmas cards and wrapping paper can really add up. To save money, why not try making your own?

You should be able to pick up some affordable paints, craft paper and festive extras from your local supermarket. Best of all, you can personalise your wrapping paper to match its recipient, giving each present its own personal touch.

Spending your money wisely can be simple provided you prepare a budget in advance. When planning your spending, take into account all the people you would like to give gifts to, your groceries and decorations bills and, of course, your regular monthly bills – which will still need to be paid even though it’s Christmas.

Keeping receipts and writing lists can also be a great way to help keep your budget on track.

To save money on Christmas meals, why not organise a dinner party with close friends and family? And instead of exchanging gifts, have everybody bring a favourite dish.

Make sure to take lots of pictures and send these to everyone after the dinner. The memories you create of time spent together will last a lot longer than any present.

If possible, don’t borrow on credit to pay for Christmas. If you think you will be tempted to use your credit card, leave it at home. It will be easier to stick to your budget if you know you only have a limited supply of cash to spend. Most importantly, enjoy the rest and time off with family and friends and have a very merry Christmas and happy New Year!