Author: Comparable

You’ve probably heard that interest rates are on the rise and national property prices are on the way back down. Here’s how you can kill two birds with one stone: by refinancing to unlock equity and giving your home an energy-efficient makeover at the same time.

Did you know that energy-efficient homes generally attract premium prices and sell faster than non-eco listings?

That’s according to the 2022 Domain Sustainability in Property Report, which found an energy-efficient house in the median range sells for $125,000 more (+17.1%) on average than a non-sustainable house.

The results are quite good for apartment owners too, with energy-efficient units selling for $72,750 more (+12.7%) than non-energy-efficient apartments.

Dr Nicola Powell, Domain’s chief of research and economics, says more and more sellers are addressing the demand for eco-friendly homes, as online listings with popular eco features attract 8.7% more views on average.

“More than half of all for sale listings in all states and territories contain energy-efficient keywords,” she says.

Installations that are popular with potential buyers

Here are the top three eco features popular in house listing searches right now.

1. Solar power: Australia has no shortage of sunshine. And there’s no shortage of demand for houses with solar panels either. A 2020 Origin Energy survey showed 77% of Australians view houses with solar panels as being more valuable. And 55% of renters said they would consider paying increased rent for solar panels.

2. Water tanks: if you have a sizable garden or lawn, a sustainable irrigation system can help keep your water bill down. Make use of the rainy season by collecting water in tanks. When the dry season hits, you’ll be prepared with free, nutrient-dense rainwater to lavish on your garden.

3. Insulation and glazing: window glazing and insulation can help stop your heating and cooling efforts from leaching out. You’ll also reduce the summer heat and winter chill invading your home.

Financing your eco reno

Depending on your situation, many lenders now offer green loans to help homeowners install environmentally sound features – and the good news is that lenders usually offer lower interest rates on green loans in an effort to encourage sustainability.

Another option at your disposal is to unlock the equity in your home to fund your eco reno.

And it’s not a bad time to consider doing so, as property prices increased 23.7% in 2021.

So how does ‘unlocking equity’ work?

Well, let’s say you bought an $800,000 house three years ago that, due to last year’s property price surge, is now worth $1 million.

And let’s also say you took out a $600,000 loan for that house, which you’ve managed to pay down to $500,000 (hurrah!).

By refinancing that $500,000 loan into a $700,000 loan (70% of your property’s new market value), you can unlock $200,000 in equity to help fund a deposit for your renovations.

It’s also worth noting that banks will typically let you borrow up to 80% of a property’s market value.

And don’t forget to check out any government rebates that may be available for eco your installations.

Get in touch today

If all of this seems confusing, don’t fret! We’re more than happy to help you navigate loans, equity, and refinancing for your eco reno.

And if you decide to proceed, the good news is that part of the process can include refinancing your home loan.

Why’s that good news?

Well, just because interest rates are going up, doesn’t mean you can’t scope out a better deal on your mortgage. Competition amongst lenders remains fierce, particularly if you have a decent amount of equity and a strong track record of meeting your mortgage repayments.⁣

So if you’d like to discuss your reno and/or refinancing options, get in touch 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.

Thinking about refinancing? As interest rates rise, so do the hurdles you need to clear. Here’s why you might want to look at refinancing soon to avoid potentially missing out.

When was the last time you refinanced?

If the answer is “never”, or you can’t actually remember, there’s a good chance you’re paying a higher interest rate than you could be due to the “loyalty tax”.

You see, the banks don’t think you’re paying attention, and as such, they only offer their lowest rates to new customers in a bid to win them over – as proven by the RBA.

In fact, a recent RateCity analysis found that customers who stay loyal to their bank could be hit with an extra $5,101 in interest over the next three years alone (based on a $500,000 loan taken out with CBA in 2019).

For a $750,000 loan that would be an extra $7,652 in interest, and for a $1 million loan it’s $10,202 extra.

This is a big reason why owner-occupier refinancing across the country rose 9.7% in June to a new record high of $12.7 billion, according to the Australian Bureau of Statistics.

Great. But why is refinancing now so important?

Ok, so when you refinance, your new lender must assess something called your “home loan serviceability”.

Basically, that’s your ability to meet your home loan repayments at an interest rate that’s at least 3% above the rate you’re being offered.

And as you might have seen on the news, the big four banks are tipping the RBA’s official cash rate to increase from 1.85% in August to anywhere between 2.60% (Commbank forecast) and 3.35% (ANZ forecast) by November.

That means as interest rates go up, so too will the hurdle you’ll need to clear for home loan serviceability when refinancing.

All in all, that means the sooner you refinance, the lower the hurdle you’ll need to clear to ensure you’re not stuck with your current rate and lender.

How to explore your refinancing options

This is the easy bit! Simply get in touch today and we’ll help you get the ball rolling.

And even if you don’t want to refinance with another lender, there’s always the option of asking your current lender to review your rate, indicating that you’re prepared to refinance if they don’t come to the table.

After all, loyalty should be a two-way street!

So if you’d like to find out more about what options are available to you, give us a call or flick us an email today – we want to help you through the period ahead as much as we possibly 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 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.

Single Australians under 30 snare the lion’s share of spots in the federal government’s 5% deposit first home buyer scheme, according to new data. Here’s how to secure one of the highly coveted 35,000 scheme spots released on July 1. Long gone are the days when you had to scrimp and save for a 20% deposit to buy your first home (that’s so 2019). These days, you can crack the property market with just a 5% deposit and pay no lenders’ mortgage insurance (LMI), thanks to the federal government’s First Home Guarantee (FHG) scheme. NAB – which is one of two major lenders (alongside dozens of non-majors) that provides finance under the scheme – recently released some pretty insightful data on just who is jagging the limited spots each year. The data shows almost two-thirds of people (63%) who purchased a house under the scheme were single buyers – whereas for non-scheme purchases, single buyers only made up 49% of borrowers. Of the single people snapping up First Home Guarantee spots, 59% were female and 41% were male. Government data also shows that the median age of people using the scheme is 25 to 29 years old. “People going at it alone shouldn’t be disadvantaged and we are seeing the scheme help them buy a property,” says NAB Executive Home Ownership, Andy Kerr.

How the scheme helped one homebuyer purchase 4 years sooner

First home buyers who use the scheme fast-track their property purchase by 4 to 4.5 years on average, because they don’t have to save the standard 20% deposit. Better yet, not paying LMI can save you anywhere between $4,000 and $35,000, depending on the property price and your deposit amount. This is exactly what helped car salesman Rihan Nasser purchase his villa unit last August. Initially, Rihan had been crunching the numbers on what he’d need to do to save a 20% deposit, admitting “it would have taken him years”. “The scheme fast-tracked the process by maybe two, three or four years and made it easier to come up with the deposit to buy,” says Rihan. “Once I knew I needed 5%, I knuckled down on the saving. It took me about a year and a half. I would 100% recommend the scheme. It made it so much easier.”

How to get the ball rolling today

Ok, so here’s the catch: places in the First Home Guarantee scheme are generally allocated on a first-come, first-served basis. And don’t let this year’s expansion to 35,000 spots lull you into a sense of complacency – they’ll get snapped up fairly quickly. So if you’re a first home buyer looking to crack the property market sooner rather than later, get in touch today and we can explain the scheme to you in more detail, check if you’re eligible, and then help you apply through a participating lender. 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.

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.

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.

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.

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.

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.

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.