05/09/2017 Interest rates remain on hold

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With spring traditionally a busy time for the real estate market and for rate moves, all eyes were on today’s Reserve Bank of Australia board meeting, where once again it was decided to leave the official cash rate unchanged for the 13th consecutive month.

​The RBA avoided the temptation to follow other developed economies and increase rates due to continued concerns around low wages growth and the impact of rising power prices on households.

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01/08/2017 Interest rate decision

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The RBA has opted to leave the official cash rate on hold at 1.5%. At its board meeting today the Reserve Bank of Australia decided to once again leave the official cash rate unchanged at 1.5% for the 12th consecutive month.

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03/10/2017 The RBA opted to leave the official cash rate on hold at 1.5%

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After a weekend of football excitement, all eyes were on the Reserve Bank of Australia board meeting today where it was decided to once again leave the official cash rate unchanged for the 14th consecutive month.

With regulatory changes to investor lending appearing to have taken some heat out of the Sydney property market in particular, the RBA continues to take a wait and watch approach due to modest growth and inflation forecasts as well as continued concerns around low wages growth and the impact of rising power prices on households.

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04/07/2017 Interest rate to remain on hold

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At its meeting today, the Reserve Bank of Australia decided to once again leave the official cash rate unchanged at 1.5% for the 10th consecutive month. The broad-based pick-up in the global economy is continuing. Labour markets have tightened further in many countries and forecasts for global growth have been revised up since last year. Above-trend growth is expected in a number of advanced economies, although uncertainties remain. In China, growth is being supported by increased spending on infrastructure and property construction, with the high level of debt continuing to present a medium-term risk. The rise in commodity prices over the past year has boosted Australia's national income.

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How to get ahead on your down payment

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With the number of first home buyers in the mortgage market continuing to languish near record lows and property prices peaking1, it's clear first home buyers need a savvy savings strategy to round up a deposit.

But getting ahead is often easier said than done. Life has to be lived and bills need to be paid, while hikes in basics, such as electricity and private health cover, make saving pennies harder.

So how do you squirrel away enough to stake your claim in the property market? There's no magic wand but there are some steps you can take to make your first home dream a reality sooner.

Have a history

As mundane as it sounds, the only way to save is to spend less than you earn. And it's a habit lenders expect you to master before you take on a mortgage.

Most lenders require entry borrowers to demonstrate a history of 'genuine savings' before approving a loan. Lender policies vary but they all require evidence you have been socking away savings for a certain period, especially if your deposit is less than 20 per cent. Cash injections from parents and other sources generally don't fit the bill as they don't show you can manage your budget to make your mortgage payments.

The only way to show you can save is to save!

Keep your credit in check

Your credit score comprises your borrowing and repayment history, and how often you have applied for credit.

A low credit score could affect your loan approval. You have the right to access your credit report for free from an approved credit reporting body (CRB) once a year or if:

• You have applied for, and been refused credit, within the past 90 days.
• Your request relates to a decision by a CRB or a credit provider to correct information included in your credit report.

For CRBs and more information on accessing your credit report visit the Office of the Australian Information.

Twenty per cent down

The rub is if you don't put 20 per cent down, you will have to pay Lenders Mortgage Insurance (LMI), which can cost thousands. LMI applies when the mortgage is higher than 80 per cent of the lender's property valuation. It covers your lender if you default on your mortgage. LMI does not cover you, the borrower, if you can't make repayments.

Two factors influence the cost of LMI: the size of the loan and the loan to property value ratio. The bigger your deposit, the smaller your LMI bill.

Ask your broker to run the maths on LMI if your deposit falls short of 20 per cent. If the market is moving up, it might make financial sense to pay the LMI rather than strive for a bigger deposit and risk being outpaced by increasing property prices. LMI premiums vary so talk to your broker to find the right loan for your circumstances.

Ditch bad debt

Take, for example, a balance of $6,000 on a card with a 20 per cent annual interest rate (assuming that there are no credit card fees or minimum monthly payments). Your minimum monthly payment is about $100. If you pay just this amount, it will take you more than 75 years to rid yourself of the debt and you will pay more than $30,000 in interest charges. Far better if you up your payments to $310 per month, knock the debt over in two years and pay $1,308 in interest. Once you are free of credit card debt, you will have more to sink into your home deposit.

Low and no-interest credit cards may also put a dent in your debt quicker. Many balance transfers on credit cards have a zero-interest offer for a period of time (although watch out for transfer fees).

You can also ask your credit card provider to lower your limit. While you may never spend to your maximum allowance, lenders will look at your credit card limits when assessing your home loan application. Keeping a lid on your limit also removes the temptation to spend.

Find the right loan

Your broker has access to a host of loan products and can take the hard work out of shopping around and making comparisons. The more information you can share about your financial situation and goals, the better your broker is equipped to find the loan that suits your circumstances.

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Construction contracts - the paperwork and planning behind your build

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You've dog-eared magazines, spent countless weekends at display villages and finally made the bold decision to build rather than buy a home. While choosing where and what to build are exciting and giant steps, you might not feel as enthusiastic about the necessary building contracts and approvals. But knowing your legal rights and responsibilities will help protect your investment and remove potential pain points in the construction process.

Finance

Unlike traditional home loans, building loans generally allow progressive draw-downs so you can make payments at various construction stages - slab, frame, lock-up, fit-out and completion.

The amount you can borrow will be partly based on the value of the property once built but repayments will only apply to what you draw down. So, if you have approval for a $400,000 loan but have used just $200,000 for progressive payments, your repayments will only apply to the $200,000, not the total approved amount. Just keep in mind, however, lenders usually require you to use all your available equity before releasing the next payment. It's also worth noting most construction loans are interest only for the first 12 months, which can help with your budget, before reverting to a standard principal and interest loan.

Your broker can help find the right construction loan for your building plans and circumstances.

Council approval

As soon as you have landed on a house design, contact your council to make sure it can be built on your block. Councils implement state development regulations and have their own local zoning and building policies. Height restrictions, flood mitigation and house-to-land ratios are some of the factors that could impact council approval.

It's worth visiting the council to discuss your plans rather than trying to explain them over the phone. A helpful council officer who explains what you can do rather than just what you can't is an administration asset. The council will need to review and approve your plans before issuing a construction certificate, the green light to start work.

You should also check your land title for any covenants or restrictions that apply to your property. If you don't have your certificate of title on file, apply for one with your state land titles office. Restrictive covenants are usually put in place to protect the value or amenity of one or more properties. For example, a sub-division overlooking a bay might apply covenants to each block to ensure future owners maintain water views.

Unless otherwise stated, covenants do not expire, so if your title has restrictions you will have to plan around them.

Owner builder

Being your own builder essentially means you are the construction project manager and site boss. It not only requires significant time - you're in charge of getting quotes and coordinating all of the contractors to build your home - but comes with serious responsibilities, including safety. The upside of being an owner builder is you can save money by doing work yourself, hire your preferred contractors and maintain greater control over timeframes. The first step is to consider your obligations as an owner builder and apply for a permit. Each state and territory has its own building authority, and legislation varies so check the rules in your market before taking on the responsibility.

Standard rules include:

• Having an owner builder licence and displaying the permit number on your site.
• Ensuring all contractors working on site are licensed.
• Not undertaking occupational projects such as plumbing, drainage, electrical, gas-fitting and pest control, unless you are licensed to do so.

While your local building authority and council enforce the rules, they are also there to help if you strike any issues or have any questions, so make the most of available resources.

Building contracts

If not going it alone, you have the choice of either a project or custom builder. Project homes tend to be cheaper but can be limited in design and may not suit your block, especially if it's steep. Either option will require you to sign a contract, much of which will be designed to protect the builder.

Ask your legal representative to read the contract and don't be afraid to question clauses you think are unfair. For example, the contract might cover an amount the builder must pay you if your home isn't constructed to practical completion within the contractual timeframe. Known as liquidated damages, the amount can be as little as $100 or $200 a week, which may not be nearly enough to cover your costs if you have to extend a rental agreement or find other temporary accommodation. It's also worth checking what practical completion actually means as your understanding may be different to that in the contract.

Conversely, check any penalties you have to pay if you delay payments to the builder. The aim is to work towards a contract that's fair for both parties.

The contract should spell out what's included and what's not. If unclear, be sure to ask. Knowing all your costs upfront will help you manage your budget better throughout the build.

Insurances

All states, except Tasmania and the Northern Territory, require licensed builders to take out insurance to protect you, the customer, when building your home. Known as builder's warranty insurance, home warranty or home indemnity insurance, it covers you if your builder doesn't finish the job, does defective work, dies, disappears or becomes bankrupt. Ask to see proof of this cover before you sign the building contract.

If owner-building in Western Australia or Victoria, you will need to take out owner builder warranty insurance, which covers the next owner of your home if defects are discovered.

As your home takes shape, you should take out building insurance cover in case it's damaged or destroyed by fire or a natural disaster. Just remember to top up the sum insured and add contents cover when your home is finished to protect your new home and everything within.

Insurance: any information contained in this article is of a general nature only. Therefore, before making any decisions, you should consider the appropriateness of the information and look to consult with an expert in the insurance field.

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