Christopher Joye from the Australian Financial Review wrote an interesting article on 25th August about how print media sells more papers from negative press regarding the housing market than positive press.
[The article concludes:] Reflecting on the housing debate, [the RBA’s Glen] Stevens concludes: “It has to be said that the housing market bubble, if that’s what it is, seems to be taking quite a long time to pop – if that’s what it is going to do. The ingredients we would look for in signalling an imminent crash seem, if anything, less in evidence now than five years ago.”
Here is the link to the article, it is well worth a read:
Read the Christopher Joye article in full
On the pathway of life we all confront the inevitability of sickness, the passing of friends & family and, in some instances, the breakdown of the family unit. The random nature of these events leaves us needing to reflect on our own circumstances and how best we can protect ourselves from the fallout.
These times are often stressful for those directly involved and many seek the need to offload frustrations and to understand a way clear & financially sustainable pathway forward. Some answers and solutions are provided by way of pro-active estate planning, adequate personal insurance [possibly linked through your superannuation] and identifying people to assist through the financial & credit conundrum.
A number of our clients have utilised our services in conjunction with their financial planners & Executors of Estates to identify this pathway. As professionals we have access to many contacts in various fields that will enable those involved some sense of comfort that some control is being re-established.
Should you find yourself or a close friend in this position seeking assistance, please call us.
Parents who have the means are often keen to help their children get into their first home. One option is by acting as a guarantor where the parents use some of the equity in their home to help the child to purchase their own property. While this works well for many families it is important for parents to understand the risks so they don’t end up getting into a financial difficulty themselves.
It is important for parents to think through what it might mean to them if the borrower defaults. The lender will ask the guarantor to pick up the repayments or pay out the loan. Financial counsellors see parents that are not prepared to deal with that when it happens.
Some alternatives to consider:
Give a gift. The advantage of this is it does not tie the parents up in any ongoing contractual arrangement or obligation. The disadvantage is if the homebuyers separate, the gift becomes part of the joint property of the relationship, with both parties claiming their share.
Lend money. A loan will give the parents greater security than a gift but not expose them to the risks of a guarantee.
Buy the property yourself. The parents buy the property, let their children live in the property either rent-free or charging rent. If the parents charge rent they will be liable for tax on the rental income but will be able to claim tax deductions for interest costs and maintenance. This option gives the parents full protection over their asset but has the drawback of not giving the child the opportunity to own their own property.
Buy the property together. This option allows the parents to use the equity in their home as security and share the ongoing cost of the mortgage. The disadvantage here is if the child stops making payments the parents will be in much the same position as if they were guarantors – they will be liable for the full amount.
It is vital that you seek independant legal and financial advice before entering into such a guarantor arrangement. You don’t want to turn a financial difficulty into a family breakdown.
Like many things in life, risks & opportunities present themselves by actions or inactions. How we respond to these challenges determines much of our personal temperament over an extended period. We now need to adjust our lifestyles back to a realistic level of 20 years ago before the big debt and equity bull market started.
For those of us with mortgages, the constant talk in the press concerning whether the Reserve Bank of Australia [RBA] will or won’t adjust the cash rate dominates our “front of mind” thought processes. When the inevitable decision is made by our current lender to pass all or some of the RBA cash rate adjustment on, we then become further agitated by press coverage demanding what the banks should pass on.
Passionate headlines, conspiring commentary, and rehashing statistics of what the CEO gets paid are regurgitated to remonstrate those who take these decisions.
The economic reality is the world, and more specifically Australia, needs strong & well capitalised banks. Some finer points for closer consideration are;
What many are unaware of is in countries like the US & UK, banks aren’t lending unless you have a 40% deposit, sometimes more. In Australia we can still borrow up to 95% and many still do.
Our property prices have remained relatively stable [less than 10% discounts off the peaks of 2006 & 2007].
We still have competition between banks even though the competition has reduced in numbers.
Our government hasn’t had to nationalise any banks to protect deposits and to stop a run on these banks.
For most of us who want a job, we can get one. Our unemployment rate is rising but the UK & US have unemployment rates exceed 9 or 10%.
Yes, we all want to pay as little as possible on our mortgages but we also need to understand that interest rates, like property & the stock markets go through cycles, both up down. Short term adjustments are appreciated but can’t be relied upon for long term life style sustainability.
As referred to above the, opportunity to reduce your mortgage amount quickly in a falling interest rate environment should be accepted if your cash flow is strong enough to maintain existing repayments & conversely when rates rise, as they will, we need to accept the risk that if we don’t change our repayment patterns we eventually get further behind.
Are you surprised? The RBA seems quietly confident about policies in place in Europe and consumer sentiment here in OZ is on the up again. Personally, we think things are tracking quite positively and we don’t get too caught up in the doomsayers.
A cynic might think that the banks are relieved there was no reduction in interest rates, after all, they would have been under pressure to reduce them quick smart. So what do they do, increase instead suggesting their funding costs are higher! How does CBA reconcile a $3.6 Billion half year profit with higher funding costs? That needs some explaining!
It’s a good time to get a mortgage broker to take a look at your loans – make sure you’re getting the best you can. It’s tougher at the moment to borrow money, you need to be prepared to do quite a bit of groundwork. But that’s not to say that it isn’t competitive.
Make hay while the sun shines we say.
Belated Happy New Years also – if you’re like us you’ve been slowly getting back to normality, making plans and no doubt resolutions for the new year.
We read a great blog recently from a colleague of ours, Paul Dunn of Belief1st, with the above title. For us, the article was a great reality check and probably one of the more pertinent we’ve read in a while – particularly this quote…..
‘The definition of insanity, “doing the same thing over and over, expecting a different result”’!
Too true! Read more of Belief1st blogs.
So, have a look and see what you can take out of it, particularly in relation to your financial goals. This is one area where you can clearly articulate your goals and put in place a succinct plan and timeline to get there. We have numerous tools and pertinent bits of advice to help you in this area. So, as Paul Dunn says, make a plan and just START.
Have a great week and enjoy the return to normality.
Using your ‘downtime’ to review a few fundamentals for the New Year? No doubt you’re giving thought to the ‘fix or not to fix’ question.
With the talk of interest rates undoubtedly on the rise, here are a few points to put in the mixer:
* Possibility of rates on the rise of up to 1% over the next 12 months – we think that a rate rise is likely, but there have been some interesting signs just over the last month that may impact on this.
* The housing market has slowed somewhat very recently and there’s a perception that it may very well have hit a peak – for the short term anyway.
* Business confidence is still a little subdued although depending on what business you are in and where your clients are this effect will be varied.
So – what do we think? Yes, there will definitely be some rate rises but by how much remains to be seen. Remember also, that if fixed rates sit at traditionally around 1 % higher than a variable rate, there still quite a catch up that’s must occur before you start to see some ‘savings’ – that’s a decent amount of time to try and put the equivalent into a variable mortgage.
But, if managing cash flow in either your business or at home is a priority then it’s always a good option to help with this.
Every individual and every circumstance is different – we don’t have a glass ball, just good analysis and dialogue with you to figure out what’s the best option for you.
Enjoy your week of downtime.