10 May 2019
Published by MFAA
The Buy Now Pay Later sector is winning-over the youth demographic with the promise of instant gratification, but leading mortgage brokers are warning that with every sugar-high comes the risk of a corresponding low.
‘Buy Now Pay Later’ providers such as AfterPay and Zip Pay have experienced massive growth in popularity, with the number of users jumping from 400,000 to approximately 2 million between 2015 and 2018.
Driven by a simple proposition whereby the Buy Now Pay Later provider pays the merchant on behalf of the customer, allowing the customer to obtain the goods or receive a service immediately while subsequently paying off the debt generally through instalments, Buy Now Pay Later presents a tempting offering.
But as the sector’s breakneck growth continues, mortgage professionals are warning users, particularly in the younger demographic, to be cautious of overdoing it as this could risk effecting their chances of securing a home loan further down the track.
“It’s the layby of our day but in reverse. It’s your forward credit for an item, which I don’t agree with,” said one leading mortgage broker.
“In theory, it makes sense. You get the item or service and pay it off over instalments, so you’re actually putting forward your liability.
“This might be ok for someone that manages their money well, if they pay off the item on time and use their mortgage offset account correctly. This way they’re delaying expenses and offsetting more of their savings against their home loan.
“But there’s probably one per cent of people doing that and the rest of them are spending beyond their means,” the broker added.
As a result, according to this broker, there may also be a stigma associated with using Buy Now Pay Later schemes rather than paying up-front and in-full.
“Utilising this payment method may potentially send the wrong message to a bank.
“If a lender sees a ‘buy now pay later’ provider frequently on a client’s bank statements, that can trigger more questions about their spending behaviours and ultimately may mean they choose to decline the application.
“I would much prefer to see my clients save for the item and demonstrate those good habits.”
If you are concerned about your level of expenditure or your ability to secure a home loan, a conversation with your local mortgage broker could set you on the right path.
“It’s important to appropriately manage your expenses well in advance of applying for a home loan, that way you can show the bank that you can save and afford to service a mortgage when the time comes,” the broker said.
02 May 2018
Before you decide to purchase your first property there are a number of things to consider, including your current personal circumstances and financial status.
1. Think about why you want to buy a home
Do you want to live in it or will it be an investment property? This can help determine the kind of loan you apply for and home you buy, depending on your short and long-term plans.
2. Research potential properties and loans
Knowing the market is crucial, so do some research on the areas you are targeting, check out auction clearance rates and recent sales, as well as price trends in the area. Once you are aware of what you are looking for and the approximate price, the next step is saving a deposit.
While some lenders will offer loans if you have saved less than the usual 20 per cent deposit, being able to show a record of good saving habits will aid in getting your loan approved.
Then, when you talk to your local Licensed & MFAA Approved Finance Broker about applying for pre-approval on the right type of loan, ask for their help to work out what you can afford in terms of repayments.
3. Factor in other costs involved
Depending on the property, there can be a number of additional costs, so ask your finance broker what other payments you will face. This can include, but isn’t limited to, stamp duty, loan establishment fees, legal and conveyance services, utilities, property insurance, maintenance and lenders mortgage insurance .
4. Think about your future
Just because your current situation allows you to get a home loan, that doesn’t automatically guarantee that you will still be able to service it in five years’ time. Is there a possibility your role at work will change? Are you considering going back to study and reducing your working hours?
5. Get professional help
With so many things to consider, getting professional help is highly recommended. There are many experts in the industry and it is in your interest to use them for tasks such as property checks, pest checks and any other legal queries. Going it alone can prove costly. Avoid nasty surprises down the track by getting the right people to do the appropriate checks for you from the beginning.
02 May 2018
Pest inspections are an essential part of the home-buying process. Mortgage and Finance Help spoke to Justin Hammerschmidt, an Inspector at Sydney PrePurchase, about what pest inspectors are looking for and how to interpret their reports.
Q What pest inspections need to be carried out prior to purchase?
A pest inspection, officially known as a ‘Timber Pest Inspection’ should be carried out prior to purchase. It will detail any timber pest activity such as termites, timber borers and wood decay.
These pests can cause significant structural damage to the timber elements in buildings such as wall, floor and roof framing. They can also cause serious safety hazards such as collapsing balconies and unsafe decks.
This type of damage is often difficult to locate, requiring the skill of a trained timber pest inspector. It is important to understand that other pests such as cockroaches, rodents and spiders are not covered by this inspection, as they are not capable of causing structural damage to buildings.
Q When should pest inspections be done?
A pre-purchase inspection should be carried out as soon as possible in the buying process. This will give the buyer time to consider the findings of the report and make a decision about whether to proceed with buying the property, renegotiate or adjust an offer based on the findings, or walk away from the sale.
Due to the competitive nature of the property market, a common practice is to exchange contracts and have the inspection carried out during the cooling-off period. The problem with this practice is that the buyer has no leverage to renegotiate if something significant is found during the inspection and, if they pull out of the sale, could forfeit their deposit.
Q What should consumers be looking for when they choose a pest inspector?
Pest inspectors should be licensed pest controllers and/or building consultants with the appropriate industry training and accreditation.
The inspector should also be covered by professional indemnity insurance to cover the consumer against professional negligence, and public liability insurance in case of damage or injury.
It is important to understand that the inspector’s insurance is not a ‘blanket cover’ for the house, so separate building and contents insurance is essential.
Q When the reports come back, what should prospective purchasers consider?
The report should have a summary section at the front, which will itemise any potential problems. This should be read in conjunction with a building report for the property. To save time and money, a combined building and pest inspection is strongly recommended.
The most important considerations are structural termite damage and safety hazards. Does the report refer to termite activity in the grounds only or does it refer to structural damage in the building? If the damage is in the building, where is it and what is the extent of the damage? Is the damage only on the floor frames, which can be easily repaired? Or is it likely that the damage continues up into the walls and into the roof?
It is important to understand that termite damage is often concealed inside walls or where access is not possible. The inspector should be able to articulate to the buyer the extent of possible damage without overly exaggerating the risk or being deliberately vague.
The biggest red flag for a property buyer is the likelihood of extensive concealed structural termite damage. This damage is impossible to quantify without dismantling the building.
Q Can termite activity be remedied down the track fairly simply, or are properties with pest problems best avoided?
The mention of termite activity in a pest report is not necessarily a reason to panic and pull out of the sale. Termites can be treated. If a property has a history of termite activity, a treatment may already be in place. The report will detail past treatments and make recommendations for the future.
If damage is located in the building it is often localised activity that has not caused significant structural damage. Even where structural damage exists, repairs can be carried out. Typical structural repairs for moderate damage may only cost $5000 to $10,000. This is less than the cost of re-furbishing a leaking bathroom, a problem that is far more common in old and new properties alike.
If in doubt, a short telephone conversation with the inspector can help to explain the situation and put things into context.
A property is likely to be the biggest purchase you’ll ever make, so it’s important to get the best advice on every aspect of it. MFAA Approved Finance Brokers are industry experts who can help you get the best value over the life of your home loan. Contact Us here for more information.
01 May 2018
If you’re looking for a home loan but are inexperienced with finance brokers, attending your first appointment with a broker can be a nervous experience. Getting a home loan, after all, can be quite complex for a first-timer. There are lots of brokers around and there is a lot to learn. But there are many steps you can take to be confident that your appointment will be a success.
A good starting point is to familiarise yourself with the expectations of the first appointment between brokers and yourself. Your broker is very likely to ask you about your medium and long-term financial goals, the amount you want to borrow, comparisons of your home loan options and your understanding of the fees, costs and conditions attached to home loans. Knowing the direction the appointment will likely take lets you participate more actively in the conversation. This means you can better articulate your needs to your broker.
It’s also recommended that you give some consideration before the meeting to the types of questions you wish to ask your broker. Questions that can be of use include such things as loan types (such as term, repayment options and interest rate types), the types of ongoing fees attached to various loans (such as early exit, late payment, break and redraw fees) and the typical timeframe for a loan settlement.
These questions might pop into your head spontaneously during the meeting but preparing them in advance is a good way to refine them. By doing so, you are in a position to get more specific information from your broker.
It is common practice, too, for your broker to conduct a needs assessment prior to your face-to-face appointment – so you may be asked some pre-appointment questions. To assist in answering these, you’ll need to supply information about your employment history, assets and expenses.
At the appointment it will save you time and effort to prepare and then bring the required documentation with you. This can include ID, transaction histories, tax returns, rental income statements and borrowing documents such as “contract of sale” and proof that you have the deposit for a property. It’s mandatory for brokers to maintain the confidentiality of information that you provide to them and only pass on information necessary to enable them to lodge your loan application or where required by law.
The other preparation you can make to maximise the success of your appointment is to research your broker. Many brokers provide content on their web pages and social media. This can give you a good indication of their knowledge and expertise and highlight topics to discuss with them. You can also determine if they specialise in any types of loans that match your needs, where they are located and their panel of lenders. Finally, you should investigate their qualifications. Although brokers are only required to obtain Certificate 4 qualifications, it could be argued that the better brokers hold Diploma qualifications. Finding a diploma-qualified broker will help ensure you receive the best credit advice.
Brokers can also be accredited, with accredited brokers held to higher standards. By verifying they are accredited with the Mortgage & Finance Association of Australia (MFAA) you can approach the meeting knowing your broker is appropriately educated, adheres to a strict and professional code of practice and is authorised to access a large range of products offered by a variety of lenders.
According to 2016 Deloitte research, prospective home buyers are using mortgage brokers to secure home loans because they expect brokers will save them money and assist them through the home loan application process.
If you decide a broker is for you, you’ll engage with them in a number of key stages throughout the application process and beyond.
Your broker will consult with you to establish your financial and lifestyle goals, responsibilities and commitments. You may have an idea in your mind of what you want, and the first meeting with a broker can help you refine this and develop an action plan to make your aspirations a reality.
After reviewing your financial circumstances, your broker can determine your borrowing capacity and they can outline repayment scenarios. They must make reasonable enquiries to check if proposed products are suitable for you. They can also put you in touch with a variety of other complementary service providers, such as financial planners, real estate agents, lawyers and property agents, who will also help you achieve your goals, as and when required.
In preparation for a loan application you will need to supply some supporting documents. Examples of these documentation you will typically provide include personal ID, evidence of your income, proof of savings and details of existing financial obligations. Your broker is required to maintain confidentiality of the information that you provide and only pass it on where necessary to secure your finance or where required by law.
Your broker can also consult with you to explain how features, fees and charges attached to your loan options compare and affect the overall amount you will repay on your loan.
Once you’ve consulted with your broker to determine your preferred loan, they will submit your application and documentation to the lender.
Before you seek full home loan application approval, it’s also common to apply for home loan pre-approval.
By signing a contract on a property prior to securing unconditional approval, you run the risk of forfeiting your purchase deposit if your subsequent loan application is declined. Pre-approval is less onerous than the full home loan application and gives you a good preliminary indication of your borrowing power. Your broker can assist you with applying for pre-approval as a step to help you determine which property price bracket may best suit you.
Your broker will let you know when your lender has issued an unconditional approval on your loan application.
Approval and settlement
After your home loan application is approved and settled, your broker will follow up with you to ensure you understand how to pay the loan and to answer any enquiries you might have.
It’s also common for your broker to contact you regularly, offering to check that your loan still suits your needs. It’s possible, for example, that you might be better off switching from a variable to a fixed interest rate loan, or switching products for a better deal. Your broker will help you with this decision by maintaining long-term contact.
The more aware you are of the support your finance broker has to offer in the home loan application process, the better positioned you are to navigate the process comfortably and successfully.
23 Apr 2018
Saving for a home? If you haven’t met with a finance broker yet, you’re doing it wrong. Here’s why.
When saving a deposit to buy a home, many people have a goal amount in mind that they need to save before they meet with a finance broker who will help them secure the finance.
If this is you, you’re doing it wrong. From day one, when you first think ‘I could maybe buy a house if I worked hard and saved a lot’, you’re ready to have a finance broker on your side.
A finance broker’s knowledge of the loan and property market will help you work out how much you will be able to borrow, which determines the size of the deposit you will need to save.
They will also be able to help you develop a realistic timeline to save your deposit and find ways to pay down debts faster and provide creative solutions that will help reach your goals sooner.
You may also be pleasantly surprised to find that you are closer to your goal than you thought. The tools in a finance broker’s belt that can help you realise your dreams more quickly and efficiently include lender’s mortgage insurance, specialist lending products, land loans and investment loans.
More importantly than just being allowed to provide these products, a licenced finance broker can help you work out whether they suit your situation and goals. For example, while buying land now to build on later lowers the cost of your initial investment and can be an opportunity to take advantage of a dip in land prices, there is no point in it if you will not be able to secure construction finance down the track.
So, speak to an expert now. Find a licenced finance broker who can help you take the first steps to owning your home.
18 Apr 2018
Sometimes, getting a deal over the line in time requires a conversation with an industry expert.
Late last year, Martin Jones was seeking finance to purchase a share in an investment property with two other investors, and simultaneously trying to secure finance for an investment property he was purchasing on behalf of his wife Sandra.
The financial institution he was dealing with was frustrating him and jeopardising his plans; with settlement fast approaching, the valuation was taking too long to be finalised and Martin didn’t feel that he was being informed of progress.
On Christmas Eve, Martin contacted his local MFAA Approved finance broker looking for help, hoping to find a solution by the time settlement came around on 10 January.
He needed a fast solution.
In Martin and Sandra’s first meeting with their finance broker, after talking through the problems they had encountered with the bank, it came out that their owner-occupied property was unencumbered.
With that knowledge, the finance broker was able to recommend that they use a cash out loan to finance the purchase of both investment properties, which would speed up the process considerably – a very handy development so close to Christmas time.
The finance broker processed the application, and the valuation was completed on 27 December, with the loan approved and documentation sent out the next day.
Martin, on his finance broker’s advice, was able to hand deliver the signed documentation to the lenders’ solicitor, meaning that the loan was settled on time, and Martin was able to purchase both investment properties.
*Names have been changed to protect the clients’ privacy.
Contact a Licenced finance broker who has the industry knowledge to overcome your mortgage hurdles. If you don’t have your own broker contact us here.
18 Apr 2018
Refinancing can be a great way to save money if you believe you are paying too much for your loan, but there is more to it than just finding a loan with a lower interest rate and making the change. Before making the switch, ensure the savings you could make outweigh the fees involved. Here are the different exit costs to consider:
Although loans taken out after 1 July 2011 are not subject to deferred establishment, or exit fees, those taken out prior may still be. Also known as ‘early termination’ or ‘early discharge’ fees, they can sometimes be paid by your new lender but are normally applied to an early contract exit.
Also known as ‘application’, ‘up-front’ or ‘set-up’ fees, these cover the lender’s cost of preparing the necessary documents for your new home loan. They are payable on most new loans, and the alternative to not paying this particular fee is being charged higher ongoing fees for the life of the loan.
Mortgage discharge fee
Covering your early legal release from all mortgage obligations, this fee is not to be confused with an exit fee. Also known as a ‘settlement’ or ‘termination’ fee, its purpose is to compensate your lender for the revenue it may lose due to the contract break.
Lender’s mortgage insurance (LMI)
The non-transferrable premium means that if you hold less than 20 per cent equity at the time of your refinance, you may have to pay LMI even if you paid it on the original loan. Extra care is also needed here because, whether or not you hold 20 per cent of the original valuation of the property, you may not if the property’s value has decreased and; while LMI may not have been a consideration at all in the original loan, it may be payable on the refinance.
If your purpose for making the switch is to increase your loan amount, for example to fund renovations, then stamp duty will apply only to the difference between the original loan amount and the refinanced loan amount. Different rules apply in different states, so it’s worth speaking to your broker to see if this charge applies.
Other government charges
Fees are applied for the registration and deregistration of a mortgage so that all claims on a property can be checked by any future buyers. Varying from state to state, these can potentially add up to $1000 or more.
If you were on a fixed rate loan, your lender is likely to charge you a fee for ‘breaking’ out of the loan term. This fee varies depending on the amount owed, the interest rate you were locked into, the current interest rate and the duration of your loan.
Although some of these fees can be negotiated by a broker, the total cost can be substantial. We can ensure that refinancing will help you achieve your goals while maintaining your capacity to service the debt. We can also ensure you are only paying the relevant fees for your unique circumstance. Get in Touch today if you would like more information.
As property prices continue to rise, purchasing in a centrally-located or sought-after area is out of reach for the average working millennial. Instead, many are opting to rent rather than buy as it means not having to compromise their inner city or beachside lifestyle. But for those who are still eager to enter the market, there is a way to get the best of both worlds.
‘Rentvesting’ is the term coined for when you purchase a property for investment purposes in an affordable location and continue to live and rent in the area of your choice. An example of how the market is evolving, it is a wealth creation strategy that is popular among the younger generation due to the flexibility it offers in comparison to being an owner-occupier.
“Millennials aren’t interested in purchasing a property in the outer suburbs and then having to commute into the CBD,” says an MFAA accredited finance broker. “Rentvesting allows your rental income to cover the mortgage expenses, so you can keep living the lifestyle you want without it costing you any money.”
For this strategy to work, you’ve got to be a good saver and there needs to be a focus on delayed gratification, advises the broker. “It’s all about living within your means. Don’t spend big at the start while you’re building it up. Step away from the mentality of negative gearing and tax minimisation and buy neutrally, or ideally, a positively geared property as this provides higher rental yields.”
A recent Mortgage Choice survey highlighted an increase in ‘rentvesting’ from 21 per cent of investors to 37 per cent over the past twelve months alone. But while this strategy may appear ideal to many, it’s not suited to everybody.
“It’s still a foreign way of thinking,” says the finance broker. “In the past, the great Australian dream was to buy a home on a quarter acre block and then do everything you can to pay that down as fast as possible in the hope of living debt-free. ‘Rentvesting’ is quite the opposite. It says we’re okay with good debt as long as we stick to our budget and keep using the money to invest further. You’ve got to have an open mind and be comfortable with debt.”
To ensure you have the means to make ‘rentvesting’ work for you, contact us for advice on good debt and other strategies that will allow you to maintain your current lifestyle.