Guest Contribution

Buying your own home

If you are a potential first home buyer (FHB) you may be feeling disheartened by doom and gloom in the media as to whether younger generations will ever own their own home.

There is no doubt house price to salary ratio was lower in the 70s and 80s – often seen as an unfair advantage for baby boomers. On the other hand interest rates by the late 80s were at times crippling – who remembers 17%? Anyone who rode out 17% interest rates probably thought they would NEVER pay off their home. But they DO. And they DID. Historically, property prices usually rise over time. Surprisingly most home owners end up coping with market fluctuations, bringing up children and still doing okay.

1990 vs 2015

Av. Mortgage                                $71,000         $379,400

Av. Interest Rate                           17%                5.22%

Av. Monthly Repayments                $1,021            $2,627

Av. Monthly household income        $4,533            $8,940

Repayments as % of income           22.5%              25.4%

As you can see, even with a significantly lower average mortgage in 1990 home owners weren’t much better off while interest rates were high.

So what else has changed?

In 2016 we earn much more but other lifestyle factors have also changed. Finance is more readily available – how many of us now have credit cards?

We’ve also moved on from a society that generally lived within their means. We no longer save or lay by – it’s often easier and more instantly gratifying to charge to a credit card!

Household mortgage debt has tripled in the last 25 years. One survey links the trend of increasing debt to the introduction of mortgage packages that allow homeowners to draw down on their mortgage without having to sell their house. While this facility can be a helpful low interest way of accessing finance it can also increase the level of debt for those who don’t use it with care.

So what is the ‘home ownership’ message from all of this? Well, the road hasn’t ever been easy. In fact…

If it was easy – everyone would do it!

Building wealth and financial security through property investment has ALWAYS required a level of sacrifice and self-discipline. Current home ownership statistics show 31% of Australians rent, 36% have a mortgage and 33% own their home outright. Those who benefited over time are those who put a strategy in place and had the discipline to stick with it.

Is there hope for first home buyers?

Recent research shows Gen Y is the new generation of FHB and they are starting to actively enter the market. We are also seeing the rise of the ‘rent investor’ – young renters under 30 purchasing investment properties in affordable areas while renting where they WANT to live.

So yes, it appears there IS hope for FHBs.

Do you want to be one of them?

Buying a property takes preparation and planning – sometimes for years. So what can you do NOW to help you buy a home in the future? Here are our top tips:

  1.  Research the market NOW and plan your goal
  2.  Work hard at saving a deposit
  3.  Pay your bills on time
  4.  Eliminate debt

Travel, good times and job-hopping have been the typical lifestyle choices of Gen Y but this generation is evolving. PREPARATION and PLANNING are essential to getting a foot on the property ladder along with reining in extravagant living and our penchant for instant gratification.

With a little sacrifice and self-discipline it may be more possible than you think for our younger generations to afford property. It may be even MORE affordable for Gen Y because there are possibly TWO salary earners to buy the first property – unlike back in the 70s. Let’s prove the doomsayers WRONG and take responsibility for our future!

This guest blog was written by Andrew Evans from Mortgage Guy. Andrew is passionate about helping home-buyers secure a stable and happy future inside a home they’ll love for years to come. If you would like to discuss getting your finances on track after a separation or divorce click here to contact Mortgage Guy.

Maximise tax deductions

According to the ATO there are around 1.9 million property investors in Australia and 2.7 million rental investment properties. Surprisingly, many landlords fail to claim all allowable tax deductions simply because they are unaware of all the expenses they can claim as a tax deduction.

There are two types of investment property strategies positively geared or negatively geared.

Positively geared properties – where rental income is higher than interest payments and tax deductible outgoings. Tax is likely to be paid on the net income.

Negatively geared properties – where rental income is less than interest payments and tax deductible outgoings. The loss can be off set against other income earnings, reducing assessable income and therefore your tax payable.

The strategy most suited to you will be dependent on your individual circumstances and your long term investment goals and objectives.

More recently, proposed tax changes to negative gearing has been a political hot potato. Let’s face it – nobody likes the goal posts shifted half way through the match! Whatever the outcome, property investment is likely to continue being a popular path to wealth creation for Australians – even if the scales tip in favour of positively geared property investment.

So… If you have an investment property are you sure you are claiming all possible deductions?

Regardless of the property investment strategy you adopt all investors will see benefit ts in claiming all possible deductions. As a starting point review the lists below and ensure you have paperwork for the expenses you have incurred.

Initial borrowing expenses

  • Stamp duty charged on the mortgage
  • Loan establishment fees
  • Title search fees charged by your lender
  • Costs for preparing and fi ling mortgage documents
  • Mortgage broker fees
  • Fees for a valuation required for loan approval
  • Lender’s mortgage insurance – this is insurance taken out by the lender and billed to you

Interest

  • Interest is usually the largest tax deduction, particularly in a negative gearing arrangement. You can claim the interest charged on the loan used to:
  • Purchase a rental property or land to build a rental property
  • Purchase a depreciating asset for the rental property (e.g. an air conditioner)
  • Make repairs to the rental property
  • Finance renovations on the rental property

Other expenses

  • Advertising for tenants
  • Bank charges
  • Body corporate fees
  • Council rates
  • Gardening and lawn mowing
  • Insurance
  • Land tax
  • Legal expenses for preparing a lease or evicting a non-paying tenant
  • Pest control
  • Property agent fees or commissions
  • Repairs and maintenance
  • Water charges (if not paid by the tenant)

Capital works

You may be able to claim a deduction (usually at the rate of 2.5% per year in the 40 years following construction) for the construction cost of:

  • Buildings
  • Structural extensions such as a garage or patio
  • Structural alterations such as adding an internal wall
  • Structural improvements such as a gazebo, carport, sealed driveway, retaining wall or fence

Depreciation

The plant and appliances in your property reduce in value over time as a result of normal wear and tear. The ATO allows you to claim deductions for this reduction in value each year.

In order to substantiate these deductions you should consider getting a professional quantity surveyor’s report for applicable capital works and depreciation deductions during the life of your property.

Most importantly… make sure you keep all receipts as no receipt = no deduction.

This guest blog was written by Andrew Evans from Mortgage Guy. Andrew is passionate about helping home-buyers secure a stable and happy future inside a home they’ll love for years to come. If you would like to discuss getting your finances on track after a separation or divorce click here to contact Mortgage Guy.

6 steps to recover financially from a Separation or Divorce

In Australia today around 1 in 3 marriages can be expected to end in divorce. With 77% of Australian couples also living together before getting married (and let’s face it - some don’t go the distance) the real impact of  relationship breakdowns is likely to be much higher than the statistics lead us to believe. 

There is no doubt moving on from any long term relationship, be it marriage or de facto, can attract a heavy emotional toll. But the financial impact can also be far reaching and long lasting.

Finances are often left on the back burner as you focus on the emotional health of yourself and your family. Perhaps it is the fi rst time you have had sole responsibility for your finances? Or maybe you feel overwhelmed and don’t know where to start?

The key is to take action early. Here are some steps to get back on track financially after a separation or divorce…

1. Check your credit rating

A vital first step is taking control of your financial future! Check to see if your credit report contains any errors or if any of your partner’s information is listed. If so, have it rectified. There are two main credit reporting agencies - Veda and Dun & Bradstreet

2. Identify your creditors

Make a list of all your creditors, both secured and unsecured. Your secured creditors are those where assets are used as security for the loan, eg house or car. Negotiation of both the assets and the outstanding loans will be required by both parties.

3. Separate all joint accounts

A time consuming but crucial step is to unravel all your joint accounts, including credit cards. Even if the separation is amicable it is best to separate all accounts to avoid future issues.

4. Create a budget

An unavoidable result of separation is a change in lifestyle. An important step in making this adjustment is creating a comprehensive budget separating discretionary and mandatory expenses. To stick to your new budget you may need to make tough decisions on discretionary spending. Of course, if you have children then child support may also come into the equation – one party may be paying child support while the other receives it. Remember that child support payments will cease or may be amended at some point in time. This should be factored into future planning for both parties.

5. Decide on your housing options

In most cases the family home is either sold or refinanced. At least one partner will need to find somewhere new to live. While renting may be a viable short term option, in the long term most people wish to buy a home. You will need expert advice on how to best refinance your home or secure a loan for a new home. If refinancing or applying for a new loan it is important that all required identity documentation reflects your new marital status and/or any change of name.

It is essential you contact your mortgage broker to discuss the process BEFORE lodging any loan application documents.

6. Prepare a Financial plan for the future

• Start an emergency fund - open a separate savings account for unexpected emergencies. • Update your Will – ensure it reflects the changes that have occurred in your life. • Manage your debt - contact us for a chat about how to reduce your ‘bad’ debt like credit cards and personal loans as quickly as possible. • Plan for your retirement - review superannuation and update beneficiary details if required. • Review your insurance needs - you will need to update policies from married to single status.

This is a guest blog written by Andrew Evans from Mortgage Guy. If you would like to discuss getting your finances on track after a separation or divorce click here to contact Mortgage Guy . If you are thinking of separating from your partner and would like information from the Coutts Solicitors Family Law team click here to contact Coutts Solicitors.