SO WHAT SHOULD YOU DO NOW?
The RBA wants you to do your bit for Australia and start spending, but is this the best thing for you? There are a few different things you can do.
Don’t do a thing.
If your home loan is variable, your existing lender should reduce the rate of interest you’re being charged and give you the option of reducing your repayments accordingly. The money you’re saving is what the RBA wants you to start putting into the economy to help give it the boost it needs. So, if you’re thinking of buying yourself something special, at least you can tell yourself you’re doing it for everyone.
Lock in a fixed rate
You can choose to fix all or part of your loan, and “lock in” a low interest rate. A fixed rate loan can provide security in terms of being able to budget cash flow. It can also provide protection when rates are rising. However, in the current climate of falling rates, it can be tricky to get the timing right. There are a few tools that can help, although there will always a degree of uncertainty when trying to predict the movement of interest rates.
Regardless of whether you get the timing ‘right’ (and you won’t know this until after the fixed period has ended), you need to make sure you select a fixed loan for the right reasons.
Start shopping around.
You’ve probably seen in the news that some lenders aren’t passing the full cuts onto their customers. If you’re not happy with your bank’s rate it’s a good time to shop around for a loan from a lender that has passed on all the rate drops. It’s important to review and compare your loan on a regular basis, so please get in touch to make a time to review your current situation.
Keep your repayments the same.
If you’re comfortable with what you’ve been used to paying, keep paying it. With your required repayments being lower, you’ll be paying off more of the principal with every payment. Not only will that reduce the amount your interest is charged on (reducing your required repayments even further), it means you’ll take months or years off your loan.
Save the money.
With rates this low, you’d have to think it’s inevitable they’ll go up one day. Rather than making extra payments you can choose to put the extra cash into savings to build a buffer for any future rises.
There are smarter ways than simply putting money into a basic savings account. Many loans have a redraw facility which lets you put extra payments into a loan, reducing the principal and interest, and allowing you to take out the extra money if and when you need it.
Or there is an offset account – a separate account that’s linked to your loan. Any money in this account will reduce the amount of the loan that interest is calculated on, but the funds are always available for your use if you want them. Even having your salary paid into an offset account will help reduce your interest charges for the time the money is in the account.
Pay off other debt.
Now is a great time to pay off that car loan or credit card that’s attracting higher interest rates than your home loan. Not only will you be reducing your debt, you’re also improving your financial position in the eyes of a lender, which is important if you’re thinking of refinancing or borrowing more to buy your next home.
Invest in a holiday.
Maybe your payments have forced you to sacrifice doing some of the things you’ve always wanted. Now might be a nice time to consider making a personal investment in some aeroplane tickets, and keep the RBA happy by keeping your travels in Australia.
Net Overseas Migration (NOM)
One of the most profound changes affecting the Australian economy and society this century has been the massive lift in Australia’s net overseas migration (NOM) and population growth under the multi-partisan Big Australia policy.
The three largest states, New South Wales, Victoria and Queensland, continued to account for the largest contributions to net overseas migration nationally in the year ending 30 June 2018.
Australia's population at the end of 2018 tipped the scales at 25,180,200 people.
In the year ending 30 June 2018, there were 526,300 migrant arrivals and 289,000 migrant departures meaning Australia saw a net gain from overseas migration of 237,300 people.
This rapid population growth is projected to continue for decades to come, if current policy settings favouring high immigration continue.
The ABS medium population projections released in 2018, have NOM continuing at current strong levels ( 225,000 people a year ) for the next half century. Australia’s projected to see 17.5 million population increase, lifting the country to 42.6 million people by 2066
Infrastructure planning has never been more needed.
According to World Bank data, Australia ranks fifth among OECD members for population growth.
Cash is King
FINANCE CHANGES LIVES
If you have existing investment properties, or plan to buy and would like 12 Months Rent Paid In Advance each year, just confirm your details below and we'll get some info to you and walk you through any next steps.
If Cash is King, what does that make Cashflow... King of Kings?
Cash cannot be King when it offers a negative rate of return! (hold that thought and we'll come back to it) Meanwhile...
Dealing with cash flow issues is most difficult when you are starting a business and growing a business. You have many expenses and money can often feel like it's disappearing out the door faster than it's coming in. And your property investment is your business.
Cash flow management is critical
Well-managed cash flow can also let you live comfortably. The cash flow from the property should be managed to minimise costs and be working to rapidly paying off your debt.
Cash Flow = Freedom
Why are you really interested in real estate investing? It’s probably got something to do with freedom. Right? This is exactly what cash flow provides.
Too often, we determine our success and failure on how much cash we have in the bank. Worse, we start evaluating deals with how much (or how little) cash we can put down on a deal.
Cash flow should be one of the key reasons we are investing in real estate in the first place.
How would 12 Months Rent paid in advance improve your cashflow?
Would you... ~ Park the money in a mortgage offset account? ~ Pay down your (PPOR) Principle Place of Residence? ~ Secure reductions by prepaying other services? ~ Use as that extra cash for the next deposit? ~ Buy that well earned family holiday?
How would you use 12 months advance rent?
A positive impetus on prices.
House prices across all capital cities are expected to stabilise and increase in 2019/20 after experiencing slowing growth or declines in the past two years.
What contributes to that being highly likely?
The combination of an easing of lending serviceability buffers and lower interest rates is expected to assist borrowers. Strong population growth and a sharp downturn in new dwelling completions should result in the dwelling balance across most markets tightening from 2020/21. This will provide some real and positive impetus to prices.
Recovery underway as new serviceability threshold encourages owner occupiers and first home buyers back into the market.
New dwelling building approvals fell by 19% in 2018/19 and dwelling completions are subsequently forecast to fall to 163,500 dwellings by 2020/21, which is well below underlying demand.
Three interest rate cuts, political certainty, reduced uncertainty about housing, tax cuts, positive media coverage and easing in the execessively tight bank lending guidelines have collectively enabled significant improvement.
After struggling for two years, the Australian housing markets are on the up, delivering positive growth for four months in a row.
The Government’s new scheme, which will allow eligible first-home buyers to get a mortgage with only a 5 per cent deposit, will kick off in January 2020.
The government unveiled the latest details of its scheme end October, confirming that 10,000 applicants would be chosen on a first-in, best-dressed basis.
But first-home buyers wanting to use the federal government’s new first home loan deposit scheme will be forced to buy homes in areas well outside of expensive cities, particularly in Sydney and Melbourne.
It also revealed the price caps for every capital city, large regional centres with a population over 250,000 and regional areas across the country.
The mortgage thresholds differ depending on the state and regional centre, with first-home buyers in Sydney limited to a loan of $700,000 or less, Melbourne to $600,000 or less, Brisbane $475,000 or less and Perth $400,000 or less.
The State thresholds are listed below
Eligibility criteria Applicants under the Scheme will be subject to eligibility criteria, including criteria in relation to income thresholds and property prices. The income thresholds will be up to $125,000 per annum for singles and up to $200,000 per annum combined for couples (assessed in the financial year preceding the financial year in which the loan is entered into). The Scheme will apply to owner-occupied loans on a principal and interest basis.
Download the first home buyer loan deposit scheme fact sheet here