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

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

Did you know you can be secretly blacklisted as a tenant?

You can be blacklisted as a renter without even knowing it.

Key points:

In fact, being put on one of these tenancy databases could mean you’re blocked from renting for years.

These databases are run by private companies and accessed by landlords and agents who report so-called “bad tenants”.

Many renters are reluctant to share their story for fear of backlash or shame.

Amanda’s story

Amanda* is a mother with a large family. At the end of her lease, she and her partner looked for a new place to rent, but were rejected over and over.

It turned out they were secretly put on a rental blacklist.

“I was probably looking at three to four houses a week. There was only me applying, there was no-one else and I was getting knocked back so many times,” she said.

“I didn’t have a clue why. I thought it might have been I had too many kids. I thought it might have been my income. I really didn’t know.

“It was very stressful. I didn’t get a house for six or seven months.

“I was living with my mum who only had a two-bedroom house and there was me and my six kids. We were just all over the shop.

“I didn’t know where I was going to go or how long it was going to take to find a new house.

“I was declined, declined, declined … day after day.

“I reckon I would have been homeless [without my mum].

“Then one [agent] was actually very honest with me. She said: ‘They put you on [a database] for rent arrears’, so I took [my previous agent to court].”

People with arms folded

Amanda did not owe any rent at the end of her lease.

“[The previous agent] had to tell me by law. I was told nothing. She didn’t even send me an email,” Amanda said.

“I was very upset and cranky. She could have at least told me I was put on there or I could have worked out something with her. But she didn’t do that, she went behind my back.

“She wasn’t very fair at all.

“Now I’m very happy with my new real estate [agent].

“I was just honest and upfront about what happened. I outlined that [the blacklisting] wasn’t for rent arrears.

“She gave me a second chance because no other real estate company was going to give me a chance.

“She signed me up for a six-month lease. She was very honest and willing to give me a go.”

*Not her real name

Overview of house

Here are some ways to avoid being blacklisted

What can I be blacklisted for?

In all states except the Northern Territory, there are tight rules about how a tenant can be blacklisted to stop malicious listings.

Generally, you can only be listed:

  • at the end of a lease AND
  • when you owe rent that’s more than the total of the bond OR
  • as the result of a court or tribunal order

In Victoria, breaches of your rental agreement, such as malicious property damage or endangering neighbours’ safety, can get you blacklisted.

In Queensland, objectionable behaviour or repeated lease breaches may also get you blacklisted.

In the Northern Territory, there are moves to provide more protections for renters. But, until that happens, the system is unregulated and there are broad reasons for being blacklisted, including overdue rent or breaching the lease agreement.

If you’re in the NT, you may not even know you’ve been listed, there are few ways to appeal and no legal time limit on how long you’ll be on it.

NT Consumer Affairs says to avoid being blacklisted you should pay your rent on time and not damage the property.

How will I know I’ve been listed?

In all states except the NT, landlords and agents must tell you in writing before they blacklist you, allowing you time to appeal against the decision.

Even when you’re applying for a place, you must be told whether a database will be used and when a listing about you comes up.

In some states, there are fines if landlords or agents don’t follow these rules.

How can I appeal against a listing?

Depending on your state, you can appeal against a listing if it’s incorrect, out of date or unjust.

In most cases, listings of more than three years must be removed.

You could raise an objection with the agent or landlord or relevant appeals body, such as a court or tribunal.

Do I really need to pay to check my record?

Database companies usually charge a fee but tenant advocates say you shouldn’t bother with them unless you have a reasonable suspicion you’re on a list and know exactly which database you might be on.

“There’s no real urgency to contact the database operators,” said Mark O’Brien, chief executive of the Tenants Union of Victoria.

“The system’s not supposed to work that the tenant does the checking, the system is supposed to work that estate agents tell you if you’re listed.”

In New South Wales, you’re entitled to obtain a listing from the person who listed you free of charge.

For Lease signs outside an apartment building.

Who are the database operators?

You probably don’t know these names but they might already know yours.

Operator Name Description
Trading Reference Australia Checks for defaulting tenants and runs the online rental application system, tApp.
TICA Australian company that checks tenancy history and offers police background checks and insurance products.
National Tenancy Database Run by American-based company Equifax, this company scans bankruptcy, court and company directorship records.
Tenancy Check Also run by Equifax and checks data from courts and tribunals and private databases.
DataKatch Checks for defaulting tenants and searches courts, Facebook, Google and LinkedIn.
Barclay MIS Debt-collection company that checks for defaulting and fraudulent tenants.

souce: http://www.abc.net.au/news/2018-03-04/rental-blacklist-tenancy-database-should-i-be-worried/9505712

New year, new home loan: A guide to refinancing in 2018

Health, friendship and happiness – we assess almost every aspect of our lives in the new year, so why not re-evaluate the loans that are financing our homes?

It’s easy to adopt a set and forget policy when it comes to your finances, but it could be that your home loan is lacking relevance to your current situation. A home loan is probably the biggest finance product you’re likely to purchase in your lifetime, so it makes absolute sense to check in every now and then to make sure it works for you – and what better time than in the new year?

Here’s why a home loan health check could be just what the doctor ordered for 2018.

Forest Lodge home

There’s no point giving more money than you need to your bank. Picture: realestate.com.au/buy

Interest rates are low, for now

REA Chief Economist Nerida Conisbee says searching for a lower interest rate makes sense at any time: the lower your interest rates, the lower the repayments will be. You could knock years off your loan, not to mention saving thousands in interest.

With interest rates “unlikely to rise anytime soon”, it is an especially opportune time to refinance.

“Even though the RBA is unlikely to increase the cash rate any time soon, mortgage rates continue to rise, driven by a lot of other factors including rising wholesale costs and regulators urging banks not to lend too much,” Conisbee says.

Forest Lodge home

What special home loan features could be worth looking into before there is a rate rise? Picture: realestate.com.au/buy

Loans with special features, such as flexible repayments, will help you to pay off your loan faster in a low interest rate environment. So if your home loan doesn’t currently offer this, it could be worth looking into.

“Depending on the loan agreement with your lender, while rates are low, it might be worthwhile paying off a little more of your mortgage than necessary as this is likely the best it will be for quite some time,” Conisbee adds.

“For those on interest only loans, and nearing the end of their interest-only period, it’s an especially good time to shop around.”

The economy has reason to raise rates, eventually

While Conisbee says the banks are unlikely to raise interest rates anytime soon, it will likely happen at some time this year.

“China, the US and Japan are our three biggest trading partners so when their economic growth is strong, it increases demand for our goods and services,” Conisbee explains.

“While China’s economic outlook isn’t expected to be vastly different in 2018, it is the US that is really expected to see vastly different conditions over the next two years. The US economy is growing quickly and this is increasing demand for Australian exports. This will grow our economy and give more reason to raise rates in 2018.”

If you’re thinking of refinancing, it could be worth getting a jump on a deal before this happens.

Investors could find their silver lining

“A lot of banks are already moving interest rates up, particularly for investor loans,” says Conisbee.

“This might be due to a number of events that occurred last year. There have also been additional taxes on offshore investors in many states, as well as cuts to benefits off the plan buyers enjoyed such as stamp duty concessions. Even negative gearing wasn’t left alone, and while the changes thus far have been fairly moderate, bigger changes could be on the cards if a new government comes into power,” she says.

“And in some states, there’s just less supply and fewer apartments on the market,” she adds.

“There are likely to be far fewer investors in the market this year, so it would pay to shop around, given it would be more competitive for banks to find borrowers,” Conisbee says.

 

Source: https://www.realestate.com.au/advice/your-2018-home-loan-health-checklist/

ACCC says mortgage competition ‘less than vigorous’

ACCC chairman Rod Sims: "We do not often see the big four banks vying to offer borrowers the lowest interest rates."
ACCC chairman Rod Sims: “We do not often see the big four banks vying to offer borrowers the lowest interest rates.” Sean Davey

National Australia Bank says it welcomes home loan customers calling to seek discounts to their current mortgage rates, after the competition regulator criticised the major banks for charging higher interest rates to existing customers as they try to lure new ones with big discounts that lack transparency.

NAB’s chief operating officer Antony Cahill said four out of every five customers are paying a rate below its current standard variable rate and that NAB had proactively contacted more than 300,000 customers over the past year to discuss potential discounts.

“This is indicative of a competitive market, and we continually review the setting of interest rates, our policies and products to ensure we provide the most suitable offering for our customers’ needs,” Mr Cahill said.

Banks’ insistence that mortgage markets are competitive contrasts with the view of the Australian Competition and Consumer Commission. In a 56-page interim report on pricing in the $1.6 trillion residential mortgage market, it described “less-than-vigorous price competition”. It said the pricing behaviour of each of the big four banks plus Macquarie “appears more consistent with ‘accommodating’ a shared interest in avoiding the disruption of mutually beneficial pricing outcomes, rather than consistently vying for market share by offering the lowest interest rates”.


The ACCC said that over the two years to June last year, existing borrowers on standard variable interest rate mortgages at the big four were paying up to 32 basis points more on average than new borrowers.

The average discount provided on variable rate loans over the same period was 78 to 139 basis points off the relevant headline interest rate.

“The discounting by the big banks lacks transparency and it’s almost impossible for customers to obtain accurate interest rate comparisons without investing a great deal of time and effort,” ACCC chairman Rod Sims said.

“But the potential savings from these discounts are immense.”

Treasurer responds


Treasurer Scott Morrison said “what the ACCC has found today is not unlike what is found for the big energy companies. Complexity is used against the customer. What we need is greater transparency, more competitive pressures, and more power to the customer, whether its of banks or big energy companies. I want banking customers to get the best deal.”

The government was moving to “make sure bank customers have all the power in the relationship” by introducing the open banking regime, comprehensive credit reporting and opening up the market for customer-owned banks, he added.

Westpac also pointed to open banking as a policy that would improve customer choice and hence the level of competition.

“With so much choice, it can be difficult for customers to meaningfully compare across the wide range of products and services on the market,” a spokesperson said, and Westpac “supported the open data regime in banking to help facilitate better customer outcomes”.

The ACCC’s investigation involved teams from the regulator scrutinising internal bank documents. The report highlighted references to “not wanting to ‘lead the market down’ and to have rates that are ‘mid-ranked’ and to ‘maintain orderly market conduct'”. At one bank in 2015, the ACCC said documents prepared by senior executives had “explicit references to ‘encouraging rational market conduct’, ‘maintaining orderly market conduct’ and maintaining ‘industry conduct'”.

The Productivity Commission also recently criticised the major banks for acting like an oligopoly and found price competition was lacking across the market.

The ACCC report, released on Thursday, also said average interest rates paid by borrowers for basic or ‘no frills’ loans are often higher than for standard loans at the same bank, and that bank communications about pricing provide an incomplete explanation of the drivers of changing rates.

Comparison site RateCity said customers who shopped around would get a better deal. The average variable mortgage interest rate for an owner occupier paying principal and interest is 4.31 per cent, while the lowest variable rate is 3.39 per cent, it says.

“The market doesn’t lack competition – it lacks competitive behaviour from the establishment,” said RateCity spokesperson Sally Tindall. “It also lacks a willingness from home owners to switch away from the big four. Customers of the big four banks need to understand that there are lenders lining up to offer you more competitive rates on your home loan.”

The ACCC report also said banks were very sensitive to adverse publicity around interest rate increases. Documents at one bank show staff recommending deferring any increase “until a ‘trigger event’ occurred (either an [cash rate] change or a rate change by a big four bank) due to concerns about adverse publicity,” the report says.

But it also criticises the quality of bank communications. When banks explain changes to headline interest rates, “those reasons are not always disclosed in the media releases or other public statements accompanying the rate changes,” the ACCC said. “Instead some public communications focus on one factor, or a subset of the factors, influencing the decision to change rates.”

Mr Sims said big banks don’t see smaller rivals as much of a threat. “Their behaviour is not affecting the big banks,” he said. “That was a surprise finding. They are not on the competitive radar of the big four banks, who see themselves as a market in and of themselves.”

The ACCC’s residential mortgage price inquiry came after a referral from Mr Morrison in last year’s budget. Mr Morrison also asked the ACCC to monitor whether banks would lift mortgage pricing to pass through the costs of the $6 billion bank levy, introduced in the same budget.

The ACCC said the four major banks and Macquarie stated that “no specific decisions have been made” to adjust residential mortgage prices in response to the levy.

A final report will be issued after June 30.

Source: http://www.afr.com/business/banking-and-finance/financial-services/accc-says-mortgage-competition-lessthanvigorous-20180314-h0xhj7

Could Australia be mirroring Norway’s house price reversion?

Norway’s house prices are losing ground like Australia’s, adding to concerns that economic growth will be thrown off track and that banking regulators have gone too hard.

Both housing markets have started to reverse in recent months, after a period of rapid growth in house prices and mortgage debt.

Housing prices fell a seasonally adjusted 0.5 per cent in Norway, Real Estate Norway, Eiendomsverdi and Finn.no said in a monthly report.

Nationwide they fell 2.1 per cent over the year through December, driven by a 6.2 per cent decline in Oslo.

By comparison, Australia’s long-running house price gains have started to trend the other way, with new data showing national dwelling price growth is falling.

CoreLogic’s December Home Value Index showed Sydney property values fell 0.9 per cent in December, leading a 0.3 per cent fall nationally in values.

Sydney fell 2.1 per cent in the quarter, with the national figure also down 0.3 per cent over the three months to December.

Again, like Australia, Norway’s property market started to cool following a tightening of lending standards at the start of 2017.

Australia’s APRA has twice intervened directly in lending markets to ration the amount of credit that property investors can have, with caps on investor loans.

The Norwegian government has now asked the Financial Supervisory Authority to advise on the impact of tighter lending rules and whether they should be extended past a June 30 expiration date.

“We believe there is still further downside to prices both nationally and in Oslo as the stock of unsold houses is still elevated,” said Halfdan Fenwick Grangard, a senior economist at Svenska Handelsbanken in Oslo.

“However, we do not share the view held by some that housing prices, in general, are in for a prolonged downturn. We expect housing prices to fall moderately over the next few quarters before levelling out.”

In a report published by the OECD last month, the group warned that Norway should prepare for a possible housing correction. The OECD also said in March last year that Australia’s vulnerability to a house price collapse morphing into a recession has sharpened because of ballooning household debt and the dominance of big banks.

The US-based credit agency Moody’s also said in a report that the Norwegian housing market appears to be the most “stretched” when comparing price levels to what they define as a market equilibrium among 20 advanced economies.

The central bank has so far appeared sanguine on the housing market, with Governor Oystein Olsen saying last month that he foresees a “soft landing”.

The bank signalled on December 14 that it could raise interest rates sooner than anticipated, indicating a first rate hike by the end of 2018.

with Sveinung Sleire and Jonas Cho Walsgard

Bloomberg