Eight ways to profit from a falling property market

Cashed-up property buyers with good credit histories are enjoying the best of all worlds as prices and interest rates fall, discounts increase and reduced competition means there is more time to shop around for the best deal.

“It’s never been so good for buyers,” says Emma Bloom, a director of buyers’ agency Morrell and Koren. “They should be waiting like a tiger in the long grass for the right moment to strike.”

The outlook for those renting while saving for a house is also brighter because falling prices make it easier to save a deposit and increased competition for tenants as housing supply rises means landlords are anxious to find or retain tenants by lowering – or capping – rents.

Buyers are in the driver’s seat thanks to the slide in property prices. Simon Letch

Here are eight ways to profit from a slowing property market.

Falling prices

A two-storey, four-bedroom house in Lilyfield, six kilometres west of Sydney’s central business, that was on sale in November 2017 for $2.7 million is currently valued at 25 per cent less.

In Melbourne, a four-bedroom, two-storey house in a prestigious, leafy inner suburb that was last year sold for more than $7 million has dropped in value by more than $2 million, or 28 per cent.

House prices fell another 0.9 per cent in November, the largest monthly fall in 10 years, and are down 5.3 per cent for the year, according to analysis by investment bank Morgan Stanley.

But there’s no need to rush into the market because low auction clearance rates and weak sentiment are evidence of even bigger bargains as prices continue to fall, says the bank, despite being 9.5 per cent down from peaks.

Trading up

Mark Wridgway, a director of real estate agent RT Edgar, is willing to sell his family home at a discount for what he considers a great deal on a house closer to his work and schools his children attend.

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“There are great opportunities to trade up in these markets,” says Wridgway, despite recent falls in property values.

Wridgway has paid about $6.2 million for the four-bedroom, two-bathroom house on a 1210-square-metre block that was last year sold for more than $7.8 million and passed in at auction earlier this year at $5.6 million. The father of three will be selling his home in a nearby suburb to fund the deal for around $5 million.

His company handled last year’s sale and the recent auction was conducted by Marshall White.

“I will be taking a hit on selling my home but it’s worth it for the much better location and being closer to schools,” he adds.

Wridgway says prospective buyers are being put off by falling markets and tightening credit.

“Ninety-nine times out of 100 when lots of people go one way, the market goes the other,” he says about changing market sentiment.

Developer deals

Thousands of new apartments continue flooding on to the market, putting pressure on developers to cut prices and offer incentives to buyers, ranging from cars and cash bonuses to white goods.

Some property groups are offering mortgage brokers, financial advisers and accountants a $10,000 bonus for every sale plus generous rebates on stamp duty and other incentives.

Buyers should check with their adviser and seek rebates on any incentives.

“While they are attractive, they are not the main game,” says Christopher Foster-Ramsay, principal of mortgage broker Foster Ramsay Finance. “Buyers need to focus on whether the property is right for them in terms of design, location, finance and price.”

For example, the sale of $1.5 million apartments in Ashwood, about 14 kilometres south-east of Melbourne, includes free blinds and the waiving of stamp duty.

Developers are throwing in luxury fixtures such as marble kitchens, Miele appliances, timber flooring and high ceilings.

Mark Wridgway is making the most of falling prices to trade up to this new home. Duncan Hughes

Buyers of a three-bedroom apartment in beachside Mordialloc, about 24 kilometres south-east of Melbourne, selling for $990,000 are being offering 12 month rent guarantee – which is paid even if a tenant cannot be found – and free blinds.

Lender cuts

Lenders are keen to do deals with the right borrowers. They want the business because net interest margins are their biggest source of profits, pumping up dividends and executive bonuses.

First-time buyers with deposits of at least 20 per cent are hot property and attracting great rates, terms and conditions.

CBA, the nation’s biggest lender, recently increased discounts by up to 50 basis points on variable mortgage rates to attract more first-time buyers and existing buyers seeking to refinance.

Other lenders, including ANZ, Westpac, Macquarie Bank and HSBC Australia, are following up recent rate rises with cuts for selected existing borrowers.

Mortgage brokers, which act as an intermediary between lenders and borrowers, reckon they can improve deals for owner-occupier borrowers.

Foster-Ramsay says brokers should be able to knock up to 15 basis points off the advertised rate for the “right borrower”, which is typically someone with a good repayment history wanting to borrow 80 per cent or less via a principal-and-interest loan.

“If there has ever been a great opportunity for a terrific deal, it’s now,” says Foster-Ramsay.

 

Other incentives on offer from lenders include waived administration fees and cash incentives to help pay legal and moving costs.

For example, Pepper Home Loans, a non-bank lender, is waiving $1800 in upfront fees on some loans.

Vendor discounts

With auction clearance rates having dropped to about 40 per cent during the past two months, many sellers have been forced into private negotiations, according to CoreLogic, which monitors auctions.

Vendor discounts are relatively low but increasing, nationally averaging about 4.6 per cent for houses and 4.9 per cent for apartments, according to investment bank Morgan Stanley.

They range from about 4.3 per cent in Melbourne to 6.4 per cent in Perth and are rising as sales continue to decline.

Another factor putting pressure on sellers is the number of days properties are on the market. It is spiking to highs not seen for about six years, typically between 30 and 56 days depending on the capital city.

Bargain hunting

Local and overseas investors are selling discounted apartments in prestigious high-rise developments like Australia 108, Aurora and Premier Tower because they cannot secure bank funding.

Online websites, such as Gumtree, are advertising heavily discounted apartments, or advertising that the seller is open to negotiations.

No everyone is unhappy about falling property prices.  Greg Newington

For example, a Queensland investor is selling a 49-square-metre one-bedroom apartment in Australia 108, the tallest residential building in the southern hemisphere, for $459,000, having bought it off the plan for almost $500,000.

Increasing numbers of properties are selling at “reduced prices” and mortgagee-in-possession sales are rising. A mortgagee in possession happens when a borrower defaults on their repayments and the lender takes possession and sells the property.

Falling rents

For those renting while they save for a deposit, lower rent increases disposable income and contributes to savings.

National rental yields are rising as prices have declined to about 3.4 per cent for houses and 4.2 per cent for apartments, according to analysis by CoreLogic. (Rental yield is a measure of how much cash an income-generating asset produces as a percentage of that asset’s value.)

But median rents are falling in Sydney (the nation’s most populated city), Perth, Darwin and parts of Brisbane as supply increases or demand falls. Melbourne remains robust as surplus stock is being absorbed by rising rental demand.

Rental returns nationally on houses are about 1.6 per cent, which is below the benchmark inflation ration of just over 2 per cent, according to SQM Research, which monitors rents and property prices. For apartments the return is 3 per cent. In Sydney rents for housing and apartments during the past 12 months have fallen by 3 per cent and 2 per cent respectively.

More time to negotiate

Anxious buyers and curious neighbours no longer crowd suburban streets for weekend auctions, say real estate agents and buyers’ agents.

“These days it’s none, or one,” says buyers’ agent Bloom about auction turnout and bidding.

 

“That means buyers are in the driver’s seat,” Bloom says. “The vendor no longer sets the pace. The fact that a property sold for x,y, or z two years ago no longer matters. Prices are driven by competition and there is no longer the same competition.”

Buyers can also negotiate more flexible settlement conditions and discuss the price with less likelihood of being gazumped by a rival bidder.

https://www.afr.com/personal-finance/banking/how-to-profit-from-a-falling-property-market-20181205-h18rol

The graph that puts falling home prices in perspective

In one of his last public appearances before he retired from a decade-long stint as governor of the Reserve Bank in September 2016 – what we now know to be approaching the peak of Australia’s property price boom – Glenn Stevens gave a prescient warning.

“Prices can fall; they have fallen,” he warned. “I think, since I’ve been in this job, we’ve seen them fall two or three times.”

Banking Royal Commission report looms over the industry

Back in 2010 the RBA governor Glenn Stevens warned that property prices wouldn’t always keep rising, six years on he shares his thoughts again.

That such a statement of the bleeding obvious made big headlines at the time was a symptom of the frenzied state of Australia’s property market.

We can now pinpoint the peak in the Sydney property market to July 2017; and Melbourne to November 2017, according to CoreLogic data.

Since then, prices have fallen 9.5 per cent in Sydney – within a whisker of the falls seen during the 1990s recession, when double-digit mortgage rates tipped borrowers over the edge. Melbourne is also off 5.8 per cent from its highs.

And there’s more property pain to come, with economists tipping total falls of between 15 to 20 per cent all up.

But it’s important to keep things in perspective.

CoreLogic data showing the median dwelling sales price going back to 1980 confirms home prices have undergone several periods of adjustment during that time.

After the halving in real interest rates that followed the 1990s recession, Sydney home values more than doubled from less than $200,000 to more than $400,000 – where they stayed for almost a decade.

The global financial crisis in 2008 initially ate a chunk out of home valuations, before the Reserve Bank stepped in to drop interest rates to record lows, sparking the biggest property boom in Australia’s history.

That boom forced regulators to step in to curb some of the worst elements of excessive lending, like interest-only loans.

They’ve been successful. The Australian economy is at less risk of a messy fallout from excessive leverage as a direct result.

But Sydney dwelling prices – including houses and units – are now closer to $800,000 than their frenzied peak at close to $900,000. Still, prices are again roughly double where they were a decade ago.

Stevens concluded his remarks by noting: “The assumption that there’s an easy road to riches through leveraged holdings of real estate … is not a great strategy.”

It may not be. But even factoring in the latest falls, it hasn’t proved such a bad one either – for those fortunate enough to afford the entry price, of course.

 https://www.smh.com.au/business/banking-and-finance/the-graph-that-puts-falling-home-prices-in-perspective-20181204-p50k33.html

NSW to make the biggest changes to stamp duty in 30 years

The Berejiklian government will make the biggest overhaul to stamp duty in 30 years delivering a tax break to future home buyers that will grow over time.

Under the changes the seven price bands, or brackets, which determine how much stamp duty is paid by home purchasers will start to rise with inflation from the middle of next year.

NSW Treasurer, Dominic Perrottet says his stamp duty changes will improve fairness and efficiency
NSW Treasurer, Dominic Perrottet says his stamp duty changes will improve fairness and efficiencyCREDIT:AAP

The brackets have remained largely unchanged since 1986 despite the increase in property prices since then.

The government says the changes will cut the average amount of stamp duty per property transaction by around $500 by 2021 but the savings will rise over time.

NSW Treasurer Dominic Perrottet labelled it the most significant reform to the stamp duty system “in a generation” and said it would deliver a fairer, more efficient system.

“The savings in the short term are modest but over the long term they will be substantial,” he said.

The tax reform will cost the state budget about $185 million in the three years after the changes take effect on July 1 next year.

NSW will be the first state to index stamp duty brackets to the consumer price index.

Stamp duty is levied on residential property purchases using  price brackets and rates that rise from 1.25 per cent under $30,000 to 5.02 per cent over $3 million.

During the past 15 years the median house price in Sydney has climbed from around $400,000 to just over $1 million. As a result, stamp duty “bracket creep” caused by property price inflation has pushed up the average rate of duty payable from 3.37 per cent to 4.05 per cent.

The changes to be announced on Monday will reduce, although not eliminate, the effects of stamp duty bracket creep.

To illustrate, Mr Perrottet said that if the state’s stamp duty brackets had been indexed when they were introduced in 1986 someone purchasing a $1 million property today would pay around $8,000 less in stamp duty.

“Anything we can do to reduce the impediment for people to move home or downsize is good reform and this will do that,” he said.

The indexation of stamp duty brackets will only apply to residential property transactions.

The stamp duty reforms come amid a downturn in the Sydney property market. Dwelling values in the city have fallen  around 8 per cent since their peak in July 2017, Corelogic figures show.

But there is still widespread voter concern about housing affordability, especially in Sydney, and the cost of housing remains a key political challenge for the Berejiklian government.

Mr Perrottet said the stamp duty changes would help make it “easier for people to realise the dream of owning a home”.

The stamp duty reform is modest compared with recommendations made by the commission of audit conducted when the Coalition won government in 2011.

The audit, by former NSW treasury secretary Michael Lambert, said stamp duty is the “most inefficient of NSW state taxes”. It recommended a ‘Stamp Duty Replacement Tax’ be phased in to replace all property transfer duties. The proposed replacement tax would be based on land values rather than market values of properties and would be payable annually instead of when properties change hands. The report said that change would deliver an annual welfare gain to the state of $2.3 billion.

Separate private sector modelling in 2016 found the NSW economy would get a $5 billion-a-year boost and add thousands of jobs if stamp duty was replaced by a broad-based land tax.

Mr Perrottet said he was open to further reform of property-related taxes but that substantial changes would require the co-operation of the Commonwealth government and other states and territories.

https://www.smh.com.au/national/nsw/nsw-to-make-the-biggest-changes-to-stamp-duty-in-30-years-20181104-p50dy1.html

ATO targets property investors’ and holiday homeowners’ income and deductions

Taxpayers have just three weeks to get their house in order, especially the 1.8 million who own investment and holiday properties, the Australian Taxation Office is warning.

Homeowners who have converted a room into a home office or rent bedrooms to long-term boarders or tourists are also going to have their gains and deductions closely scrutinised, the ATO says.

Kath Anderson, ATO assistant commissioner, says it will monitor taxpayers who rely on tax agents, used by about 66 per cent of those submitting a return, who might be amenable to providing more deductions and bigger claims than they are entitled to.

“We have sophisticated systems that can match data from hundreds of sources,” says Anderson about how the ATO identifies mistakes, exaggerated claims or fraud from 9.6 million personal tax returns.

ATO assistant commissioner Kath Anderson warns of a focus on taxpayers who shop around for tax agents

ATO assistant commissioner Kath Anderson warns of a focus on taxpayers who shop around for tax agents

Investment property

The ATO will “be paying close attention” to excessive interest rate claims, such as where property owners try to claim borrowing costs on the family home as well as rental properties, says Mark Chapman, communications director at H&R Block.

A focus will be incorrect apportionment of rental income and expenses between joint owners, such as where deductions on a jointly-owned property are claimed by the owner with the higher taxable income, rather than jointly.

Investors are on notice about making incorrect claims for newly purchased rental properties.

“The costs to repair damage and defects existing at the time of the purchase or the costs of renovations cannot be claimed immediately,” says Chapman.

“These costs are deductible instead over a number of years. Expect to see the ATO checking such claims and pushing back against those that do not stack up.”

Brad Beer, chief executive of BMT Tax Depreciation, adds: “While rules state second-hand residential property owners cannot claim previously existing plant and equipment, they can claim on items they purchase and install in the property themselves after it is income-producing.”

Airbnb landlords are eligible for deductions for expenses but the claims must relate directly to earning of income and will require receipts or records as evidence.

“Don’t forget, the ATO has access to numerous sources of third party data including access to popular holiday rental listing sties such as Stayz and Airbnb, so it is relatively easy for them to establish whether a property was ‘available for rent’,” adds Chapman.

Holiday homes

Holiday home owners are a key target of the ATO, particularly those not making genuine attempts to make their properties available for rent.

Anderson cites a Victorian holiday house owner who earned about $27,000 rent during 2014-15 but claimed expenses of more than $700,000.

She says problems arise if property owners try to claim 100 per cent of expenses for times when their properties are routinely rented to mates at below market rates, are not available for rent during peak holiday periods and are deliberately unoccupied for about 90 per cent of the year. Others are leased under conditions that deter renters, such as unattractive minimum night stays, banning golfers or women who wear stilettos.

Anderson recommends those with home offices keep invoices, receipts, claims and diary accounts to prove spending on meals, mobile phone and internet costs that are work, or business, related

She says the ATO is aware of abuse of concessions by people claiming all their mobile phone, laundry, internet or dining expenses when they represent only a portion of total expenses relating to work or business and the rest is private.

Some people are also abusing the record-keeping provisions, which includes popular work-related car expenses claimed by nearly 4 million taxpayers, totalling nearly $9 billion.

“It is legitimate to claim for 5000 kilometres if you actually do them as part of earning your income,” says Anderson. “But we are concerned some taxpayers mistakenly believe this is a standard deduction they are entitled to, without having to provide any evidence of having travelled that distance.”

The ATO compares taxpayers to others in similar occupations earning similar incomes to identify work travel, or trips, not required as part of their jobs, she says.

Cryptocurrencies

Cryptocurrencies such as bitcoin are assessed for tax purposes as a form of property that are an asset for capital gains tax purposes.

The ATO is working with banks, AUSTRAC and state revenue offices (which collect revenues) to identify suspicious activity, particularly for property transactions.

The movement of cryptocurrency is anonymous but becomes traceable when converted into a fiat currency.

“While many believe cryptocurrency provides anonymity, operating in the digital world leaves electronic footprints,” says Anderson. “We have sophisticated systems that allow us to match data from banks, financial institutions and online exchanges to follow the money back to the taxpayer.”

Liz Russell, a senior tax agent for Etax.com.au, says losses on trading cryptocurrency can offset that amount from capital gains made on another asset in the same, or later, financial year. But net capital losses cannot be offset against other income. It is taxable when sold.

Holding cryptocurrency for more than 12 months as an investment might entitle the holder to a CGT discount.

“Whether it is a long-term investment or a short-term trading strategy, the potential tax consequences require taxpayers to keep records,” warns Anderson.

Cryptocurrency payments for goods and services need to be recorded as ordinary income.

Family trusts

Family trusts are an increasingly popular structure for holding a family’s investments, including property, shares and other assets, excluding the family home. Recent tightening of the superannuation rules is adding to their attraction.

All trust members’ income is to be provided for the current financial year and usually an estimated income statement for the next. It is advised an accountant recommend the most tax-efficient ways to distribute any income.

Bill Nussbaum, a director at HLB Mann Judd, says: “The main thing is to work out how the income from the trust is to be distributed to the beneficiaries of the trust for this financial year. Trustees need to speak to their accountant about how the income from the trust will be paid, such as dividends, payments from a business or interest.”

The trustee also has to make a formal resolution to the ATO in writing about the distribution before June 30, he says.

Advises say the “ideal” scenario for maximising distributions to beneficiaries is when there is a spouse paying little or no tax and young adult children who are not yet earning much. The tax on distributions to children is punitive, typically around 47 per cent on anything over about $1300.

https://www.afr.com/personal-finance/ato-targets-property-investors-and-holiday-home-owners-income-and-deductions-20180606-h110sr

NSW budget 2018: Winners and losers

NSW Treasurer Dominic Perrottet has delivered an election budget with many winners and almost no losers.

Winners

Motorists: Regular toll users will get free car registration, saving up to $700 per year.

Illegal parkers: Fines cut by 25 per cent.

Caravan owners: Registration savings of 40 per cent, or up to $471 per year.

Parents: A $150 baby bundle for newborns, and a $100 “creative kids” voucher to be spent on music drama, art coding or second language classes. This is on top of the $100 voucher introduced last year for sport activities.

School kids: Every three year old to have access to pre-school classes. 4,800 new pre-school places. 880 more teachers; $6 billion for 170 new and upgraded schools; $50m over five yard for air conditioning in schools.

Apprentices: Free TAFE classes. 100,000 fee-free apprenticeships will be created through a $285 million fund.

The sick: 1,000 more nurses and midwives, 330 more doctors, 750 extra paramedics; $8 billion over four years for health facilities, including $750 million for Liverpool Hospital precinct.

Commuters: 2,000 extra bus services.

Small business: From July 1, the payroll tax threshold will be lifted from $750,000 to $850,000, and will increase by $50,000 a year to reach $1 million in 2021-22.

Losers:

Bureaucrats: An “efficiency dividend” applied across departments to save $1.6 billion over the forward estimates will mean public sector cuts.

 departments will Online gamblers: A new 10 per cent point of consumption tax expected to raise about $100 million a year.

Criminals: 100 extra police.

Speeding, drunk and drug taking motorists: Will be hit by a new police blitz, raising $40 million per year.

The Sydney councils surging past housing targets

Some Sydney council areas are already pushing past targets for new housing development set only two years ago, prompting the state government to consider new measures to ensure local infrastructure keeps up.

In a week in which the national population surged past 25 million, other figures released this week show Sydney is on track to meet and exceed ambitious targets to house the swelling number of people in the city.

https://b.basemaps.cartocdn.com/rastertiles/dark_only_labels/9/471/306.png

In the Hills Shire in the north-west for example, more than 8600 new homes have been approved since 2016. That is more than the Greater Sydney Commission’s target of 8500 new homes to be built in the area between 2016 and 2021.

Other council areas already pushing up against large housing targets set by the commission, when measured by the number of approvals, include Penrith, Liverpool, the Sutherland Shire, Hornsby and Fairfield.

“We are well and truly over the target,” said Wendy Waller, the mayor of Liverpool. “We’ve got the land available, so we’re very fortunate in that sense.”

But Cr Waller said the council’s challenge was to ensuring roads, parks, and other community infrastructure keep pace with the rapid expansion. And to helping establish the conditions for local jobs, so residents did not have to leave the area for work.

“We probably estimate we are looking at over $270 million just in traffic improvements alone… that’s nasty intersections and reconfigurations and so on,” Cr Waller said.

In the city’s north-west, it is understood the state government is soon to sign off on a new local infrastructure scheme.

The scheme would require new contributions from developers to meet a list of community needs, such as roads, water supply, footpaths and parks.

“Doing nothing to provide housing for our children is not an option,” said the Planning and Housing Minister, Anthony Roberts.

“It is critical that, just as generations before us built homes to house this generation, we need to build homes to house the next generation,” Mr Roberts said.

Michael Edger, the general manager of Hills Shire Council, said the rate of housing development in the area had been “faster than we re used to, and it’s been sustained for a fair period of time”.

“We’re conscious that the growth is faster than what some would like,” said Mr Edgar, who credited the state government’s rail line through the area for much of the impetus. “But we’re working very, very hard to provide the things that we can to accommodate it.”

“They’re not bad problems to have.”

One of the city’s largest housing targets was set for Camden, the semi-rural council area to the city’s south-west.

Two years ago Marcus and Angela Biady were the first people to move into their development, Crest by Mirvac in Gledswood Hills, a 10-minute drive from Leppington station on the South West Rail Link.

“Since we’ve moved in a year later we’ve got a lot of people living here,” said Mr Biady, who said he moved to the area for the back-yard and the rural feel.

“It reminds me of when I was a kid. We hang out at each other’s places. Everyone’s really willing to talk and hang out, which is really nice.”

The Greater Sydney Commission does not use housing approvals as the key measure to see if its targets are met; rather, the commission uses figures for the ‘commencements’ of new houses.

But the majority of approvals eventually become new homes. Developers said the industry was struggling to keep up with housing approvals granted in the past couple of years, though approvals had recently started to fall away.

“Construction activity still hasn’t peaked,” said Nigel Edgar, the General Manager of Residential NSW at Frasers Property.

“You’ll see it peak probably some time in the next six months or so,” said Mr Edgar.

The city’s largest targets for 2021 were set for Parramatta, the City of Sydney, Canterbury Bankstown, Blacktown and Camden.

Almost half of the 21,650 new homes slated for Parramatta by 2021 have already been built.

A spokeswoman for the Greater Sydney Commission said the organisation “happy with the progress councils are making on their five year housing targets and, in a number of cases, they are surpassing them.”

“The Commission is supporting councils to update their housing strategies and local strategic planning statements, which will inform the establishment of 6-10 year targets,” the spokeswoman said.

These local plans are due for exhibit next year.

source: https://www.smh.com.au/national/nsw/faster-than-some-would-like-the-sydney-councils-surging-past-housing-targets-20180811-p4zwvh.html

Why it’s worth cutting mortgage costs via cheaper loan

Amy Mylius has saved more than $1000 a month in loan costs on her two investment properties by switching to a new lender after her repayments crept up by more than 100 basis points in 12 months.

Mylius, from the inner Melbourne suburb of Fitzroy, watched her rates slowing rising to more than 5 per cent as ANZ discreetly pushed up costs for interest-only investors in response to rising funding and compliance costs, despite record low cash rates.

She says when monthly costs on investment loans for her town house and apartment rose by $1300 a month she decided to refinance.

Mylius, who is also paying off her home, says: “The lending environment is changing so quickly. You need to watch rate movements and shop around for the best deal. I review my rates every six months.”


The big four banks, which account for about 70 per cent of loans, have increased their rates on average for interest-only investors by 54 basis points during the past 18 months since regulators imposed caps on lending to cool over-heating markets, says research house and comparison site Canstar. Other lenders have increased rates by between 20 and 27 basis points, its analysis shows.

Lenders are also increasing fees or raising rates for existing borrowers to subsidise new borrower’s cheaper rates.

Mortgage providers are under intense pressure from regulators and the banking royal commission to ensure borrowers have adequate income to comfortably afford repayments for the term of the loan.

That means they are demanding more details about borrowers’ income and spending, with banks like Westpac more than doubling the detailed categories of questioning from six to 13.

Some lenders, particularly relying on overseas funding to finance their loans, face increased borrowing costs thanks to higher US interest rates.

The big four banks, which account for about 70 per cent of loans, have increased their rates on average for ...
The big four banks, which account for about 70 per cent of loans, have increased their rates on average for interest-only investors by 54 basis points during the past 18 months.

Funding pressures

The short-term money market benchmark interest rate, or Bank Bill Swap Rate, has been rising sharply since January, increasing funding pressures despite the Reserve Bank of Australia maintaining cash rates at 1.5 per cent.

For example, ME Bank, owned by 29 industry super funds, recently raised rates for existing property borrowers by up to 16 basis points in response to rising funding and compliance costs.

MyState Bank, the listed finance group, has introduced a $300 establishment fee for its basic variable residential investment loan.

Lenders are also increasing fees or raising rates for existing borrowers to subsidise new borrower's cheaper rates.
Lenders are also increasing fees or raising rates for existing borrowers to subsidise new borrower’s cheaper rates.

According to comparison site Mozo, effective rates have increased for more than 40 per cent of borrowers in the past 20 months as lenders raise rates or borrowers fail to switch to cheaper alternatives.

Many borrowers are paying rates above 4 per cent despite benchmark principal and interest rates being under 3.7 per cent, its analysis shows.

Kirsty Lamont, Mozo director, says lenders are offering their best deals for buyers with big deposits and steady incomes and relying on the inertia of existing borrowers not to compare rates and switch.

Westpac Group, which includes St George Bank, Bank of Melbourne and BankSA, is launching a limited offer 3.68 per cent loan for first-time, owner-occupier homebuyers with principal and interest repayments.

Lenders are demanding more details about borrowers' income and spending.
Lenders are demanding more details about borrowers’ income and spending. Dominic Lorrimer

Throttling back

But lenders are “throttling back” on many borrowers seeking refinancingwho don’t meet their tough new income standards, or whose rising household expenses might make it more difficult to keep up with repayments.

Martin North, principal of Digital Finance Analytics, says the number of troubled households seeking to refinance has more than doubled from 15 per cent to more than 30 per cent in the past 12 months.

There are estimated to be 550,000 households seeking to refinance over the next three years as fixed loan terms expire or borrowers seek better terms and conditions, DFA’s analysis shows.

Martin North, principal of Digital Finance Analytics, says the number of troubled households seeking to refinance has ...
Martin North, principal of Digital Finance Analytics, says the number of troubled households seeking to refinance has more than doubled from 15 per cent to more than 30 per cent in the past 12 months. Brendon Thorne

The Reserve Bank of Australia is warning its next rate move will be upafter keeping rates on hold for a record 21 months in a row.

But Shane Oliver, head of investment strategy with AMP Capital, does not expect any increase until 2020, adding “the next move being a cut cannot be ruled out”.

The possibility of a rate cut is being raised because house prices are slowing with more weakness likely, tighter lending standards are easing nascent inflationary pressure and growth is likely to remain below RBA expectations.

But investors like Mylius, a buyers’ agent with Cate Bakos Property, says unofficial rate increases make it imperative to review mortgage costs.

Mylius says variable rates on her two ANZ investment properties had “gradually” crept up from below 4 per cent to about 4.9 per cent on one and more than 5 per cent on the other.

“Last month I called my mortgage broker to find out my options,” she says.

She initially switched to an ANZ two-year fixed principal-and-interest loan at 3.88 per cent. This week she refinanced with CBA at 4.29 per cent on a three-year interest-only fixed rate. ANZ did not charge a fixed term break fee.

“The $1000 savings a month – because no principal is paid – will go into my offset account against my owner-occupier loan, which is more tax effective,” she says.

source: http://www.afr.com/personal-finance/why-its-worth-cutting-mortgage-costs-via-cheaper-loan-20180502-h0zjrp

Which workers will benefit most from $140 billion income tax plan

Voters in Labor-held seats will be some of the biggest beneficiaries of the Turnbull government’s income tax overhaul, according to new data which also reveals which workers will benefit most from the $140 billion plan.

Analysis shows residents of the federal electorate of Sydney, held by deputy Labor leader Tanya Plibersek, Melbourne Ports, held by Labor MP Michael Danby, and Grayndler, represented by frontbencher Anthony Albanese, would gain an average $6,000 extra disposable income per year from 2024 under the tax plan unveiled by Treasurer Scott Morrison on Tuesday.

In contrast, voters in the Labor seat of Blaxland will secure an average saving of $3034, and those in the government-held seat of Hinkler $3067.

The size and timing of tax cuts will be a major factor in the next federal election, and an imminent ‘Super Saturday’ series of byelections in June caused by the dual citizenship crisis.

Opposition Leader Bill Shorten confirmed on Thursday night Labor will oppose the Coalition’s tax package despite many of its electorates being listed in the top 30 beneficiaries of the full seven-year plan.

A range of modelling released since Mr Morrison’s budget has been studied by Senate crossbenchers who remain unconvinced about the biggest element of the plan: putting all taxpayers earning between $40,000 and $200,000 on the same bracket from 2024, at annual cost to the budget of $17.8 billion.

One Nation leader Pauline Hanson – who controls three key votes in the Senate – said she was not prepared to go there yet.

“It’s too far ahead,” she told Sky News.

Budget benefits
Tax benefits by household income range

Q5 = highest earners (top 20%)

Q3 = middle earners (middle 20%)

Q1 = lowest earners (bottom 20%)

Source: NATSEM

The post-budget analysis, released on Thursday by the National Centre for Social and Economic Modelling, has also challenged Treasurer Scott Morrison’s claim that the budget’s tax cuts are directed to “middle to lower income Australians”.

The analysis shows that the first of the three rounds of tax changes set out in the budget overwhelmingly benefits middle income households, with high income households getting more than low income households. This is because most low income households don’t earn enough to pay tax and receive the proposed tax offset.

The second round, due in 2022, benefits the top 20 per cent of households the most, boosting their disposable incomes by up to 2 per cent. The third and final phase due in 2024 delivers benefits almost exclusively to the top 20 per cent, boosting their disposable incomes by up to 4.5 per cent. Middle income get a lift of around 1 per cent. Most low income households get less than 0.5 per cent.

Asked whether it would be wrong to claim that the first round of the tax cuts was concentrated on middle and lower earners as the Treasurer had, NATSEM modeller Dr Jinjing Li said it would be.

Dr Li said the second and third round of tax cuts were clearly directed to the highest earners, making Australia’s better paid workers easily the biggest beneficiaries of the three rounds put together together.

Mr Morrison disputed the interpretation, telling Fairfax Media that once all stages of his plan had some into effect someone earning $200,000 would still be paying 12.5 times more than someone on $41,000.

“The latest tax statistics show those on the top tax bracket paid 30 per cent of all personal income tax,” he said. “Under the government’s plan Treasury estimates those on the top tax bracket will pay around 36 per cent of all personal income tax collected in 2024-25.”

“Income tax will still remain overwhelmingly paid by the few, not the many.”

The NATSEM analysis shows Ms Plibersek’s seat of Sydney will see an average benefit of $215 in 2018-19, the highest in the country, and $7275 per year by 2024-25. Prime Minister Malcolm Turnbull’s seat of Wentworth will get the highest average dollar benefit of $8340 a year by 2024, and the sixth highest of $184 in 2018-19.

The third phase of the proposal has become the major sticking point for Labor and the crossbench.

Independent Senator Derryn Hinch was not convinced the government would have to split the bill to get it through the Senate, but said he would ignore pressure to pass it as soon as possible to deliver some tax-relief to workers this year.

A separate analysis released by the Grattan Institute on Thursday found that more flat tax structure would do little to undermine the progressivity of the tax system. But most of the benefits would flow to Australia’s highest earners.

source: https://www.smh.com.au/politics/federal/new-analysis-shows-which-workers-will-benefit-most-from-140-billion-income-tax-plan-20180510-p4zei5.html

2018 Federal Budget

Following the release of the 2018 Federal Budget, there’s a lot of information to digest.

To help with this, we’ve unpacked the budget’s key themes and put them in one location where you can find the main take-outs, including for healthcare, business, child care, employment, plus much more.

Agriculture

  • $225 million for better GPS technology to allow farmers to access precision agricultural technologies that allow them to more accurately sow seeds in between rows of harvested crops and manage the distribution of water, fertiliser and herbicides.
  • $51.3 million over four years to boost growth in Australia’s agriculture and food exports to secure Australia’s position as a world leading agriculture exporter and support agriculture and export jobs.
  • $140 million grant and $50 million loan for Western Australia’s Myalup-Wellington project.
  • $3.6 million over five years to extend the Indonesia-Australia Red Meat and Cattle Partnership to help support beef exports to Indonesia.
  • $6.3 million to extend funding to give farmers access to a broader range of agricultural and veterinary chemicals. This is to support collaboration between growers, chemical manufacturers and rural research and development corporations.
  • $4.7 million to improve the collection of agricultural labour force data to better understand the skills and labour gaps that farmers face.
  • $36.9 million to provide greater access to satellite data that identify physical changes to the Australian environment. This is to help agricultural, mining and marine industries improve their efficiency, reduce waste and improve environmental management practices.
  • $6.6 million for research and development and key infrastructure to help combat pest animals and weeds.
  • $176 million towards building the Rookwood Weir in Queensland.
  • $11.6 million for Queensland’s Mareeba Dimbulah Water Supply Scheme.
  • $3 million for Queensland’s Nogoa MacKenzie Water Supply Scheme.
  • $10.1 million over three years to the Australian Pesticides and Veterinary Medicines Authority (APVMA) to support its ICT systems and digitise its most important and frequently used paper files.
  • $20 million over four years to support growth in Australia’s renewable timber and wood fibre industry.

Business

  • The instant-asset write off for purchases up to $20,000 will be extended for small businesses with turnover up to $10 million.
  • All beer kegs larger than 8 litres will be taxed the same. Previously, beer sold in kegs larger than 48 litres had been taxed at a lower rate than smaller kegs, favouring larger producers.
  • $250 million for the Skilling Australians Fund to equip employees with the skills Australian businesses need.
  • $20 million for SME export hubs. The hubs will help foster greater cooperation between Australian businesses.
  • $17 million per year to help small businesses in the defence industry buy equipment.
  • $15 million over four years for a package of initiatives to support the Australian business community through building public support for open trade and investment, enhancing government engagement with business and maximising commercial opportunities in overseas markets.
  • $17.7 million over four years for additional Inclusive Entrepreneurship Facilitators that focus on mature age people and promote entrepreneurship and new business opportunities and to provide business mentoring.
  • $15 million over three years to the Australian Taxation Office to support the modernisation of payroll and superannuation fund reporting. The funding will be used to support small businesses with fewer than 20 employees during the transition to Single Touch Payroll Reporting from 1 July 2019.

Education

  • $24.5 billion to the Quality Schools package over the next 10 years.
  • An additional $247 million over four years from 2018-19 for the National Schools Chaplaincy Program.
  • $440 million to extend the National Partnership Agreement on Universal Access to Early Childhood Education for the 2019 calendar year. More than 348,000 young Australians will have access to 15 hours a week of early learning.
  • $28.2 million to expand access to sub-bachelor programs in regional areas, and $14 million to fund additional places for bachelor students studying at Regional Study Hubs. This equates to approximately an extra 500 commonwealth supported sub-bachelor places and 500 places for bachelor studies.
  • To support Indigenous students, the Government will provide $38.1 million over five years to implement more efficient payment arrangements for schools; more flexible travel arrangements; and ensure consistent assistance rates for Indigenous students studying away from home.
  • From 1 January 2019, the family income cut‑off will increase from $150,000 to $160,000 per annum, with a further increase of $10,000 for each additional child in the family. This will help make it easier for more regional students to undertake post‑secondary studies.
  • Establishing a Murray-Darling medical schools network to support an end-to-end training continuum for students to study medicine in the region.
  • Creating a new Junior Doctor Training program with a strong focus on supporting training in rural settings, integral to the development of a National Rural Generalist Pathway by the National Rural Health Commissioner.

Transportation & infrastructure

The Government has outlined funding of $24.5 billion for new major projects and initiatives that form part of a 10 year, $75 billion investment in a nation-building infrastructure plan. These projects include:
New South Wales

  • $971 million for the Coffs Harbour Bypass on the Pacific Highway.
  • $400 million for the Port Botany Rail Line Duplication.
  • $155 million for a new Nowra Bridge over the Shoalhaven River.

Queensland

  • $3.3 billion for additional Bruce Highway upgrades.
  • $1 billion for the M1 Pacific Motorway (Eight Mile Plains to Daisy Hill and Varsity Lakes to Tugun).
  • $390 million for the Beerburrum to Nambour Rail Upgrade.
  • $300 million for the Brisbane Metro.
  • $170 million for the Amberley Interchange, Cunningham Highway.
  • $64.2 million for new upgrade projects on the Warrego Highway, including Dalby to Miles, Oakey to Miles and the Carroll Creek culvert replacement.

South Australia 

  • $1.4 billion for Adelaide North South Corridor future priorities, including $177 million for the Regency Road to Pym Street section.
  • $220 million for the Gawler Rail Line electrification.
  • $160 million for the Joy Baluch Bridge duplication.

Victoria 

  • Up to $5 billion for the Melbourne Airport Rail Link.
  • $1.75 billion for the North East Link.
  • $475 million for planning and pre construction of a rail connection to the Monash employment centre in Melbourne’s South East.
  • $225 million for the Frankston to Baxter Line electrification upgrade.
  • $140 million for additional urban priority road projects.
  • $132 million for the Princes Highway duplication between Traralgon and Sale.
  • $50 million to support the duplication of the Geelong Rail Line between South Geelong and Waurn Ponds.

Western Australia

  • An additional $1.1 billion for Metronet projects, including the Morley to Ellenbrook line, the Armadale line, Midland Station and business case funding for Lakelands Station.
  • $580.5 million for the Tonkin Highway as part of the road congestion package of $944 million.
  • $560 million for the Bunbury Outer Ring Road.
  • $144 million for the Roe Highway (Great Eastern Highway Bypass interchange).
  • $107.5 million for the Mitchell Freeway extension (Hester Avenue to Romeo Road).
  • $65 million for the Stephenson Avenue extension.
  • $46.5 million to upgrade Leach Highway (Welshpool Road interchange).

The GST top up payment of $188.9 million in 2017-18 would effectively lift WA’s share of the GST in 2018-19 to 50 cents in the dollar to support the following hospital projects:

  • $158 million for the Joondalup Hospital Expansion.
  • $20.3 million for the Royal Perth Hospital refurbishment.
  • $10.6 million for the Osborne Park Hospital expansion.

Regional roads

$3.5 billion has been committed to roads of strategic importance, which include regional and interstate highways including:

  • $1.5 billion for Northern Australia Package.
  • $400 million for Tasmanian Roads Package.
  • $100 million for NSW and ACT Barton Highway Corridor Package.
  • $1.5 billion for future national priorities.

Research

  • An additional $1.9 billion over 12 years from 2017-18 ($393.3 million over five years) to implement the Research Infrastructure Investment Plan. Implementing the Plan will involve partially funding specific national research infrastructure projects. Projects will be delivered through an expansion of the existing National Collaborative Research Infrastructure.

Sport

  • $29.7 million in 2018-19 to deliver up to 500 local community sporting infrastructure development grants of up to $500,000 to improve community sporting facilities.

Major projects

This infographic is a visual representation of the information listed above this image

Superannuation

The Government will introduce a range of measures to help better protect people’s superannuation balances including:

  • Limiting fees on low balance accounts that are less than $6,000 at 3%.
  • Making it easier for Australians to consolidate super accounts or move providers by banning exit fees.
  • Making it easier for the ATO to reunite people with their lost or inactive super accounts.
  • Not allowing superannuation companies to enforce insurance policies on young individuals, particularly those with low balances and those not making contributions.

Healthcare

  • $30 billion in additional funding for public hospitals between 2020-21 and 2024-25.
  • $33.8 million to Lifeline Australia to enhance its telephone crisis services and funding for beyondblue and the Way Back Support Service.
  • $84 million in additional funding for the Royal Flying Doctor Service to improve the availability of dental, mental health and emergency aeromedical services in rural and remote areas.
  • $20.9 million to improve the health of women, and children in their first 6 years of life.
  • $1.3 million over three years for Epilepsy Action Australia to establish a national Epilepsy Action Response Service to provide access to high quality information and expertise on epilepsy, especially in rural and remote areas in Australia.
  • $10 million over two years to extend the Good Sports Program administered by the Alcohol and Drug Foundation.
  • $5.4 million over five years to implement improvements to the administration of the Life Saving Drugs Program, which supports free access to high-cost, life-saving medicines for people with very rare medical conditions.
  • $154.3 million over five years to support Australians to be healthier by funding and expanding sporting organisations and programs.
  • For those not eligible for National Disability Insurance Scheme (NDIS) but use programs that are transitioning to the NDIS, $92.1 million will be invested to ensure their support continues over the next 5 years.

Health Research initiatives outlined in the budget include:

  • $125 million for research into chronic conditions with a focus on diabetes and heart disease.
  • $248 million to allow more clinical trials to occur in Australia and support international collaboration.
  • $94.3 million will be provided for Biomedtech programs and Industry Researcher Collaborations, to increase biomedical research.
  • $30 million will be invested to enhance the data sharing capabilities of the Australian Institute of Health and Welfare, improving access to data which will help Australian researchers.

Changes to the Pharmaceutical Benefits Scheme (PBS) and Medicare Benefits Schedule (MBS)

  • $35.3 billion will be credited to the Medicare Guarantee Fund to meet estimated MBS and PBS expenditure.
  • $1.4 billion has been allocated over five years for a number of new and amended listings on the Pharmaceutical Benefits Scheme (PBS) and the Repatriation Pharmaceutical Benefits Scheme (RPBS). This includes medicines to treat spinal muscular atrophy, breast cancer, relapsing‑remitting multiple sclerosis and a new medicine to prevent HIV.
  • $28.2 million over five years to upgrade the e-prescribing software system used by clinicians to prescribe medicines.
  • $106.8 million over four years to modernise the health and aged care payments systems that support the delivery of Medicare and the Pharmaceutical Benefits Scheme.
  • A provision of $1 billion has been set aside to support the addition of new medicines listings on the PBS.

Regional

  • $206.5 million over four years for round three of the Building Better Regions Fund, to support investment in community infrastructure and capacity building projects in regional areas, which supports regional infrastructure and community investments.
  • More than $500 million over five years to help secure the future of the Great Barrier Reef, including improving water quality, combatting crown-of-thorns starfish and conducting scientific research.
  • $50.1 million over four years to enhance security arrangements at 64 regional airports with new and upgraded screening technologies and associated infrastructure.

Technology & innovation

  • $26 million to establish a national space agency. A further $15 million for International Space Investment will provide grants to strategic space projects.
  • $29.9 million towards growing capabilities in artificial intelligence and machine learning.
  • $225 million to improve the accuracy of GPS in Australia, aiming to improve productivity in transport logistics, surveying, agriculture and marine navigation.
  • $130 million to upgrade the Department of Home Affairs’ ICT infrastructure for visa processing, identity management and threat analysis, to better detect and prevent threats.

Tax payers

The government has outlined a seven year personal income tax plan including:

  • Immediate tax offset of up to $530 per year for low and middle income earners and up to $1,060 for a working couple earning between $48,000 and $90,000 annually.
  • Taxpayers earning less than $37,000 will only be eligible for a maximum tax offset of $200.
  • The government will increase the 32.5% tax bracket to $90,000 providing a tax cut of $125 per year.
  • By 2024, the government has committed to simplify and flatten the personal tax system by removing the 37% tax bracket entirely.

Tax measures for business include:

  • Up to $300 million over two years to states who reduce unnecessary regulatory restrictions on competition and small businesses through the National Partnership on Regulatory Reform.
  • The Government has also outlined plans to make digital businesses pay tax in Australia by extending GST to Australian hotel bookings made via offshore digital businesses.

Child care

A new child care package will be implemented from 2 July 2018, which will help parents with children aged 0-13 work, train, study and volunteer. The package will include:

  • One child care subsidy, replacing the two current child care payments – the child care benefit and rebate. It will be paid directly to services.
  • Families earning $186,958 or less will have no cap on the amount of child care subsidy they claim. Families earning over $186,958 and under $351,248 will benefit from an increase in the current cap of $7,613 to $10,190 per child, per year.
  • The child care subsidy will be dependent upon 3 factors: combined family income, activity levels of parents and the type of child care service.
  • Parent’s activity can include paid work, study and training, unpaid work in family business, looking for work, volunteering and self-employment. The higher the level of activity the more hours of subsidised care families can access, up to a maximum of 100 hours per fortnight.

Employment

The Government has outlined a number of measures aimed at mature-aged workers including:

  • Expanding The Restart Wage Subsidy for Australians aged 50 years and over providing up to $10,000 to employers to support workers to continue their career.
  • Establishing a collaborative partnership with the age discrimination commissioner to drive cultural change in businesses’ approach to taking on mature age employees and to equip managers and business owners to work with an aging workforce.
  • The roll out of the Skills Checkpoint for Older Workers Program for Australians aged 45 to 70. The program will provide workers with advice on how to best use their existing skills in the workforce, or identify opportunities for upskilling.
  • The Skills and Training Incentive, which will provide $2,000 per worker to fund reskilling opportunities for eligible individuals aged 45 to 70. This will be matched by either the individual or the employer.
  • $15.2 million for Job Change, which supports mature age workers transitioning into roles in growth industries.
  • Bringing forward the national rollout of the Career Transition Assistance Program (CTAP) by one year to July 1, 2019 for those 45 years or over.
  • $17.7 million to support entrepreneurs through the Entrepreneurship Facilitators Program, with a focus on those aged over 45 years.

Aged care

Through ‘The More Choices for Longer Life Package’ a number of new policies will be implemented to support people to stay at home longer, remain healthy and independent and have access to aged care.

Initiatives under The More Choices for Longer Life Package include:

  • 14,000 additional high level home packages will be delivered this year.
  • $105.7 million over four years (including $32 million from within the existing resources) to support the National Aboriginal and Torres Strait Islander Flexible Aged Care Program. Aiming to deliver additional residential aged care places and home care packages in remote Indigenous communities.
  • $60 million in capital investment to support new residential aged care.
  • $61.7 million over two years to make the My Aged Care website easier to use and develop simpler assessment forms for people to access aged care services.
  • $40 million over four years for aged care facilities in regional, rural and remote Australia.
  • The Government will establish a new Aged Care Quality and Safety Commission. $253.8 million over four years will be provided to support the functions of the new Commission.
  • $50 million over two years for a Quality Care Fund to improve the quality of residential aged careand $32.6 million over four years to enhance the regulation of aged care provider quality to better identify risks and respond more quickly to care failures.

Mental health for aging Australians

  • $82.5 million to fund mental health services for residents of aged care facilities.
  • $20 million to pilot services for older Australians at risk of isolation to help them remain connected to their community.

Remaining active and healthy

  • $22.9 million over two years to encourage older Australians to remain physically active.
  • $29.2 million over two years to help the elderly stay independent for longer in their own home by trialling support strategies.

Changes to Pension Work Bonus

  • $227.4 million to increase the pension work bonus to $300 per fortnight (up from $250 per fortnight). The work bonus will also be extended to self-employed people. This means that the first $300 of income from work each fortnight ($7,800 per year) will not count towards the pension income test.

Changes to superannuation contributions

  • Australians aged 65 to 74 with a total superannuation balance below $300,000 will be able to make voluntary contributions for 12 months after they finish working. Currently people aged 65 to 74 must work a minimum of 40 hours in any 30-day period in the financial year in order to keep making contributions to superannuation – this is known as the work test.

Source: https://www.bankwest.com.au/personal/learn/federal-budget?promocode=edm4114&cid=edm4114

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