Author: Comparable

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.

Rising interest rates got you feeling a little vulnerable? It might be time to take some control back by refinancing or asking for a rate review. Here’s why we’re seeing refinancing numbers surge across the country. In just two months we’ve seen the Reserve Bank of Australia (RBA) increase the cash rate from a record-low 0.10% to 0.85%, and it hasn’t taken long for most lenders to pass those rate increases on to customers. Unfortunately, the RBA has warned that more rate hikes are on the way, which might have left you feeling at your lender’s mercy. But there are ways you can make yourself feel more in control, including by doing what tens of thousands of mortgage holders around the country did in May: refinancing or asking their current lender for a better rate.

Homeowners are refinancing in droves

According to PEXA’s latest refinancing insights, refinancing increased by more than 20% in May (from April) across each of Australia’s four most populous states. Here’s a quick breakdown: NSW: 10,838 refinances. That’s up 20.8% on April, and up 15.6% year on year. VIC: 11,500 refinances. May up 26.7% on April, and up 23.3% year on year. QLD: 6,699 refinances. May up 21.8% on April, and up 49.6% year on year WA: 3,244 refinances. May up 25% on April, and up 46.1% year on year

So why the big increase in refinancing?

Lenders now, more than ever, need to attract and retain borrowers. So just because rates are going up, doesn’t mean you can’t scope out a better deal – especially if you have a decent amount of equity and a strong track record of meeting your mortgage repayments. If that sounds like you: you’re a good customer. And lenders want good customers. The other big reason for the recent surge in refinancing is that smaller lenders are stealing more and more borrowers away from the major banks with super-competitive rates. In fact, in NSW, Victoria, Queensland and Western Australia combined, the major banks and their subsidiaries had a net loss of more than 5,000 borrowers to non-major lenders in May, according to PEXA. Competition is fierce!

Why work with a broker now?

The amount of loans being written by brokers continues to grow. In fact, brokers are currently writing 70% of all new home loans in the country – the biggest market share ever. And as you know, brokers are loyal to you, not to any particular lender. That means that if we think you can get a better deal elsewhere, we’ll encourage and help you to do so – not hope that you’ll stay put on your current rate. And even if you don’t want to refinance with another lender, there’s always the option of asking your current bank to review your rate (and indicating that you’re prepared to refinance if they don’t come to the table). So if you’d like to find out more about what options are available to you, get in touch with us today – we’d love to help you feel like you have some agency in 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.