July 2013 Newsletter

Welcome to our July newsletter

With the Reserve Bank of Australia (RBA) still assessing the effects of previous rate cuts, the central bank decided to leave the official cash rate on hold at a historical low of 2.75 per cent.

The RBA last cut the cash rate – by a quarter of a percentage point – in May, having made four cuts in 2012.

At the RBA board’s July 2 meeting, governor Glenn Stevens said global financial conditions “remain very accommodative”.

“The easing in monetary policy over the past 18 months has supported interest-sensitive spending and asset values and further effects can be expected over time,” Mr Stevens said.

“The pace of borrowing has remained relatively subdued, though recently there are signs of increased demand for finance by households.”

The Australian dollar remains at a relatively high level; however, it is expected to depreciate further in coming months.

According to research conducted by the Housing Industry Association (HIA), the Reserve Bank’s decision to cut the official cash rate in May combined with sharp reductions in the price of Australian-produced commodities like iron ore and gold has impacted demand for the currency.

As such, economic forecasters expect the dollar to fall somewhere between 70 and 80 US cents by the end of the year, which the HIA believes will represent a benefit for the Australian economy.

“Exports will generally increase, due to the fact that Australian products are cheaper for overseas buyers,” an HIA statement said. “Similarly, imports will tend to fall because they become relatively expensive compared with domestically produced products.

“The balance of domestic demand will also tend to swing away from imports and will benefit local manufacturers, including those supplying materials to the building industry. The wider recovery in demand across the economy is also likely to benefit sectors like new home construction and renovations activity.”

Record low interest rates have been driving confidence in the property market, with new data from the Australian Bureau of Statistics (ABS) indicating that property investment is on the rise.

The latest housing finance figures from the ABS show the value of investment home loans rose by a seasonally-adjusted 1.1 per cent to $81.4 billion in April 2013, suggesting investor confidence in the property market may be rebounding.

Empire Property Portfolios’ CEO Chris Gray believes that low interest rates have given the market a welcome boost in confidence: “With interest rates currently at 53-year lows, an increasing number of investors may be seriously considering their next property purchase,” Mr Gray said.

Whether you’re looking to invest or want to take your first steps into the property market, now is a great time to consider your options and shop around – many competitive interest rates are available.

If you would like to discuss any of the topics outlined in this newsletter, or simply want to chat through your financial options for the month ahead, give us a call.

Sincerely, Nick Foale


Budgeting essentials

With the new financial year upon us, now is the perfect time to turn our attention to our financial goals for the next 12 months, and the best place to start is with good money management

Budgeting is about as fun as having teeth pulled at the dentist but don’t be deterred, it doesn’t have to be a chore. Done the right way, it will make life easier and ultimately create more wealth for you.

To ensure you stay on track throughout the year and remain motivated, it is important to set goals from the outset. Whether you are dreaming of a European holiday or saving for a home deposit, having a goal in mind will give you something to work towards and ensure you stay on track.

To start, you need to account for all your expenses. Set up your budget for the next six to 12 months and include any irregular expenses, such as vehicle registration and insurance. You could either account for these expenses as a one-off payment at the time they are due, or to lessen the blow, factor these expenses into your regular pay schedule – whether it is weekly, fortnightly or monthly. If you are putting $50 away each pay day, the big expenses won’t seem so nasty.

Ensure you include a buffer. We all know that things come up in life that we can’t always factor for. This could be anything from a friend’s birthday or engagement to unexpected home or car repairs. Adding a buffer means you won’t break your budget if something costs more than expected. At the end of the month, if you have money left over from your buffer, you can either add this to your savings or splurge on a treat to reward yourself for good savings habits.

Pay yourself first. To ensure you are continually saving, make sure that when pay day rolls around, you pay yourself first. By treating your savings as a bill that needs paying, you can guarantee that your savings account continues to grow. If you don’t transfer your savings into another account you may be easily tempted to spend it, which will severely impact your savings goals.

Finally, review and revise. Our lives are constantly changing and with this, so too do our financial needs. To make the most of your budget it is important to schedule regular reviews. Assess your spending habits and make adjustments where necessary. By reviewing your spending habits, you may find areas where you are not sticking to the budget and areas where you can easily reduce spending. It may be something small like heading to the gym instead of happy hour, or putting Foxtel on hold for a few months. These small changes will make a big difference over a 12-month period and will set you well on your way to achieving your financial goals.


Starting your property research

There is a wide range of information available to homebuyers and investors, but it can be overwhelming if you don’t know where to start

Whether you are purchasing your first home or starting an investment portfolio, the traditional methods of research such as websites, magazines, news reports and company announcements are always a good place to start.

However, the research you need to undertake will vary, depending on your end goal.

If you are looking for your primary place of residence, factors such as proximity to family and friends, layout and design and overall feel will have a major effect on the area and property you choose.

On the other hand, if you are purchasing an investment property, your search should focus less on personal preferences and more on features that will maximise the return for your investment.

You need to consider the rental yield you will receive by basing your research on how much this suburb has risen in value historically, whether there is the potential to add value through a renovation, and whether the property meets the requirements of potential tenants.

There are four key factors that you should consider when starting your property investment research.

Location
In particular, you want to consider the proximity of your property to public transport, schools and employment opportunities. Areas in close proximity to the CBD in major cities will have a real advantage when it comes to these. However, if you want to enter these areas today, you will need to pay a premium and depending on your circumstances, this may not be possible.

Infrastructure
If the well-developed areas near major cities are out of your price range, you will need to make special consideration for current and future infrastructure that may make an outer ring suburb more accessible in the future. If you can pick these suburbs early, you should be able to snag a bargain and see significant increases in value as the infrastructure develops.

Affordability
There are two key considerations to be made here. Firstly, you need to sit down and work out how much you can afford to spend on your investment property, taking into account stamp duty, legal fees and property management fees. Secondly, you will need to consider the demographics of the area you are purchasing in and decide whether your potential tenants would be able to afford the rent you hope to achieve.

There are a number of resources available to property investors and homebuyers looking to enter the property market, so don’t limit yourself to online resources. An experienced team of experts will be worth their weight in gold throughout your property investment journey.

If you would like more information on how to begin you research, contact us today.


A helping hand

As property prices continue to rise, more and more Gen Ys are staying at home longer. If you think it’s time for your Gen Y child to fly the coop, here are a few options to give them a nudge in the right direction

Faced with high house prices and the rising cost of living, many would-be first-time buyers are finding homeownership well and truly out of reach.

The difficulty is that while there are many young buyers who have the financial capability to service a loan, they simply can’t raise the sizable deposit typically needed to satisfy the banks.

While not every family is in a position to hand out cash for a child’s deposit, there are some other strategies that allow you to give your child the best start without putting financial strain on yourself.

Being a guarantor is a great way to give your children the extra financial support needed to maximise their chances of meeting the requirements of their bank or other lender.

As a guarantor, you effectively allow the equity in your property to be used as security for your child’s loan. With you as their guarantor, your child may be able to borrow the entire purchase price and in some cases, any associated purchase expenses may be covered as well.

Best of all, this strategy does not require you to dip into any of your own savings or liquidate any assets, reducing the risks and financial strain for yourself.

As the size of the mortgage decreases and the value of the property grows, you will be able to relinquish your support, allowing your child to take full responsibility for their home and mortgage.

While becoming a guarantor can be a great way to help your children break into the property market, there are some associated risks you need to be aware of.

While you do not have to put up any initial capital, you may be held responsible for the loan if your child defaults. It is important to discuss these requirements with your broker to ensure you are fully aware of your responsibilities.

Before becoming a guarantor, it would pay to look closely at your child’s current financial status and assess their ability to make the required repayments. It is also critical that your child is aware of the risks you have undertaken by becoming their guarantor.

To ensure this is the right approach for you and your child, contact us today!