Author: Comparable

We’ve seen interest rates bounce back up over the past three months, and most economists are predicting more increases to come. If you’re starting to worry about your finances, rest assured there are several steps you can take now to get on the front foot. The days of ultra-low interest rates are officially over (it was nice while it lasted!). And while all the talk of doom and gloom you see in the media about rapidly rising interest rates can be a bit spooky, now’s not the time to panic. Check out this Reserve Bank of Australia (RBA) graph here, for example. It shows interest rates are currently lower (as of July 2022) than they ever were prior to May 2019. So the current cash rate is nothing extraordinary – although it might come as a shock to newer borrowers, as we previously hadn’t had a cash rate hike since November 2010. Still, there’s no denying that some households are starting to feel the squeeze, and if you put yourself in that category, now’s the time to consider implementing one or more of the below measures.

1. Start building up a buffer

There are no two ways about it – interest rates will go up over the next few months. Currently, the RBA cash rate is at 1.35%. Economists from the big four banks are predicting it could increase to anywhere between 2.60% (Commbank) and 3.35% (ANZ) by November. That means it’s important to start planning ahead now, if you can, by building up a buffer. This usually includes putting extra money into an offset account, redraw facility, or savings account – usually a facility that’s attached to your mortgage or easy to access.

2. Reduce expenses

Stan, Netflix, Spotify, Amazon, Audible, Apple TV, Disney, Paramount+, Kayo, Binge … the list goes on. How much do you spend on subscriptions each month? While they helped us get through lockdowns, these subscription services (that you might have forgotten to cancel) could be costing you a lot more than you realise. In fact, the average Australian household spends $55/month on entertainment subscriptions. Next on the hit list: takeaway coffees. Six takeaway coffees a week costs about $27, which is about $120 a month, or $240 per couple. Instead, you can brew your own (barista-quality) coffee at home for $30-$70 a month. Then there’s Uber Eats, Menulog, DoorDash, Deliveroo – sure, takeaway dinner is great every now and then, but if you’re making a habit of it then it’ll really start to add up. And the best part about home-cooked meals is the leftovers for lunch the next day – that’s two meals for the price of one.

3. Shop around

A recent Choice study found Aldi to be the cheapest grocery store. So that’s a start when it comes to your weekly food bill (which is also going up each month thanks to inflation). Failing that, this ING survey found the average Australian family saves $114 a month simply by doing their grocery shopping online (must be because you spend less time in the choccy aisle, and more time buying just the essentials!) But it’s not just your groceries that you can shop around for a lower price on. Car insurance, home insurance, utilities, your phone bill, and your internet bill are other monthly expenses you can usually find a better deal on.

4. Refinance

While we’re on the subject of shopping around, it goes without saying that if you haven’t refinanced for a while, there’s a decent chance you could get a better rate on your home loan. But why refinance now if interest rates will just keep rising anyway? ⁣ Well, let’s say you refinance your variable rate home loan this month from 3.50% down to 3%. ⁣ If the RBA raises the cash rate by 0.50% next month, and your bank follows suit, your interest rate will then be 3.50%. ⁣ ⁣ But if you choose not to refinance (and your bank follows the RBA’s lead) it’ll be 4%. ⁣ This 0.5% gap would remain for all subsequent upcoming interest rate rises – so long as the banks increase their interest rates in lockstep with the RBA.⁣ Another option you can consider is consolidating multiple loans – such as a car or personal loan – into your mortgage to reduce your monthly expenses. Now, it’s important to note that if you do this you’ll pay more in interest on the car and/or personal loan over the lifetime of those loans, but if you need cash flow now, this could be a possible solution. Similarly, you can also consider refinancing to extend the term of your mortgage, which could help reduce your monthly repayments. Once again, you’ll end up paying more interest over the life of your loan with this option, but it can give you more breathing space if you need it.

5. Come and speak to us

Last but not least, if you’re concerned about what’s going on with interest rates, inflation and/or how you’ll meet your home loan repayments, please don’t hesitate to get in touch with us. Everybody’s situation is different. And we understand many of the ideas we’ve listed above might not suit your financial and personal situation. So if you’re worried about how you’ll meet your repayments in the months ahead, give us a call today. We’d love to sit down with you and help you work out a plan moving forward. 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.

They say all good things come to an end, and that includes your ultra-low fixed-rate home loan period. So what can you do to ensure a smooth transition?

With the past couple of years offering historically low interest rates, many Australians have been able to lock in an ultra-low fixed-rate home loan.

In fact, in July 2021, a whopping 46% of home loans taken out that month were fixed, which the ABS says was the peak period for fixing.

That means the peak time for borrowers rolling off their fixed-rate period will be between July and December 2023, according to RBA research.

And that time is fast approaching.

A looming fixed-rate cut off date can be daunting, particularly in the face of recent interest rate hikes. But you do have a few different options available, namely the three Rs: reverting, refixing and refinancing.

Reverting

If your fixed period ends and you haven’t made other arrangements, typically your loan will revert to the standard variable interest rate.

And this is set to give many home owners around the country a bit of a rude shock if they don’t start planning ahead.

In fact, RBA deputy governor Michele Bullock has warned that half of fixed-rate loans may face an increase in repayments of at least 40% when they roll straight onto a variable mortgage rate around mid-2023.

So before your fixed period ends, get in touch with us and we’ll help you explore your options. Which takes us to our next points – refixing and refinancing.

Refixing

Depending on the terms and conditions of your mortgage, you may be able to refix your loan with your existing lender.

It’s worth noting though, that due to the official cash rate going up dramatically over the past few months, it’s unlikely that you’ll be put on a fixed rate similar to the one you’re currently on. But there’s always the potential for negotiation.

The usual maximum time frame for fixing a loan is five years – but you can lock in shorter periods, too. So look into the current financial climate before deciding on whether to fix, and then the term length.

All that said, other lenders might be willing to offer you a better rate – be it fixed or variable – than your current lender, which brings us to refinancing…

Refinancing

If your current lender doesn’t want to come to the party, refinancing your loan elsewhere could potentially score you a better deal.

Rising interest rates have brought on record levels in refinancing. In fact, more owner-occupiers refinanced in June than ever before, according to ABS data.

This means the home loan market is highly competitive right now and lenders are keen for borrowers who have a good amount of equity and are on top of repayments.

If that sounds like you, then it’s certainly worth exploring your options, which we’d be more than happy to help you do.

How to start preparing now

If you’re coming off a fixed-rate loan in the near future, there are other steps you can also take to smooth the transition.

First and foremost, start planning ahead now. That includes building up a buffer of savings to cover higher repayments each month and if things are looking tight, cutting back any unnecessary expenses.

Last but not least, get in touch with us well in advance of your fixed rate ending, so we have plenty of time to model different options for you – whether that’s reverting, refixing or refinancing.

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.

Property prices are predicted to fall over the coming year, but it’s always hard to know exactly when they’re going to start trending back up again. So if you’re interested in taking advantage of the dip, it could pay to start preparing now. Earlier this year, Domain’s June 2022 Quarterly House Price report showed national property prices were starting to slightly dip. And ANZ economists are predicting a 15-20% drop by the end of next year, before starting to recover in 2024 (prices never seem to dip for too long!). So how can you prepare to take advantage of lower prices if you’re in the market to buy? Here are our top five tips to help you get ahead of the curve.

1. Start researching the market now

Think about what you’re looking for in a property. Where do you want to live and what features are you looking for in a home? What can you realistically afford? Then start researching market prices on realestate.com.au or Domain so you can compare similar properties in your preferred locations. This gives you a benchmark to aim for while you’re saving your deposit, and when the time comes, you’ll be able to tell if the home you’ve set your eyes on is a great deal or not.

2. Keep your tax returns up to date

Having your tax returns ready to roll is a crucial step in the mortgage application process. Before a lender can approve your application, they need to know all about your income and ability to meet repayments. Your financial picture helps lenders to assess the risk of lending you money and what your borrowing capacity is. Some accountants have a four to six week lead time on completing tax returns – not to mention the time it takes for you to get your paperwork together and get an appointment – so if your tax returns aren’t up to date, best to get onto it now.

3. Start reducing unnecessary expenses

Lenders also like to see whether you’re a splashy spender or savvy saver. It’s all about assessing the risk of lending you a hefty sum. Go through your expenses and see where you can trim the fat. Excessive streaming services, too many takeaway meals, unused memberships and such can add up. You don’t have to become a full-on minimalist. But tweaking your expenses can make you look good to lenders. And the savings you unlock can go towards your deposit, which brings us to our next point…

4. Build up a deposit with genuine savings

Now that you’ve got an idea of market prices, you can work out how much you’ll need for a deposit. Generally, a 20% deposit is regarded as a great savings goal, but there are certainly ways to get into the market with as little as a 5% deposit, such as the federal government’s First Home Guarantee. Whatever deposit amount you’re aiming for, don’t forget to factor in a little extra to cover purchasing costs such as conveyancing fees, building inspections, and stamp duty. Lenders will look for a portion of your deposit to consist of genuine savings – at least 5% of the purchase price. Some of the more commonly accepted examples of genuine savings are: – Accumulated funds or regular deposits in a savings account in your name for at least 3 to 6 months. – Term deposit savings accounts held for at least 3 months. – Shares or managed funds held for at least 3 months. – Rental history for the past 6 months.

5. Assess your borrowing capacity or obtain pre-approval

Knowing your borrowing capacity or getting your finance pre-approved gives you a great insight into your borrowing limit. After all, you likely won’t know what kind of home you can afford to buy if you don’t know how much you can borrow. And that’s where we come in – we can help you assess your borrowing capacity or obtain finance pre-approval. So if you’ve got your eye on buying during the predicted dip over the next year or so, reach out today and we can help you start planning ahead. 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.

It’s taking young couples roughly five years on average to save for a 20% home loan deposit, according to new research. Want to hear something crazy, though? We know how to quarter that timeframe… Real talk: it’s never been tougher to save up a deposit for your first home. In Sydney the average timeframe is 8+ years. In Melbourne 6.5 years. And most other places across the country, 4 to 6 years. That is unless you happen to know a finance professional who can help first home buyers purchase a home with just a 5% deposit – and not pay any lender’s mortgage insurance in the process. And how do we do that? Well, if you’re eligible, we can hook you up with the First Home Guarantee (FHG) scheme – which will release 35,000 places from July 1 (more on this below). By getting in early on this scheme and reserving a spot, you can quarter the amount of time it takes you to save up for your first home deposit.

Don’t believe us, check out these stats

Below you’ll see how long it’s currently taking first home buyers across the country to save for a 20% home loan deposit (according to Domain data), compared to saving just 5%. Sydney: 8 years 1 month (20%), down to 2 years (5%). Melbourne: 6 years 6 months (20%), down to 1 year 7 months (5%). Brisbane: 4 years 10 months (20%), down to 1 year 3 months (5%). Adelaide: 4 years 7 months (20%), down to 1 year 2 months (5%). Perth: 3 years 7 months (20%), down to 11 months (5%). Hobart: 5 years 10 months (20%), down to 1 year 5 months (5%). Darwin: 4 years 3 months (20%), down to 1 year (5%). Canberra: 7 years 1 month (20%), down to 1 year 9 months (5%). Combined capital cities: 5 years 8 months (20%), down to 1 year 5 months (5%). Combined regionals: 3 years 10 months (20%), down to 11 months (5%). Australia-wide: 4 years 5 months (20%), down to 1 year 1 month (5%). So if you’ve been saving towards a 20% for at least a year, you could be ready to hit the ground running when the 35,000 FHG schemes become available on July 1.

Tell me more about the First Home Guarantee scheme!

Ok, so the First Home Guarantee scheme (previously the First Home Loan Deposit Scheme) allows eligible first home buyers to build or purchase a home with only a 5% deposit, 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 (it’s also worth noting that property price caps apply). But places in this scheme are on a first-come, first-served basis. So don’t let the recent expansion to 35,000 spots lull you into a sense of complacency. They’ll go fairly quickly, which means if you’re interested you’ll want to get in touch with us asap to ensure you’re ready to lodge the application come July 1. 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.

It’s the hope that kills you. Just ask Carlton fans, NSW Blues supporters, Wallabies sufferers, and hopeful homebuyers who have fallen victim to underquoting. Obviously, you can’t change your footy team, but you can follow these tips to avoid the sketchy real estate practice. If it hasn’t happened to you, it’s probably happened to someone you know. You find a dream home that appears within your budget, you get your finance pre-approved, you get your hopes up, and … you get blown out of the water come auction day because the agent has underquoted the property. But hang in there – all is not lost, as we’ll touch upon below.

What is underquoting?

Underquoting is the misleading practice of advertising a property with a price guide that suggests to hopeful buyers that it could sell below market value, or for less than what the agent knows the vendor will accept. Accusations of underquoting have been rife in recent times, as national property prices have soared 24% over the past year alone. Now, there’s no doubt that some agents out there have been intentionally underquoting properties to drum up interest. But not always. Real Estate Buyers Agents Association (REBAA) president Cate Bakos says on many occasions selling agents get blamed unfairly for their reluctance to predict a strong competitive result, and in many circumstances, vendors exercise their right to change their price expectations without prior consultation with their agent. “Underquoting is amplified by a rising market,” adds Ms Bakos. Which means as property prices peak in Sydney and Melbourne, and the rest of the country starts to follow a similar trend, less underquoting should occur.

Why do agents underquote a property?

The main reason vendors and agencies underquote, explains Ms Bakos, is based on the belief that an underquoted property will attract more prospective buyers. It’s hoped that these buyers will fall in love with the property so much that they’ll find a way to compete against more cashed-up buyers, helping to push the property’s final price up in the process. “The reality is that many buyers find themselves shortlisting properties that are beyond their financial constraints, and this can lead to disappointment, wasted expenditure for building reports and due diligence, and lost opportunity,” says Ms Bakos.

Isn’t underquoting illegal?

Ms Bakos said while price guide legislation varied between states and territories, the problem was relatively endemic in many cities across the nation. She said while underquoting was illegal, there were still many legal loopholes that existed in current legislation, particularly in Victoria. “In Victoria for instance, vendors are not required to state their reserve price for an auction until moments before the auction,” says Ms Baokes. “And some offending agencies take advantage of this by pitching the property at a price lower than that of a reasonable price expectation or a realistically anticipated reserve.”

How to avoid becoming a victim of underquoting

Rather than rely on the price guide the real estate agent gives you, do your own homework. You can do this by looking at comparable sales within the last month or two (on websites such as Domain and realestate.com.au), and compare like-for-like properties and locations. “It’s an approximation, but it’s more helpful than living in the past and working off older, unreliable sales,” adds Ms Bakos. Here are the REBAA’s other top tips to avoid becoming a victim of underquoting: 1. Compare comparable properties by location, land size and condition. 2. Spend the months leading up to active bidding time (while obtaining finance pre-approval) to inspect, inspect and inspect as many properties and neighbourhoods as you can. 3. Look at other similar properties in the area and see what the agent’s initially-published estimate price range was; what the reserve price was; and what it finally sold for. 4. Consider consulting and engaging a REBAA-accredited buyer’s agent to take care of the process so you can “buy with confidence.” And last but not least, don’t forget to get in touch with us in advance to get your finance pre-approved. That way, come crunch time, you can spend less time on your finance application, and more time doing your homework to make sure the properties you’ve got your heart set on haven’t been underquoted. 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.

Rate rises are a bit like taking off in a plane. Sure, it’s a bit nervy, but so long as you’ve run through your pre-flight check, have a well-serviced aircraft, built-in some contingencies (a buffer!), and have a handy co-pilot (us!), you should reach your destination no worries. As you’re likely aware, earlier this month the Reserve Bank of Australia (RBA) increased the official cash rate by 25 basis points to 0.35% due to high inflation concerns. While it was the first cash rate hike since November 2010, RBA Governor Philip Lowe was quick to give mortgage holders a heads-up that there would be more hikes to come. “The Board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time. This will require a further lift in interest rates over the period ahead,” Governor Lowe said.

So when can we expect more rate increases?

Well, the Commonwealth Bank is predicting that the RBA will increase the cash rate to 1.35% by the end of the year. That could mean four more 25 basis points increases, with hikes in June, July, August and November 2022. Fortunately, according to results from a recent Money Matchmaker survey, eight in 10 borrowers have built up a savings buffer and nearly two-thirds are ready to meet a 0.5% rate rise or more. This echoes research from the Australian Prudential Regulation Authority (APRA), which shows the average balance sitting in mortgage offset accounts is now nearly $100,000 – up almost $20,000 since the pandemic kicked off in March 2020.

How your handy co-pilot can help you set up a buffer account

As we’ve seen from this month’s RBA cash rate rise, the banks are quick to pass on rate hikes when it comes to mortgages, but not so quick when it comes to savings accounts. Therefore one way you can prepare for this upcoming period is to consider adding an offset account to your home loan. In a nutshell, an offset account is a regular transaction account that is linked to your home loan. The advantage is that you only pay interest on the difference between the money in the account and your mortgage. Some banks allow you to have 10 offset accounts attached to your mortgage, too, with cards linked to them that you can use for everyday spending. This means that if your lender is quicker to pass on rate rises on your home loan than they are your savings account, your money will be working harder for you in the offset account than a savings account. And, by building up extra funds in your offset account, you will also have peace of mind knowing that you have a buffer – in the right place and ready to go – for more interest rate rises down the track. So if you’d like to talk to us about your options to prepare for any upcoming rate rises – be that refinancing, fixing your rate, or adding an offset account – get in touch with us today. 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.

Property investors beware: the Australian Taxation Office (ATO) has revealed the four key areas it will be targeting this tax year, and rental property income/deductions and capital gains are high on the hit list. Tax office Assistant Commissioner Tim Loh says this tax season the ATO will be targeting four key problem areas where it commonly sees people making mistakes, including: – rental property income and deductions; – capital gains from property, shares and crypto assets; – record-keeping; and – work-related expenses. “We know there are still some weeks left until tax time, but if you start organising the income and deductions records you’ve kept throughout the year, this will guarantee you a smoother tax time and ensure you claim the deductions you are entitled to,” says Mr Loh.

1. Rental property income and deductions

If you’re a rental property owner, it’s important to include all the income you’ve received from your rental in your tax return, including short-term rental arrangements, insurance payouts and rental bond money you retain. “We know a lot of rental property owners use a registered tax agent to help with their tax affairs. I encourage you to keep good records, as all rental income and deductions need to be entered manually,” explains Mr Loh. He adds that if the ATO does notice a discrepancy it may delay the processing of your refund as it may contact you or your registered tax agent to correct your return. “We can also ask for supporting documentation for any claim that you make after your notice of assessment issues,” Mr Loh adds. For more information visit ato.gov.au/rental.

2. Capital gains from property, shares and crypto assets

If you dispose of an asset such as property, shares, or a crypto asset including non-fungible tokens (NFTs) this financial year, you will need to calculate a capital gain or capital loss and record it in your tax return. Generally, a capital gain or capital loss is the difference between what an asset cost you and what you receive when you dispose of it. “Through our data collection processes, we know that many Aussies are buying, selling or exchanging digital coins and assets so it’s important people understand what this means for their tax obligations,” adds Mr Loh.

3. Record-keeping

For those who deliberately try to increase their refund, falsify records or cannot substantiate their claims, the ATO warns it will be taking firm action against them this year. If you’re not in a rush to complete your tax return, it might be better to wait until the end of July, which is when the ATO can automatically pre-fill a lot of information for you. “We often see lots of mistakes in July as people rush to lodge their tax returns and forget to include interest from banks, dividend income, payments from other government agencies and private health insurers,” the ATO says. Just note that not all information can be pre-filled for you, so be careful to double-check. “While we receive and match a lot of information on rental income, foreign-sourced income and capital gains events involving shares, crypto assets or property, we don’t pre-fill all of that information for you,” adds Mr Loh.

4. Work-related expenses

Many people around the country have changed to a hybrid working environment since the start of the pandemic, which saw one-in-three Aussies claiming work-from-home expenses in their tax return last year. “If you have continued to work from home, we would expect to see a corresponding reduction in car, clothing and other work-related expenses such as parking and tolls,” says Mr Loh. To claim a deduction for your working from home expenses, there are three methods available depending on your circumstances. You can choose from the shortcut method (all-inclusive), fixed-rate method, or actual cost method, so long as you meet the eligibility and record-keeping requirements. For more information visit ato.gov.au/deductions.

We’re around to help you this tax season

The end of financial year is a busy time for all finance professionals – and mortgage brokers are no different, as there are plenty of important June/July deadlines we can help you with. That includes helping your business obtain finance to make the most of temporary full expensing before CoB June 30, and assisting potential first home buyers apply for the Home Guarantee Scheme come July 1. So if there’s something you think we can help you with this EOFY period, please don’t hesitate to shout out – we’d love to help you out. 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.

Some of Australia’s biggest banks have tightened their mortgage lending criteria, meaning you might not be able to borrow as much from them. How might this affect your next purchase? This week ANZ lowered a key lending cap, indicating it will no longer lend to borrowers with a debt-to-income (DTI) ratio above 7.5 (meaning people can borrow up to seven and a half times their gross annual income). NAB meanwhile has reduced its cap to eight times a borrower’s income. Up until this month, both banks had been willing to lend up to nine times a borrower’s income. In effect, the changes mean the maximum amount you can borrow with them to buy a property will be reduced. Fellow big four banks CBA and Westpac have not announced any reductions but have said they’re already applying tighter lending rules to borrowers seeking loans with high DTI ratios.

Why are banks tightening lending?

The increased focus on lending caps comes as financial institutions and the industry regulator, the Australian Prudential Regulation Authority (APRA), prepare for the impact of higher interest rates (many economists are tipping another rate hike in June). APRA started making moves as early as late last year when it announced new borrowers would need to be tested to see if they could cope with interest rates at least 3% above the current rate (up from 2.5% previously). Then, this week APRA Chair Wayne Byers indicated the regulator was concerned about the rise in high DTI loans being issued by some banks. “We will also be watching closely the experience of borrowers who have borrowed at high multiples of their income – a cohort that has grown notably over the past year,” he told the AFR Banking Summit in Sydney. “Interestingly, this growth has not been an industry-wide development, but rather has been concentrated in just a few banks.”

So how do DTI ratios work?

Your DTI ratio is very simple to work out. 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. However, a household in the same financial position seeking to borrow $1.4 million for a home would have a DTI of 8.75, putting it above the caps now being imposed by ANZ and NAB.

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 with interest rates on the rise. 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 multiple interest rate rises. 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.

With interest rates on the way back up, there’s no doubt some households around the country are starting to do it a bit tough. Coincidentally, some big changes kick in on July 1 when it comes to recording financial hardship arrangements. In the past, if you were unable to meet your loan repayments, you could enter into a financial hardship arrangement with your lender and it couldn’t be reported in official credit reporting systems. In many cases, the repayment history in your credit report would show a blank month or possibly a missed payment during the hardship arrangement period. Neither of these two approaches told the full story about your credit history and that a financial arrangement had been agreed upon with your lender.

So what’s changed from 1 July 2022?

Ok, so from July 1, the credit reporting system will introduce financial hardship information into credit reports. This means that if you enter into a financial hardship arrangement that reduces your monthly loan repayments, then for the next 12 months your credit report will show: – that you were current and up to date with your payments for that hardship month, provided you made your reduced payments on time; and – a flag alongside your repayment history information for the hardship month, indicating a special payment arrangement was in place. The flag in the credit report will be referred to as ‘financial hardship information’ and can take two forms (A or V) depending on the type of arrangement: A indicates there was an arrangement for the month that temporarily deferred your repayments (which will need to be repaid later or be subject to a further arrangement). V on the other hand means the loan was varied that month to reduce your repayments. The good news is that the financial hardship information flag will only stay on your credit report for 12 months, whereas regular repayment history information stays for 24 months.

So is all this good or bad news?

Well, like most changes in life, it comes with pros and cons. The changes are intended to give you the ability to ‘protect’ your credit report if you experience financial hardship – in no way are they designed to exclude you from applying for credit. However, a financial hardship arrangement flag may prompt prospective lenders to make further inquiries to better understand your situation. If, for example, the hardship arose because of a temporary reduction in your work hours, but you’re now back in stable employment, in most cases it shouldn’t cause any major issues for your loan application – especially if we can provide proof to your prospective lender. Additionally, hardship arrangements can stem from a natural disaster that’s completely outside your control, such as a flood or bushfire, which can be explained to a lender. Importantly, the financial hardship information cannot be used by a credit reporting body to calculate your credit score, whereas regular repayments that are missed outside a hardship arrangement will impact your credit score.

Having trouble meeting your repayments? Get in touch

As you’ve probably noticed, the Reserve Bank of Australia has been aggressively raising the official cash rate in recent months, which means your monthly repayments would most certainly have gone up if you’re on a variable loan rate. And if you’re on a fixed loan rate, you also need to think ahead to what your monthly repayments might be when the fixed-rate period ends and reverts to a variable rate. So if you think more rate rises may soon strain your monthly budget, now is a good time to start putting extra money away into an offset or savings account to build up a buffer. Other options we can help out with are refinancing and debt consolidation, both of which can help reduce your monthly repayments. Whatever your circumstances, we’re here to support you however we can over the period ahead. 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.