16 ways the government should tackle housing affordability: report

Think property prices have gone a little bonkers? You’re not the only one. A report with 16 recommendations to tackle housing affordability has just been plonked on pollies’ desks in Canberra. Today we’ll run through them for you (succinctly, we promise).

You might have noticed that property prices have skyrocketed over the past 18 months, to the point where many first home buyers are now having real difficulties cracking the market.

So how is the Government looking at addressing it?

A House of Representatives committee (made up of both Liberal and Labor MPs) tabled a report titled ‘The Australian Dream’ in federal parliament last week outlining 16 ways to improve housing affordability and supply across the country. 

Below, we’ve summed up all 16 recommendations, starting with a few of the report’s more eye-catching proposals.

Replace stamp duty with land tax

The committee recommends that states and territories replace stamp duty with land tax.

This should be implemented over time so that those who have already paid stamp duty or recently paid it don’t face double taxation. 

The committee says this change would increase housing turnover, remove an unnecessary obstacle to homeownership, and stabilise government revenues.

In the meantime, a transition review is recommended, and states and territories should adjust stamp duty brackets to redress decades of stamp duty bracket creep.

First home buyers to use their super as security for home loans

The committee says that the Australian Government should allow first home buyers to use their superannuation as security for home loans.

“Allow first home buyers to use their superannuation balance as collateral for a home, without using the funds themselves as a deposit, thereby expanding the opportunity for home buyers,” the committee says.

“This recommendation will therefore remove the largest barrier for home buyers; being the deposit.”

However, the committee warns this recommendation should only be implemented in conjunction with some of the other proposals on this list that increase housing supply.

“Otherwise, an increase in households’ ability to borrow would likely increase property prices,” they add.

Rent-to-own affordable housing

The Australian Government should encourage private sector partnerships to deliver rent-to-own or discount-to-market affordable housing. 

“This will diversify the housing market and provide affordable housing options for low to medium-income earners, people experiencing homelessness, women escaping domestic violence, parents and children,” the report states.

The committee’s other recommendations

Increase urban density in appropriate locations: specifically areas well-serviced by under-used transport infrastructure. 

Incentivise planning and property administration policies: provide incentive payments to state and local governments to encourage better planning and property administration.

Pay states and localities to deliver more affordable housing: grants could be in the form of cash or infrastructure.

Adopt recommendations from the Inquiry into homelessness.

Increase the supply of critical housing such as crisis housing.

Don’t mess with negative gearing: the committee recommends the Australian Government not change its current negative gearing policy. 

Reform developer contributions: work with state and territory governments to reform developer contributions so value-adding and in-demand infrastructure is delivered. 

Review the build-to-rent housing market, particularly how it’s affected by current regulations and tax policies. 

APRA to continue monitoring lending standards.

No changes to the RBA’s charter: ensuring that house prices are not a specific objective of monetary policy. 

Up-to-date forecast data: implement ways to get more up-to-date forecast data on population, housing approval and completions. 

Unlock new housing supply: concessional loans to infrastructure projects and community housing providers that will unlock new housing, particularly affordable housing.

Final word

Here’s the most important thing, though. You don’t have to wait for the Government to get the ball rolling on the above recommendations to help you crack the property market.

Most states offer grants and stamp duty concessions/exemptions for first home buyers to help give you a leg up.

Several federal government options back up for grabs from July 1, including the popular First Home Loan Deposit Scheme and New Home Guarantee initiatives, which enable first home buyers to make their home purchase four to 4.5 years sooner on average.

That’s right – four years sooner!

So if you’d like to find out about ways to overcome housing affordability issues, get in touch today – we’d love to help you come up with a plan.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether public or personal, nor is it intended to imply any recommendation or opinion about a financial product. It does not consider your individual situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

What’s your debt-to-income ratio? And why do lenders care about it?

New data from the lending watchdog reveals almost one in four new mortgages are risky.

 How are they deemed risky? Well, it’s got something to do with your debt-to-income ratio,

 which we’ll explain in this week’s article.

Your debt-to-income (DTI) ratio might sound complicated, but it’s really very simple to work out.

Basically, your DTI is a measurement used by lenders that compares your total debt to your gross household income.

The formula is: total debt / gross income = debt-to-income ratio.

So if you’re seeking a $700,000 home loan (and have no other debt), and you have $160,000 in gross household income, your DTI is 4.375 – a ratio most lenders would be very comfortable with.

So why do lenders care about your DTI?

Well, December quarter data just released by the Australian Prudential Regulation Authority (APRA) shows 24.4% of new mortgages have a DTI ratio of 6 or higher.

At the 6+ ratio, APRA (aka the banking watchdog) deems these loans as risky.

And they’re keen to see the percentage of these loans that lenders approve start to come down.

That’s because they’ve been steadily on the rise for a while now.

In the September 2021 quarter, for example, new mortgages with a DTI of 6 or higher were at 23.8%, while in the December 2020 quarter it was at just 17.3%.

“However, the rate of growth in the [most recent] quarter slowed,” APRA points out (probably with a sigh of relief) in their latest release.

So why has the percentage of risky loans recently risen?

The recent rise in high DTIs has most likely got a lot to do with the phenomenal price growth (and resulting FOMO!) we’ve seen across the country over the past 12-18 months.

In fact, new data released by the Australian Bureau of Statistics shows that in the 12 months to December 2021, residential property prices rose 23.7% – the strongest annual growth ever recorded.

The mean price of residential dwellings in Australia now stands at $920,100.

That’s a jump of $44,000 from the September quarter ($876,100), and a jump of $176,000 in 12 months from the December 2020 quarter ($744,000).

So with property prices increasing at such a sharp rate, and people stretching themselves to their limits to buy into the market, it has resulted in upwards pressure on high DTI percentages.

The good news is that as the property market starts to cool, so too should the growth rate of risky DTIs, which is what APRA alluded to above.

So how much can you safely afford to borrow?

There’s a fine line between maximising your investment opportunities and stretching yourself beyond your limits.

Especially so as RBA Governor Dr Philip Lowe this week warned Australians to start preparing for higher interest rates.

And that’s where we come in.

It’s not only important to stress-test what you can borrow in the current financial landscape, but also against any upcoming headwinds that are tipped to hit borrowers – such as interest rate rises and possible tightening lending standards.

But hey! Everyone’s financial situation is different. Some lenders will take into account your particular circumstances and accept a loan application where a DTI is higher than 6.

So if you’d like to find out your borrowing capacity and options, get in touch today. We’d love to sit down with you and help you map out a plan.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Which two capital cities might have just hit their property price peak?

 

It's a three-speed property market across the country right now, with two capital cities showing signs prices might've peaked, three cities looking like they could soon peak, and three still going strong. How is the market performing in your neck of the woods?

According to the latest CoreLogic figures, while national housing prices have increased a staggering 20.6% over the past 12 months, every capital city and broad 'rest-of-state' region is now recording a slowing trend in value growth.

However, some areas are faring better than others, as we'll run you through below.

Possibly peaked: Sydney and Melbourne.

Sydney and Melbourne showed the sharpest slowdown in February, with Sydney (-0.1%) posting its first decline in housing values in 17 months (since September 2020), while Melbourne's housing values (0.0%) were unchanged over the month.

That's a pretty big drop off for Sydney in particular, which recorded 0.6% growth in January, while Melbourne recorded 0.2%.

A major contributing factor to this slowdown is now more property stock for buyers to choose from.

In Melbourne, advertised stock levels are now above average and tracking 5.5% higher than a year ago, while in Sydney, the advertised stock is 6.3% higher than last year.

CoreLogic's director of research Tim Lawless says more choice translates to less urgency for buyers and some empowerment at the negotiation table.

"The cities where housing values are rising more rapidly continue to show a clear lack of available properties to purchase," Mr Lawless explains.

It is potentially peaking soon: Perth, Canberra and Darwin.

The three capital cities that showed signs of slowing down in February – but not yet peaking – are Perth (0.3%), Canberra (0.4%) and Darwin (0.4%).

To put those figures into context, in January, Perth (0.6%), Canberra (1.7%) and Darwin (0.5%) all recorded higher housing growth figures.

And over the past 12 months, Perth (8.3%), Canberra (23.8%) and Darwin (12.3%) have all performed quite strongly.

It is still going strong: regional areas, Brisbane, Adelaide and Hobart.

Conditions are easing less noticeably across Brisbane (1.8%), Adelaide (1.5%) and Hobart (1.2%).

Similarly, regional markets have been somewhat insulated from slowing growth conditions, with five of the six rest-of-state regions continuing to record monthly gains of over 1.2%.

The stronger housing market conditions in Brisbane and Adelaide, in particular, can be seen in the quarterly growth figures, with Brisbane housing values rising 7.2% over the past three months and Adelaide up 6.4% over the same period.

So while Brisbane and Adelaide have slowed down a touch, a shortage of listings in those markets is helping to keep pushing prices up.

"Total listings across Brisbane and Adelaide remain more than 20% lower than a year ago and more than 40% below the previous five-year average," explains Mr Lawless.

"Similarly, the combined rest-of-state markets continue to see low advertised supply, 24.9% below last year and almost 45% below the five-year average."

Need help to finance your 2022 home purchase?

With property prices slowing down around the nation, now's a good time to take stock and work out what you can and can't afford over the year ahead – be that buying your first home or adding to your investment portfolio.

And part of that process is finding out your borrowing capacity before you start house hunting, so you don't stretch yourself beyond your limits.

So if you'd like to find out what you can borrow – and therefore afford to buy – get in touch today.

We'd love to sit down with you and help you map out a plan for your 2022 finance and property goals.

Disclaimer: The content of this article is general and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether public or personal, nor is it intended to imply any recommendation or opinion about a financial product. It does not consider your situation and may not be relevant to circumstances. Before taking any action, consider your particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

How 1-in-10 first home buyers cracked the market 4 years sooner

Almost 33,000 Australians bought their first home four years sooner, thanks to two federal government schemes that give first home buyers a leg up into the property market. Could you, or someone you know, be eligible?

We love a feel-good news story around here.

And hearing that so many first home buyers got a leg up into the property market much sooner than they ever dreamed makes us feel pretty warm and fuzzy.

The federal government released figures on the popular First Home Loan Deposit Scheme (FHLDS) and New Home Guarantee (NHG) initiatives this week.

The data showed that the two initiatives supported 1-in-10 first-time homeowners during the 2020-21 financial year.

And on average, the schemes allowed those first home buyers to bring forward their home purchases by four (FHLDS) to 4.5 years (NHG).

Hold up, what are these first home buyer schemes?

The FLDS allows eligible first home buyers with only a 5% deposit (rather than the typical 20% deposit) to purchase a property without forking out for lenders' mortgage insurance (LMI).

This is because the federal government guarantees (to a participating lender) up to 15% of the value of the property purchased.

Not paying LMI can save buyers anywhere between $4,000 and $35,000, depending on the property price and deposit amount.

The NHG scheme is very similar but is only for new builds – such as house and land purchases or a land purchase with a contract to build.

Another key difference is that the NHG property price caps are higher (see here) to account for the extra expenses associated with building a new home.

So who's using the schemes?

Mostly younger buyers!

According to the latest stats, 58% of all buyers under the schemes are under 30-years-old.

NSW (11,000 residents) and Queensland (9,000 residents) make up nearly two-thirds of the scheme's recipients.

And it turns out that most first home buyers who secured a spot in one of the schemes used a mortgage broker (56%).

But for the NHG scheme specifically, brokers originated the vast majority of government guarantees (72%).

How to secure a spot

We've got good news. And a bit of not-so-good information.

The good news is that for the NHG, only 2,443 of the 10,000 spots had been secured as of October 6 – so there's still the opportunity for eager first home buyers wanting a new build.

The not-so-good news is that spots in the FHLDS are almost full for the latest round released on July 1.

Figures show that 7,784 of the 10,000 spots have already been secured, and word is that participating lenders have waiting lists for many of the remaining spots.

That said, if you're a single parent, there's a third, similar scheme called the Family Home Guarantee (FHG), which allows eligible single parents with dependants to build or purchase a home with a deposit of just 2% without paying LMI.

Only 1,023 of 10,000 spots have been secured in the FHG, for which you don't need to be a first home buyer.

Last but not least, it's worth noting that the FHLDS is an annual scheme with new spots expected to be available from July 2022 – and previously, the federal government made a surprise announcement to release 10,000 additional places in January.

So if any of the above schemes are of interest to you, get in touch with us today, and we can run you through everything you need to know about them so that you're ready to apply when the time comes.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether public or personal, nor is it intended to imply any recommendation or opinion about a financial product. It does not consider your individual situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

 

Flood victims can defer loan repayments for up to 3 months

Home and business owners impacted by the floods in New South Wales and Queensland can apply to their lender for a three-month loan deferral or reduced payment arrangement. Here’s how to use it if you or someone you know has been impacted.

Another year, another disaster.

In 2019 it was the bushfires. In 2020 it was COVID-19 (which, you know, is still hanging around). In 2021 a mice plague. And now, to kick-off 2022, we’ve had half the eastern seaboard inundated with floods.

Fortunately, just as they did for the bushfires and COVID-19, lenders offer up to three months deferral on loan repayments for those customers affected by the flooding disasters in NSW and Queensland.

“Once the worst of the emergencies are over, and the clean-ups begin, we want Australians who have been impacted to know their bank is ready with tailored support to assist as they recover,” says Australian Banking Association CEO Anna Bligh.

“Don’t tough it out on your own. Loan deferral or reduced repayment arrangements for home, personal and some business loans are being offered across individual banks.”

What are some of the options available for flood victims?

Depending on your family’s or business’s circumstances, assistance from your lender may include:

– Deferring scheduled loan repayments on home, personal and some business loans for up to three months.

– Waiving fees and charges, including early access to term deposits.

– Debt consolidation to help make repayments more manageable.

– Existing Restructuring loans are free of the usual establishment fees.

– Offering additional finance to help cover cash flow shortages.

– Deferring upcoming credit card payments.

– Emergency credit limit increases.

Government grants and financial support

There’s also a range of federal and state government financial grants your household or business might be eligible for, including:

– Australian government disaster recovery payment: eligible individuals can claim $1000 per adult and $400 per child. If you’re in NSW, click here, QLD click. A further $2000 per adult and $800 per child is available for residents in Richmond Valley, Lismore and Clarence Valley.

– Australian government disaster recovery allowance: a short-term payment of up to 13 weeks for eligible people for the loss of income. NSW click here and QLD click here.

– NSW disaster relief grant for individuals: financial assistance to eligible individuals and families whose homes have been damaged by a natural disaster. Click here or phone 13 77 88.

– NSW storm and flood disaster recovery small business grant: eligible small businesses can apply here for a grant of up to $50,000 to help pay for the costs of clean-up and reinstatement.

– QLD emergency hardship assistance grants: grants of up to $180 are available per person and $900 for a family of five or more. Click here or call 1800 173 349.

– QLD essential household contents grant up to $1,765 for eligible single adults and $5,300 for families to replace/repair (uninsured) household contents. Click here or call 1800 173 349.

QLD structural assistance grant grants up to $10,995 for eligible single adults and $14,685 for families for one-off (uninsured) structural home repairs. Click here or call 1800 173 349.

– QLD essential services safety and reconnection grant: up to $200 for a safety inspection and, if required, up to $4200 to repair/reconnect essential services. Click here or call 1800 173 349.

– QLD extraordinary disaster assistance recovery grants: up to $50,000 grants for small businesses that experienced damage from the flooding event. Click here or call 1800 623 946.

We’re also here for you.

Last but not least, it’s also worth noting that there are both refinancing and/or loan restructuring options you can explore to reduce your business or home loan repayments each month (without hitting the pause button).

These include:

– asking for a better rate or moving to a lender that can provide one;
– extending the length of your loan; and
– consolidating your debt.

So if your business or household is one of the many doing it tough right now and you need a little breathing space, please don’t hesitate to pick up the phone and give us a call today – we’re here and ready to assist you any way we can.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether public or personal, nor is it intended to imply any recommendation or opinion about a financial product. It does not consider your individual
situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Australian Economy 2020 Outlook

Driving growth

Interest rates look set to go lower, but will it be enough to break the consumer strike? How do regulators kick-start the country's stubbornly sluggish economy? A leading economist says the answer could be for the Government to get out of the way of small business in 2020. BetaShares's chief economist David Bassanese thinks the Government should focus more on supporting the nation's small businesses, rather than throwing money at households in the hope they will spend it. Despite record low interest rates and more than $5 billion in tax offsets pumped back to low and middle-income earners late last year, household spending has remained stubbornly low. "When you give money to households, you rely on them spending and not saving it. But households are telling us they don't want to do that. They're saving the tax cuts and the interest rate cuts,"Mr Bassanese says, pointing to high levels of household debt and a focus on paying down borrowings. "A far better solution, I think, is to have more productivity-enhancing reforms. Reduce regulation and red tape. "The compliance burden for taxes in Australia is very high by global standards. More pro-competition changes to the economy and an improved tax system would give businesses more of a competitive edge." The Business Council of Australia is running a campaign asking business owners to share personal stories of how excessive red tape or regulation has held their business back. The lobby group claims excessive regulation - in areas such as payroll tax, licensing, trading hours and approvals - costs the economy $176 million each year. Echoing these sentiments, Mr Bassanese says relieving some of the burden on small business could help drive employment growth, boosting wages and getting the economy out of a seemingly intractable catch-22 in 2020. "Consumer spending can't really fire until wages pick up, and wages can't pick up until the economy is firing. So, you need a circuit breaker to do that - something that can stimulate growth and push the employment rate up rather than down," he says. At present the unemployment rate is 5.2 per cent and expected to drift higher this year, while the RBA estimates it needs to fall to around 4.5 per cent to fire wage growth. "The underlying weakness with the economy is household income growth. That's been a feature for several years and it's finally caught up with households and they've decided to cut back their spending," Mr Bassanese says. Where wage growth will come from is the big question. Australia has had nearly three decades of recession-free growth driven by a mining boom and a property boom. "We don't have a replacement for either of those at the moment," he says. While economists don't believe Australia's enviable record is in danger, the grinding pace of growth is causing some to question whether more levers should be pulled to kick the economy up a gear in 2020. Next month the Reserve Bank is expected to deliver another interest rate cut, taking the cash rate to an unprecedented low of 0.5 per cent, with another cut mooted for May to 0.25 per cent. After that, RBA governor Philip Lowe has said quantitative easing could be an option to buy up bonds and push interest rates down. But economists are concerned monetary policy alone cannot fire economic growth, with many calling for fiscal stimulus from the Federal Government, urging tax cuts be brought forward along with infrastructure projects. Like his peers, Mr Bassanese is hopeful that - despite a laser focus on delivering a surplus - the Government may come to the party. One possibility is that weakness in the economy, combined with additional spending on the bushfire crisis, could undermine predictions for a slim surplus this year, leaving the door open for a spending boost. "If they can't deliver a surplus, they may turn a negative into a positive by undertaking more fiscal stimulus," he says. Another possible boost to the economy in 2020 may come from a significant fall in the Australian dollar as global growth recovers and US-China tensions ease. "I'm calling the Aussie dollar to fall to 62 cents next year," Mr Bassanese says. Others have pegged it around 65-70. A low dollar would be good news for exporters, along with the country's tourism sector and retailers located in tourism hot spots. Winners and losers With more of the same trends continuing in 2020 - low wages growth, low inflation, and unemployment drifting higher - business conditions will remain fairly stable. Retailing and businesses that rely on discretionary spending - restaurants and cinemas - will continue to feel the pinch. "The housing construction area is going through a downturn now which is likely to last through much of 2020." Mr Bassanese says. On the flip side, commercial and infrastructure construction looks set to remain strong and mining investment is beginning to pick up, which will benefit businesses servicing the mining industry. International Tourism could also be a bright spot in 2020, although the Australian Tourism Council has flagged concerns about how global media coverage of the bushfire crisis could impact the country's image overseas. Want Regular update signup for our Quarterly Newsletters