Ridiculous that CHOICE slams family guarantee home loans

A recent AAP report quotes consumer advocate CHOICE as saying “family guarantees could see the borrower and the relative lose their homes”.  If this quote is correct then we believe it is quite misleading and in many ways hypocritical as it was not too long ago that CHOICE had an uncomfortably cosy relationship with a mortgage broker itself.

We have a very highly regulated mortgage market in Australia where every mortgage broker and lender must comply with the National Consumer Protection Act and must be licenced or registered with ASIC under the Australian Credit Licence regime. These two instruments place an enormous, some may argue over-arduous emphasis on ensuring that any borrower can afford to repay their loan. The penalties for failure are very significant and include penal provisions.

With home prices in most capital and larger regional cities continuing to grow at well above inflation the cost of entry for most first home buyers is a major barrier. This has been compounded by the removal or restriction of concessions on State imposed stamp duty and the reduction of availability of lenders mortgage insurance above 95%.

For many first home buyers there is little possibility of raising the required 5 percent deposit plus a further 4 percent stamp duty and possibly 2 to 3 percent LMI. As a result for these borrowers the family guarantee may offer the only stepping stone onto the property market.

We agree that family guarantees should not be taken or treated lightly and that the guarantor must be fully aware and capable of making an informed decision. Not all lenders offer good guarantor outcomes however there are some very good options where the guarantee is limited only to the amount required to cover the deposit gap.

In a recent blog article our head broker, Andrew Hunter describes his experience when arranging a guaranteed home loan for his own son see http://keychange.com.au/will-you-guarantee-my-home-loan/. In this article he points out that parents have been guaranteeing car loans, personal loans and home loans for decades. The difference now is that consumer protection legislation is more than ever in  favour of the borrowers. As a result lenders impose significant padding in both income and equity calculations when considering a guaranteed home loan.

Of course circumstances can change but this is true for every mortgage and as a result there is a risk, however the risks can be mitigated and managed. The secret is ‘get good home loan advice‘ and don’t take populist one line throw away comments too seriously.

Garages becoming a hot property commodity

New home buyers and potential property investors should think of ways on how they can make their properties turn into money making assets.  News.com.au exposed a story about a garage in Sydney’s harbourside location which has listed with an asking price of $120,000 – to put that in perspective the garage is worth more than buying the latest BMW X5 and the garage doesn’t depreciate.

As cities become more and more crowded, parking becomes a rare commodity that’s why having one could potentially be an asset in its own right or increase the value of one’s property especially when it is in a good location.

Having an extra space in the lot and turning it into a rentable garage could also add more money to the owner’s pocket which could in turn help pay with the home loan. People still paying off their home loans were once advised to add extra rooms in their properties to be rented but for those who are not really into the idea of having someone they don’t know live in close proximity with them; a garage would be a great alternative.

In February, 2010 the most expensive parking spot, which was sold for $240,000 in Sydney, was for a garage in Bondi Beach. The sale proved that there is a market for parking areas, something people and real estate agents never expected. In the eastern suburbs, the going price of a garage on a separate title is said to be from $50,000 to $100,000. According to estate agents lock up garages on separate titles are rare and are highly sought by buyers, selling only in a matter of days.

Laing and Simmons Potts Point’s Nuri Shik on one property. “I sold a studio once which had a parking space and I listed it as a ‘lock up garage with apartment attached’. We’re currently selling a 14sq m car space on Bayswater Rd, Potts Point which is expected to fetch more than $49,000, but a lock up garage could sell for about $100,000.”

Before you run out and start making offers on parking spots talk to your mortgage broker as there are many implications in arranging finance for this kind of property.

Areas to renovate which add value to a property

Despite the fact that times seem to be harder nowadays especially with ongoing pressures brought to the global financial market by the Eurozone, an article at news.com.au written by Anthony Keane stated that more than half of Australia’s homeowners are planning to renovate their properties in the next four years.”

Renovating a property in the right way could mean not blowing the budget and finding the right place in the house to renovate is always a good choice.

Appliances Online conducted a national survey and it was found that the prime focus of renovators are usually the bathrooms but experts say there still are other places where one can better spend money for.

According to the survey, “South Australians are the most likely of all people to renovate in the next 12 months, at 34 per cent, with 37 per cent targeting the bathroom and 28 per cent planning a kitchen upgrade.”

John Winning, chief executive of Appliances Online said that if one were to choose between renovating a kitchen and a bathroom, the kitchen is always the good place to start.

Winning shared, “Clean the bathroom and renovate the kitchen. It’s really obvious if you have an old kitchen.”

Adding on some items to one’s kitchen like soft-closing drawers, self-closing cupboards, classy benchtops, steam ovens and induction cooktops are the features that usually impress people and the good news is that prices for these items have dropped recently.

Winning added, “Never go cheap on the rangehood. Everyone tries to save money on it but it’s the most important appliance for the longevity of a kitchen.”

Tim Thredgold, a Toop & Toop sales partner shared that another renovation that is within budget and could add value to a property is a new paint job. Thredgold shared, “A good paint-through will change a home, clean it, brighten it, and lighten it.”

Thredgold stated that people who plan to do major renovation projects should focus to those which add value. He listed, in order, renovations which add value to a property like a “family room addition, outdoor living spaces, kitchen, and then the bathroom.”

Thredgold shared a tip to renovators saying, “Pay attention to the money areas, kitchens and bathrooms. A change of fittings, taps and towel rails can give a lift if they match. Appliances in a kitchen can give a mighty lift.”

It is also vitally important to make sure you have sufficient finance in place before you start knocking holes in the walls.  Renovating almost always costs more than you think and we regularly have clients calling for an urgent home loan refinance in order to complete the job.  The problem is that most lenders won’t touch a property that is not full habitable, what’s more if your credit cards are maxed out then lenders credit scoring is going to be very hard on you.  Plan ahead and speak to your lender or mortgage broker to ensure that you have access to funds in place just in case the budget blows out.

 

“Tick and flick” reforms would ease and encourage lenderswitching

Independent research reveal that about 50% of people are ready to ditch and switch lenders should red tape be eliminated and the implementation of the tick and flick approach by the Federal Government on July 1 makes it that much easier for borrowers to switch accounts.

The government’s announcement of the reforms to be done on lender switching processes was greatly appreciated by Abacus – Australian Mutuals who recently employed Roy Morgan research to find out what it is that would help make borrowers switch lenders.

Research revealed that “one in five Australians are likely to change financial institutions in the next year, rising to almost 50% of people if the paperwork and administrative effort was substantially reduced.”

Abacuschief executive Louise Petschler stated, “Abacus welcomes this important consumer research from Roy Morgan which illustrates the opportunities and challenges facing our industry in the coming months. The report shows Australians are itching to ditch and switch to banking providers that offer competitive interest rates, fairer fees and charges and the convenience of branches and ATM networks.We offer this in spades and our members look forward to Australians switching to us in 2012, particularly when significant account switching reform begins on July 1.”

The survey conducted on 18-64 year old respondents found that, “21% of people are likely to change their main financial institution in the next 12 months, with interest rates not being competitive (35%), and high or unfair fees (30%) listed as the main reasons for the change and 49% of people would be likely to change their main financial institution in the next 12 months if the administration process of moving finances, direct debits and scheduled payments could be handled automatically by their new financial institution.”

Further, the press release stated that, “from July 1, instead of requesting a list of regular debits and credits from their ‘old’ bank, Australians can let their ‘new’ bank do the work for them by signing authorisation forms to allow the establishment of regular debits and credits to the new transaction account.”

Abacus is encouraging Australians to look around and find a better dealand consider the choice, value and competition offered by other sources like building societies, credit unions, and mutual banks.

“Switching is easier than you think, and we recognise the next 12 months will be an exciting time for Australian consumers and our industry,” added Petschler.

Contrary to common opinion, none of this is good news for mortgage brokers as lenders already claw back substantial commission where a loan is refinanced within 18 months.   If borrowers are encouraged to refinance on a whim with no exit fees and easy account switching , the result is that mortgage brokers are  faced with performing work for which they may not be paid.  Alternatively mortgage brokers may  have to impose fees on clients whose refinance results in commission claw backs.   After all no fair minded person should expect a mortgage broker to work for nothing however it undermines some of the government’s strategy.  A good solution would be for the government to ban broker commission claw backs ….. but that isn’t going to happen 😉

Renovating could be a financial mistake

Property owners who are thinking of renovations as a means to increase the value of their property could be opening the door to having financial problems, this according to an article in news.com’s property section.

Over-capitalizing on one’s property is one of the risks owners are rising every time they add something to their house. People who have sold their renovated property have often been disappointed with the sale outcome.

Patrick Bright, EPS Property Search director and author shared, “Those homeowners who have overcapitalised are being exposed more than ever, leaving many at risk, particularly in areas where the market has softened quite significantly. The number one cost people try to avoid by renovating is stamp duty. Unfortunately, they don’t realise they can tear up just as much, if not more, by overcapitalising on a renovation.”

Activities in the renovation sector have been picking up according to recent government records while new home constructions and prices of real estates have been on the other hand, falling.

An Australian consumer satisfaction ratings company has found that people are following the do-it-yourself approach with renovating.  With the majority of people doing their own house painting.

The falling house prices however seemed to be slowing down, according to data from Rismark and RP Data which showed property prices in capital cities only down 0.2% in September.

Patrick Bright shared a tip on how to know if the owner has overcapitalized on renovations.  “One tell-tale sign that a homeowner has overcapitalised is when you ask the sales agent how the vendor came up with the asking price. The sales agent quotes the amount the owners spent on the renovations and the price the property was worth prior to the renovations, adds the two together and there’s the expectation to sell the property at that price.” Property owners would normally have asking prices 10% more than the property’s true value so as to get back on their cost for renovations.

People who dead set with plans to renovate their property should seek mortgage broker’s advice so as not to go beyond their budget. Renovations could either make or break a property.

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