Mortgage offset accounts can leave you worse off

Sharp marketing on some mortgage offset accounts means homeowners need to be on their toes.

Lenders know most people who have heard of offset accounts think they are always a good idea.

And when they sign-up for a mortgage with a lender, many home buyers are likely to tick the box for the offset account on the loan application form without paying attention to the fine-print.

However, among other things, sometimes a mortgage with an offset account can have a higher interest rate than a mortgage without an offset.

Mortgage offset accounts definitely can be a good way to get ahead on the mortgage while parking savings that can be withdrawn if needed.

Mortgage offset accounts are not created equal

Mortgage offset accounts are not created equal

Photo: Wayne Taylor

 

That’s because money in the offset account reduces the mortgage and therefore the amount of interest paid.

The “effective” rate of interest on the money in the offset account is the mortgage interest rate.

With many home owners paying a mortgage interest rate of least 4 per cent, that’s a much better rate than could be earned elsewhere, for example, on term deposits, where the money is locked away.

Another advantage of offset accounts is because the money in the account comes off the mortgage for the calculation of interest, nothing has to be declared to the Tax Office.

Savings held in a term deposit, for example, as well as paying less than an offset account, would require income tax to paid on the interest.

However, a recent report by comparison site Canstar shows the extent to which offset accounts are not created equal.

For starters, some offset less than 100 per cent of the mortgage. A 50 per cent offset account, for example, would pay an effective interest rate that is half the interest rate on the mortgage.

Canstar says offsets accounts that are less than 100 per cent are more likely to be found among “basic” variable home loans rather than standard variable home loans.

Having an offset account that is less than 100 per cent is not the only thing that homeowners have to be wary of.

That’s because money in the offset account reduces the mortgage and therefore the amount of interest paid.

The “effective” rate of interest on the money in the offset account is the mortgage interest rate.

With many home owners paying a mortgage interest rate of least 4 per cent, that’s a much better rate than could be earned elsewhere, for example, on term deposits, where the money is locked away.

Another advantage of offset accounts is because the money in the account comes off the mortgage for the calculation of interest, nothing has to be declared to the Tax Office.

Savings held in a term deposit, for example, as well as paying less than an offset account, would require income tax to paid on the interest.

However, a recent report by comparison site Canstar shows the extent to which offset accounts are not created equal.

For starters, some offset less than 100 per cent of the mortgage. A 50 per cent offset account, for example, would pay an effective interest rate that is half the interest rate on the mortgage.

Canstar says offsets accounts that are less than 100 per cent are more likely to be found among “basic” variable home loans rather than standard variable home loans.

Having an offset account that is less than 100 per cent is not the only thing that homeowners have to be wary of.

Source; https://www.smh.com.au/money/borrowing/mortgage-offset-accounts-can-leave-you-worse-off-20180323-p4z5yi.html

Homeowners find properties in path of future rail, road projects

The owners of about 400 homes in outer parts of Sydney face the prospect of acquisition in coming years after the state government released plans to reserve corridors for four major rail and road projects, including a train line to the new airport at Badgerys Creek.

A further 800 properties – about 160 of which are already in government hands – ranging from small rural blocks to larger farms also fall within the new corridors which extend for a total of 192 kilometres in the city’s outer west.

The corridors are for a north-south rail line linking the new Western Sydney Airport to existing train lines, an outer orbital motorway from Box Hill in the north to Menangle in the south, a western Sydney freight line, and a road link known as the Castlereagh Connection from the M7 tollroad to the Bells Line of Road.

The plans to gazette corridors has also led to the release of more details about the projects, just two weeks after the state and federal governments agreed to a $100-million business case to investigate station sites for a rail link from St Marys to the new airport.

It reveals a tunnel for the train line would be dug from Orchard Hills to St Marys, where it would connect to the T1 Western Line. A later extension of the north-south rail line would also comprise a tunnel between Oran Park and Macarthur.

Western Sydney Minister Stuart Ayres said affected owners would have a chance once the corridors had been gazetted to purse “owner-activated” acquisitions if they decided they did not want to remain in their homes knowing that a road or train line was likely to eventually be built.

“Some of these projects will be built in the near term – like the airport rail line – and some of these projects won’t be built for many, many years, and in some cases decades,” he said.

The plan released by the state government.

The plan released by the state government.

Photo: NSW Government

But Labor’s Londonderry MP Prue Car said people were wary of the plans for the corridors after the poor handling of compulsory property acquisitions in Sydney’s inner west for the WestConnex toll road.

“People are getting their letters hand delivered today to their homes, which is causing a lot of concern for people,” she said.

Daniel Grima, who owns a four-bedroom house at Shanes Park in Sydney’s north west, said he feared the value of his home would fall as a result of it being placed within the corridor for the outer orbital motorway.

The NSW Government has signalled 199 dwellings will have to make way for land it has reserved for road and rail projects. Vision courtesy: Seven News.

The NSW Government has signalled 199 dwellings will have to make way for land it has reserved for road and rail projects. Vision courtesy: Seven News.

“Who is going to want to buy a property in the corridor? It comes as a shock,” he said.

However, Mr Ayres said part of “this acquisition program” was about ensuring that the value of affected properties was protected. The outer Sydney orbital was “unlikely to be developed for many, many years”, and parts of it, not for decades.

“But it is critically important that we recognise that we need to reserve those corridors now. We have already seen in places like Oran Park what happens when you do not reserve corridors,” he said.

He cited the cost of the $8.3 billion northwest metro rail line between Rouse Hill and Chatswood, which was more expensive because corridors had not been reserved years ago.

In an attempt to allay concerns, Mr Ayres said any acquisitions of properties by the state for the four road and rail projects in western Sydney would occur only in the lead up to construction.

“What is scaring people across western Sydney right now is not knowing where these corridors are. We want to be able to tell people where these road and rail lines will go into the future,” he said.

Source: https://www.smh.com.au/national/nsw/homeowners-find-properties-in-path-of-future-rail-road-projects-20180326-p4z68z.html

Where Sydney homes get a subsidy and by how much

“Nasty” first homebuyers grants have led to higher prices in western Sydney with most of the scheme’s benefits flowing to homeowners, experts say.

Since 2011, the NSW Government has provided more than $1 billion in assistance to first and new home buyers, including grants and stamp duty exemptions aiming to make housing more affordable. House prices have continued to rise, by about 70 percent since 2012.

The schemes sometime distribute funds in ways that seem odd – homes in Bellevue Hill got more taxpayer assistance ($1,177,567) for people to buy their first place than those looking in Milperra ($612,952).

But overall western Sydney postcodes have benefitted most with places such as Liverpool, Parramatta, and Camden seeing more than $40 million in taxpayer funds used to help people buy their first home via grants in the past five years and tax breaks since July 2009. Meanwhile, across northern and inner suburbs, such as Haberfield, Forestville, Belrose and Annangrove less than $250,000 was granted to people buying their first property over the same period.

North shore home buyers are not being unfairly treated, Dr Laurence Troy from the UNSW City Futures Research Centre said.

“People have been saying for quite a long time that these sorts of policies do not support affordable housing because all they do is add an inflationary pressure into the market,” Dr Troy said.

“First home owner grants are a small part of the tax concessions that are available to owners of housing. Most of the government expenditure on tax concessions related to housing goes into the form of capital gains exemptions and negative gearing.”

recent study of government tax expenditure in the property market found negative gearing and capital gains discounts are “heavily skewed towards those who are more affluent” and raised concerns about the way these policies exacerbate income and wealth inequality.

Dr Troy said the proportions in the chart above would apply at broadly similar rates in Sydney.

“We need to stop treating housing as an investment vehicle and the essential driver of our housing policy and see it as a way to deliver a social good that has multiple benefits across how the society operates both economically and socially,” he said.

Grattan CEO John Daley said negative gearing and capital gains tax concessions “mostly feed through into increasing the price of housing”.

“If you got rid of them they would feed through into reducing the price of housing. Similarly with first home buyers grants if you got rid of them house prices would be a little bit lower on average, materially lower in outer suburbs and no real change on the harbour,” Mr Daley said.

The most fundamental problem with first home buyers grants is that there is no shortage of demand in the housing market, so they just add to property prices, CEO of the Grattan Institue John Daley said.

“It’s the same number of people looking for housing, it’s just that they have more money in their pocket than they did [without a grant],” Mr Daley said. “And because everyone in the area is prepared to borrow an extra $80,000 because they’ve all got an extra $15,000 in their pocket [to leverage] then, it’s happy, happy days for property developers and very bad news for those induviduals.

“They are second home vendors grants really, the person who benefits is the person who already owns a home. The nasty thing about these is that they lead people to pay even more for the house.”

House prices are partly driven by lack of supply due to planning laws and the restrictions they place on building new homes, Mr Daley said.

“Either people accept greater density in their suburb, or their children will not be able to buy a home, and seniors will not be able to downsize in the suburb where they live,” he said.

“The only other choice is you can reduce demand by tapping the brakes on migration.

NSW Treasurer Dominic Perrottet said since the government launched its housing affordability package in July 2017, the number of first home buyers has more than tripled compared with the same period 12 months earlier.

“From the outset, we have been cautious to balance our support for first home buyers against the need to avoid putting upward pressure on house prices, which is why we developed the scheme in close consultation with former RBA Governor Glenn Stevens,” Mr Perrottet said.

“The results speak for themselves – 21,550 new first home buyers across NSW since July last year, including more than three times as many in the north shore area.

“At the same time, we have seen prices moderate, which further improves the choice and affordability for first home buyers,” he said.

First home buyers grants and tax breaks in the 2017/18 budget will rise from $94m in 2015/16, to $276m this year (2017/18).

The latest ABS data shows NSW taxes on property rose by $2.17bn (20.2 per cent), the most in the country, between 2014/15 and 2015/16.

Source: https://www.smh.com.au/politics/nsw/where-sydney-homes-do-and-don-t-get-subsidised-for-sale-20180319-p4z54f.html