Broker 2 Archives

For homeowners, offsets are the best things since sliced bread

January 17, 2025

Finance Guru Warren Buffet once called compound interest ‘The Eighth Wonder of the World’ but I reckon he hadn’t heard of something intrinsically Australian that could give it a run for its money – the offset account.

Offset accounts are powerful financial tools that can provide significant savings and flexibility for homeowners with a mortgage. These accounts are especially popular in Australia and other countries with similar financial systems. Below, I have summarised some of the benefits of an offset account.

But, first, what is an offset account?

An offset account is a transaction account linked to your home loan. Instead of earning interest on the money in the offset account, the balance is offset against the outstanding balance of your home loan. This reduces the amount of interest you pay on your mortgage.

Key Benefits of Offset Accounts

Interest Savings

The primary benefit of an offset account is the potential to save on mortgage interest. The money in your offset account reduces the principal amount on which interest is calculated. For example, if you have a $500,000 mortgage and $50,000 in your offset account, you will only be charged interest on $450,000.

Flexibility and Access

Unlike making extra repayments directly into your mortgage, which can be difficult to access later, an offset account allows you to withdraw funds whenever you need them. This provides greater financial flexibility for unexpected expenses or investment opportunities.

Tax Benefits

In some cases, the interest savings from an offset account can be more tax-efficient than earning interest in a traditional savings account (but you need to discuss this with your accountant). This is because the interest saved on your mortgage is not considered taxable income, whereas interest earned on a savings account is subject to tax.

Faster Mortgage Repayment

By reducing the amount of interest you pay, offset accounts can help you pay off your mortgage faster. The savings on interest can be substantial over the life of the loan, potentially shaving years off your mortgage term.

Increased Financial Discipline

Having an offset account can encourage better financial habits. By regularly depositing funds into the account, you are effectively reducing your mortgage balance and saving on interest. This can motivate you to save more and manage your finances more effectively.

Some lenders will allow you to have multiple offset accounts which help homeowners save for specific things (like a holiday, wedding or education) – all while whittling away the mortgage.

Considerations

While offset accounts offer numerous benefits, it’s important to be aware of any fees associated with them. Some lenders may charge higher fees for offset accounts compared to standard transaction accounts. Additionally, the interest rates on your mortgage may be slightly higher with an offset account option. It’s essential to compare different mortgage products and consider the overall cost before deciding.

Conclusion

Offset accounts provide a range of benefits, from interest savings and flexibility to potential tax advantages and faster mortgage repayment. They can be a valuable tool in your financial strategy, helping you achieve your homeownership goals more efficiently. However, it’s crucial to weigh the costs and benefits carefully and choose the option that best suits your financial situation.

Feel free to get in touch with me if you want to talk more about offsets, mortgages and the wider homeownership game.

Graeme Salt is an award-winning mortgage broker. For a no-obligations consultation on your home loan needs, please contact him on 02 9922 5055.

2025 property will be ‘game of two halves’

January 1, 2025

By Graeme Salt

The first half of this year presents opportunities for those looking to get on the property market. But when the whistle blows, on key decisions in the second half, prices are likely to go up again.

Buyers with the means to purchase will be able to take advantage of an ongoing slowdown in the market next year, with the runaway price growth seen across much of the country over the past year finally easing.

Some prices are forecast to rise by between one and four per cent at the national level, according to PropTrack.

2025 property price predictions – PropTrack

That modest growth is slower than the 5.5 per cent growth recorded so far this year, with the high number of homes on the market and affordability constraints keeping prices in check.

However, much of these savings may well occur in the first half of the year, with price rises in the second half spurred on by policy changes.

Our two biggest markets, Sydney and Melbourne, ended 2024 with a whimper. In fact, most capital cities have been seeing new listing volumes trending higher throughout 2024 as seller willingness to put properties up for sale has increased – this has made the market more pessimistic.

But the first key change that could spur the market is forthcoming interest rate cuts – once the whistle is blown announcing rate cuts, things could change.

The Reserve Bank of Australia has left interest rates at 4.35 per cent for more than a year. But many economists are predicting two or three cuts this year. ANZ and NAB are both tipping the first cut in May; a second in July is likely too.

But also, we are due a federal election in May. As we enter early 2025, we face a period of uncertainty as we wonder if there will be any major changes in Canberra. Once the electoral dust has settled, Australians will have more confidence in the market and the economy.

The Australian property market has a good run; strong immigration has driven supply while construction costs have limited supply. We are likely to more of this – though more likely in the second half of 2025.

Early 2025 will present buying opportunities – will you be on the field or sit on the sidelines?

House price changes My Housing Market

Graeme Salt is an award-winning mortgage broker. For a no-obligations consultation on your lending needs, please contact him on 02 9922 505

Why property is so important to us

November 11, 2024

By Graeme Salt

Property may well be the biggest investment any of us make. The Australian residential property market stands at $11trn v. Superannuation at $3.9trn and listed stocks at $3.2trn.

This is why the ups-and-downs of the property are a national pastime. As the property market goes up, so does our wealth.

In fact, more than half our wealth (56.3 per cent) is held in housing. So, for many, property is a key investment for their future.

That is why, the current market creates a major opportunity for many who could be just looking to get on the property market or looking to deepen their personal wealth.

The property market has had a pretty-good run over the past years – Sydney dwelling values are 29.2 per cent higher than pre-Covid levels. But it does seem that the market is running out of steam. This week saw many auction clearance rates well below 50 per cent – a sure sign that things are moving in buyers’ favour.

And, with properties talking longer to sell, it looks like this trend is likely to continue.

But look closer and you will see that there are multiple markets; while Sydney, Canberra and Melbourne may well be struggling, Brisbane, Perth and Adelaide are going gangbusters.

So, why are our two biggest markets and what could case them to change? Traditionally Sydney, Melbourne and Canberra are our most expensive markets and there’s little doubt that potential buyers simply cannot borrow enough to purchase properties.

When banks have to assess someone’s borrowing capacity assuming a rate as high as 6.5 per cent (plus a 3 per cent buffer) – only the super-rich can justify some loans.

The good news is that rates are due to come down- it’s just that we don’t know when! NAB is predicting rate cuts from February, though it does not recognise it is unsure how many cuts will occur, nor when.

For many, this may create a window of opportunity – rate cuts are likely to spur the market on to other highs (though I do recognise that there are other factors like the return of Donald Trump and the general malaise of the Melbourne economy).

For many, property is the prime source of their wealth and 2025 could be when opportunity beckons for many if they are prepared to get into the market just as rates start to come down.

Graeme Salt is an award-winning mortgage broker. For a no-obligations consultation on your home loan, please contact him on 02 9922 5055.

Rate cuts are coming. But don’t get over-excited.

October 24, 2024

By Graeme Salt

Rates are coming down – but probably not as fast as we would like!

Australia is tipped to record the second-highest inflation rate out of 42 countries next year. And as a result, the Reserve Bank is tipped to keep interest rates higher than other Central Banks.

https://originfinance.com.au/graeme-salt/

IMF advanced economy inflation forecasts

The good news is that a healthy economy is one reason our inflation rate is so high.

Australia has one of the strongest jobs markets in the developed world with employment growth hitting a 16-month high. Plus, the rate of workforce participation has reached a record.

More than 64,000 people found jobs in September, the Australian Bureau of Statistics said this month.

Savvy home borrowers are asking themselves what they can do given that rates are not likely to come down till February 2025 at the earliest (and then by not as much as many might like).

The first option must always be to talk to your existing lender – you’d be surprised at how rates can tumble when you threaten to break up with your bank.

But sometimes, your existing bank can’t or won’t come to the party. Here there are two options:

Look at a refinance. For borrowers with an exemplary repayment record, you’d be surprised how some banks can make things happen to welcome a new customer
Think about fixing. Seeing the writing on the wall, some lenders have now cut rates on more than 300 fixed mortgages. This could ease the cash-flow burden for those struggling with rates that are high – and will remain so for a while!

Graeme Salt is an award-winning mortgage broker. For a no-obligations consultation on your home loan needs please contact Graeme on 02 9922 5055

Rates are tumbling

October 21, 2024

By Graeme Salt

Fixed interest mortgage rates are tumbling as the banks prepare for rate cuts likely next year.

Recently the country’s fifth-largest lender, Macquarie Bank, slashed a range of fixed rates by up to 0.40 percentage points.

Such that now, of the lenders I can work with, the cheapest 3-year fixed mortgage is 5.39 per cent, whereas the variable counterpart is 5.88 per cent

Twelve lenders including Teachers Mutual Bank and Adelaide Bank have how cut more than 300 different rates across both investor and owner-occupier loans.

Many current borrowers are paying interest rates of more than six per cent, so refinancing to rates around 5.39 per cent may well be major help to their cash flow.

But, with .75 per cent rate cuts predicted in 2025, it may be by the end of next year variable rates will below these fixed rates soon.

Looking at refinancing your mortgage may well be an option. But with interest rate relief on the way, when to do this is the question.

If you want to discuss your finance needs, please contact me on 02 9922 5055.

Graeme Salt is an award-winning mortgage broker. For a no obligations consultation on your home loan needs, please contact him on 02 9922 5055

Melbourne is it

September 27, 2024

By Graeme Salt

This is NOT advice – but I am buying an investment property in Melbourne.

Median house prices in Melbourne are approximately 41 per cent cheaper than in Sydney. This gap represents a more than $600,000 difference in median house prices in August 2024.

This is the cheapest that houses in Melbourne have been relative to Sydney at any point in the past 20 years.

And it’s hard to imagine Melbourne being so cheap forever.

One of our greatest cities, Melbourne is often competing against global icons like Vienna and Copenhagen as the World’s most liveable city.

But Melbourne underperformed through the pandemic and has underperformed in the period since, making Melbourne the weakest performing capital city since March 2020.

During the pandemic, the price increases in Melbourne were less significant compared to other cities as Melbourne recorded large net losses of people. Subsequently following the decline in prices in 2022, the recovery has also been much slower in Melbourne and values remain 4.7 per cent below their 2022 peak.

Part of this could be an overhang from the underperformance experienced through the pandemic.

Plus land tax increases for investment properties in Victoria have further discouraged investment and made owning an investment property less attractive. As a result, more investors have been selling properties in Melbourne

Melbourne has been the second most expensive market for over a decade but this recent underperformance in Melbourne has led to the city dropping back to fourth place in the rankings of Australia’s most expensive capital cities, with both Brisbane and Canberra now ahead.

But, looking at historic swings in price performance and comparative affordability, a time will likely arrive when Melbourne is viewed as undervalued given house prices are at their cheapest relative to Sydney in a decade.

Once-upon-a-time, Melbournians moved to Brisbane due to Queensland’s cheaper prices. Its now more likely that the trend will be reversed – thus boosting demand for Victorian properties.

But buying a Victorian investment property may not be for you. I really encourage you to do your own due diligence and consult your trusted advisor.

Graeme Salt is an award-winning mortgage broker. For a no-obligations consultation on your home loan needs, please contact him on 02 99922 5055.

Can you see the rate cut coming?

September 27, 2024

By Graeme Salt

This week saw evidence that inflation is increasingly under control – prompting questions as to when (not if) the Reserve Bank will reduce interest rates.

Underlying inflation fell to 3.4 per cent over the year to August. The Reserve Bank (RBA) aims for inflation to be in a 2-3 per cent band. But, as monetary policy is a lagging instrument, most economists argue that interest rates will start coming down as the RBA anticipates it will reach this 2-3 per cent band.

Of the Big Four banks, Westpac, NAB and ANZ predict a rate cut in February 2025.

Clearly we are getting closer to a rate cut as the Governor said in her press conference that, for the first time, the RBA did not consider increasing rates.

However, here is the tricky bit – and why you should not expect too many rate cuts.

Gross domestic product (a measure of how many goods and services the economy is producing) is still growing. And at 4.1 per cent in August, the unemployment rate shows we’ve managed to hold on to a lot of the gains in our labour market.

Less than one per cent of all owner-occupier housing loan balances are in arrears over 90 days. And the share of variable-rate owner-occupier borrowers who are estimated to have had essential expenses and scheduled mortgage repayments exceed their income, leading to an estimated cash flow shortfall, has remained only at around five per cent.

Despite budget pressures remaining elevated, most borrowers have proven able to continue servicing their debts and covering their essential costs without dipping into their savings over the first half of 2024.

But with minimum mortgage repayments have risen by between 30 per cent and 60 per cent since the first cash rate rise in May 2022, the RBA has war-gamed what happens to household budgets if rates stay high.

The economy has proven itself strong enough.

All the above means that the next move for rates is down. But don’t expect too many, nor too large rate cuts.

Graeme Salt is an award-winning mortgage broker. For a no-obligations consultation on your home loan needs, please contact him on 02 9922 5055.

Is this your window-of-opportunity?

August 20, 2024

By Graeme Salt

Prospective homebuyers are becoming increasingly confident about purchasing a property.

And we might be getting closer to another period of property growth.

New research shows that the majority of prospective buyers feel positive about getting into the market.

Buyer confidence has increased markedly over the past three months, with a report from Mortgage Choice showing 83 per cent of prospective buyers now feel positive about buying a home (compared to 70 per cent last quarter).

Some of this may well be because, nationally, prices appear to have peaked – increasing by 0.08 per cent last month – the smallest monthly increase recorded since prices stopped falling in late 2022.

This slowdown in price growth is not unexpected, it coincides with continued strong listings activity – so much so the balance appears to have been tilted in buyers’ favour.

Even the cities that have shown most growth (Adelaide, Brisbane and Perth) are starting to show some level-headedness.

In the past three months, 15 suburbs in Brisbane and three in Adelaide posted a decline in house prices.

However, if you’re holding-off buying in the hope of major price falls, you are in for a major disappointment. Economists expect the Reserve Bank of Australia to deliver its first interest rate cut in February 2025 – this may well spur the market into another growth phase.

And Australia’s (traditionally) second market – Melbourne has been showing value for some time.

If you are thinking about buying, now may be a window of opportunity for you and you would be well-advised to arrange your loan pre-approval.

Economists are predicting three rate cuts in 2025 – expect prices to take off once they have occurred.

Graeme Salt is an award-winning mortgage broker. For a no-obligations consultation on your home loan needs, please contact him on 02 9922 5055.

Bank of Mum & Dad. Good or bad for homebuyers?

August 12, 2024

By Graeme Salt

Struggling to get on the property ladder? You may be beaten by someone backed by the Bank of Mum and Dad.
Can’t get enough deposit? Someone may be accessing their parents’ equity
Pipped to the post at auction? The winner may well have greater fire power due to a parental gift.

Recently I have assisted in a couple of purchases working alongside the Bank of Mum & Dad. A:

$1m purchase in the Illawarra (Bankwest)
$1.2m in Drummoyne (Suncorp).

And it seems that the growing importance of the Bank of Mum & Dad means that by 2020 it had become the fifth largest ‘lender’ in the nation.

According to Australian Housing Monitor research, kindly parents injected more than $2.7 billion into the property market in the year to November 2023.

But is this a temporary thing? Maybe this is the intergenerational transfer of equity built-up by Baby Boomers to their kids?

Of the $1.5tn gifted in Australia between 2002 and 2018, about 90 per cent was in the form of inheritance. The remainder was gifted “inter vivo” or between the living – mostly to people aged around 20 and averaging about $8,000 in total.

What happens when all this equity has been transferred between the generations?

Of course, not all of us can rely on the Bank of Mum and Dad when it comes to purchase. Sometimes:

your parents don’t have that much wealth to share
There are family issues mean sharing is not viable
If you are a new immigrant family, it may be logistically difficult to transfer any/enough capital internationally

In fact, it seems that the majority of first-home buyers do not rely on the Bank of Mum & Dad. Data compiled by Martin North, principal of Digital Finance Analytics, showed that only 26 per cent of last month’s first-time buyers received help from parents.

If you can’t access the Bank of Mum and Dad, what are the alternatives?

The First Home Guarantee (FHBG) is part of the Home Guarantee Scheme (HGS), an Australian Government initiative to support eligible home buyers to buy a home sooner. It is administered by Housing Australia.

Under the FHBG, part of an eligible home buyer’s home loan is guaranteed by Housing Australia. This enables an eligible home buyer to buy a home with as little as 5% deposit without paying Lenders Mortgage Insurance.

For the FHBG, any Guarantee of a home loan is for up to a maximum amount of 15 per cent of the value of the property (as assessed by the participating lender). This Guarantee is not a cash payment or a deposit for a home loan.

On top of this, most state governments offer concession on stamp duty for first-homeowners (plus sometimes, purchaser grants).

If you want to discuss how these methods can be used for you to buy your home, feel free to get in contact with me.

Graeme Salt is an award-winning mortgage broker. For a no-obligations consultation on your lending needs, please contact him on 02 9922 5055.

How can the self-employed get a loan?

August 5, 2024

By Graeme Salt

You run your own business and you have trouble getting a mortgage – that’s what used to happen; especially as many self-employed try to reduce their income to avoid paying too much tax.

But banks are now more creative in lending to the self-employed.

There really used to be just two options:

1 Show two-years’ tax returns. This was always hard for the self-employed because it felt like they had to wait ages before they could buy a place (especially compared to their mates who had regular jobs)

2 Get a lo-doc loan. Here the banks could be more creative, people could buy a home much quicker – but they often ended up paying a higher interest rate.

But now, with changes in work practices, banks are more creative with the self-employed.

Some banks will now just accept one year’s tax returns. This is great if your business is relatively new but is doing really well.

Others are now even more creative, if they can see you are paying yourself a regular wage from your company, they can treat this as regular income (their logic is if you are organised enough to budget and pay a regular salary, you are organised enough for a home loan). This is now really easy with software like Xero and MYOB.

And, lo-doc loans still exist. Often lenders can use a variety of documents for you to prove your income. These could include:

BAS statements
Business bank accounts
Letters from your accountant

What many self-employed do here is, buy a home using a lo-doc loan (at a slightly higher rate). Then, when their finances are stronger, refinance their loan as a full-doc loan – at a regular rate.

Getting a self-employed loan is easier than it used to be. For the self-employed, their circumstances vary greatly. If you want to talk about your own personal circumstances, please contact me.

Graeme Salt is an award-winning mortgage broker. For a no-obligations consultation on your lending needs, please contact him on 02 9922 5055.

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