Many thought prices would fall significantly due to the global economic crisis, and they didn’t.

Then we expected prices would ease when government grants to first-home buyers dropped, but that does not seem to be happening either. 

So where do we sit at the beginning for 2010?

With Australia’s population tipped to be heading towards 35 million, and a shortage of new accommodation being built, the pressure on residential property prices is likely to continue for quite a while.

Of course there will be dips in some markets from time to time but, if you try to time the very bottom of markets it’s likely you will never invest.

Conditions are ripe for a sustained recovery in residential property prices, economic forecaster BIS Shrapnel says in its Residential Property Prospects, 2009-2012 report.

“Low interest rates, solid growth in rents and housing shortages evident in most markets” are the factors that will drive prices, the report says.

And although interest rates are on the rise, they are still very low. Interest rate rises will widen opportunities for investors to get into prime residential markets.

First-home buyers have dominated the market but rising interest rates and falling grants will curtail their activity.

Rising interest rates are not nearly as big a problem for investors. This is because, for an investor, the interest on borrowings is a tax-deductible expense, which is not the case with a home buyer. Investors on the top marginal tax rate only have to wear about half the increase in mortgage payments arising from interest rate hikes.

Negatively geared real-estate investments are also expected to become more attractive to high-income earners who have had the amount they can tax-effectively contribute to superannuation drastically reduced. This will increase competition for suitable properties, which will also help to underpin prices.

So what’s your predication for 2010?

The start of a year brings about new resolutions, so how about making 2010 the year you took control of your financial future. The year you establish your property investing goals and went about making them happen.

Keen rose to national attention in 2008 after predicting that housing prices in Australia were on the verge of a collapse. Unsurprisingly, the tabloid media leapt onto the sensational story, generally failing to mention that Keen’s views were not shared by any other mainstream economist.

Rory Robertson was himself quite pessimistic about Australia’s economic outlook at the outset of the Global Financial Crisis. However, after a public email debate on the Australian housing market, Robertson challenged Keen to a bet on Keen’s views that housing prices would collapse by the end of 2009.

Keen has now been forced to concede defeat, following the release last week of data showing that house prices had increased by 6.2% in the year ending 30 September 2009 and were at a new peak.

Keen will have to make a 200km trek from Canberra to the top of Australia’s highest mountain, Mt Kosciuszko wearing a t-shirt saying “I was hopelessly wrong on house prices! Ask me how.”

The Business Spectator’s Christopher Joye wrote that Robertson had delivered a public good by holding “extreme views to account“. Joye was also critical of the print and electronic media, who had reported Keen’s views without mentioning that they were not shared by any other recognised authority in Australia. Joye wrote that Keen’s “dire prognostications” were simply “manna from heaven for journalists looking to shock their audiences.”

Since the win, Robertson has been enjoying his victory. He reiterated his confidence in the fundamentals of the property market by saying:

“For fun, if Australian house prices ever fall by 40 per cent from any peak in my lifetime, I will follow in Dr Keen’s footsteps. Similarly, if Dr Keen proves the existence of the Loch Ness Monster, I will take the walk.”

One thing that we can learn from all of this is to be wary of relying on market predictions that we encounter in the tabloid media. Anyone who had sold a property in reliance on Keen’s predictions could have suffered significant losses.

Further, all of the levity surrounding the bet skirts the issue of what actually has been happening with Australian house prices since the beginning of the Global Financial Crisis. Certainly, the data shows that the market ‘cooled’ by 3.8% from its peak in February 2008 to its trough in December 2008. But the results for 2009 are clear – despite (or perhaps because of) the uncertainties surrounding the world economy, Australian house prices continue to grow robustly.

Posted by La Trobe Financial 12 November 2009

Access to your credit bureau file will remain limited by the law, with lenders only accessing with permission at the time of a credit application. The greatest fears surrounding this proposed change is that by allowing lenders increased investigative powers into borrower’s credit history  this will cause greater financial exclusion.

In a credit market that has seen severe tightening of credit policies to the point where many borrowers who once had easy access to credit are now being scrutinized over minute details, the proposed change will again exclude even more borrowers from lending.

Now more than ever it’s important that you keep your financial records clean. Ensure sufficient funds in your accounts for direct debits and cheques. Watch your credit defaults. At the time of weighing up the worth of fighting a telecommunication company or the like, consider the cost of the long term effect if you end up with a default.

If you know that you are looking to take advantage of the rising property market, get your finances in order. Don’t wait for the lenders to put on the breaks even further before you take action.

The point the journalist was trying to explain was that if you have a house & it goes up in value; you’re really no better off. This theory has been thrown around by both property skeptics and property lovers (like Dolf Deroos) for many years, and if I take the skeptics side for just a moment, I agree that if you had a house worth $400,000 and it increased to $500,000 within any timeframe, then logic suggests that if you sell to upgrade, you’ll need to spend say $600,000 for the house that was worth $500,000 back when you bought your last purchase (for $400,000).  So the real loser in this instance is the renter who is forced to enter the market at a higher price.

BUT, the true winner is he or she who has multiple properties, the astute property investor.

Let’s say you had 4 properties (3 rentals & 1 you live in) and you paid $400,000 per property on the same day. Now let’s say the Reserve Bank is right (and we hope they are) and the price increases in the next 2 years to $500,000. Now we’ve just had an increase of $400,000 (4 x $100,000) and yes, if we were to sell the home we live in, replacement value would be $500,000, but if we sold the other 3 because we want to cash up our investments, we’ve just pocketed $100,000 per property (less any expenses – this is a very simplistic and hypothetical explanation for illustration purposes).

So if this is the case, it shows that there is a loser, a status quo and a winner in this circumstance. It’s not a secret, never has been, but you invariably will be in one of these 3 categories. My old boss told me a saying many years ago “The difference between a rort and a perk is that a rort is just a perk you’re not in on!”

There’s many things to learn along the journey of multiple property ownership one of the most important is to realise than investing in property is a journey not just an event or series of events (one of the many things we do and teach as part of our property sourcing model through our property coaches and support evenings), so choose to be the right person in this story.

The last point in the report on the radio by the journalist said this “there is one group of people who are going to gain from this, landlords [aka the person with 4 properties], but unfortunately usually it’s the wealthy upperclassman who have investment properties so we now see a divide between the upper and lower class.” Last point, if you do research (which the RBA has) you’ll find the majority of investment property owners are ‘middle class’ at best, average Australians not the elitists, but more on this in  another blog. Opportunity knocks, the time is now.

Westpac, St George and RAMS are the latest lenders to follow in the footsteps of CBA, ANZ and NAB who tightened up on their policy for self employed borrowers six months ago. The change will greatly impact the low document loan segment of the market where borrowers are now required to provide the past 12 months Business Activity Statements and in many instances business transaction account statements. This dramatic policy change does not leave a great differentiation between full doc and low doc loans.

When low doc loans first became available they were not brought to the market by these major lenders but by the non major lenders, so it is no real surprise that our major banks have never been fully comfortable with this style of lending, particularly in a market where they are more than ever picking and choosing their new customers.

Good news for those customers still dealing through these major lenders and battling with their less than satisfactory servicing issues, this will reduce the volume of applications to the lender and therefore hopefully bring us back to a time where purchase settlements are once again taking place on time.

But where do you now sit if you are a self employed applicant who does not fit within the lenders strict new guidelines? It’s back to the non major lenders for you, and when we say non major this thankfully does not always suggest non competitive. There are many lenders in our market today that have chosen the low document segment of the market to specialise in and therefore offer great competitively priced products. And the add bonus, you too will no longer have to deal with less than satisfactory servicing issues.

However, like many thing in our current economy this is subject to change without prior warning. Unfortunately no one has a crystal ball to see when things will return to the ‘good old days’. As much as Australia is in a very positive position compared to the rest of the world, with the impact on our economy being so much less than anticipated we still are not able to anticipate what changes will still need to be made before we once again return to full strength.

So the biggest piece of advice we can give you in the lending industry is – do all you can today, because tomorrow is another day. If you’re considering investing further in property, buying your first home or renovating the family home, even if you’re not ready to spend the money now, put those things in place that will ensure you’re not limited when you are. Unlock your equity, get a preapproval, whatever it is to increase your chances now of not being affected by any further changes.

Remember tomorrow will see the end of the Governments increased FHOG offering, this will inevitably bring about more changes within the property market. Are you ready to seize the opportunities?!

However, most economists and forecasters now appear to think an interest rate rise is likely before Christmas.

According to Herald Sun economic commentator Terry McCrann, it would take something dramatic for the RBA to lift rates as early as October.

But the longer it holds off, the more likely the individual banks will increase rates independently, he says.

“If they could be confident the RBA would hike in October or even November, they would wait – aiming to slip in, say, a 35-40 point hike on the back of an official 25-point move,” McCrann says.

“But if the clock ticks by and there’s no official hike, who will be first?”

According to statistics, the Australian economy is doing well but there are still many households that can’t afford to make higher debt repayments.

The good news is that Australia is weathering the global downturn really well. It is the only major developed country to record economic growth last financial year.

Aussie households and companies are still spending and expanding despite the financial crisis and recession in other countries.

The spend-now attitude has been encouraged by the Federal Government’s $60 billion stimulus package of cash handouts. Unfortunately all that fun has a downside.

There is concern that spending and economic growth will get out of control, inflation will start up again and interest rates will rise.

When people spend a lot, prices increase, which causes inflation to go up. When people don’t have money to spend, prices and inflation can go down or at least stay steady.

The RBA uses interest rates to control inflation. Ideally the RBA wants inflation to be between 2 and 3 per cent, which it believes is the right level for the normal forces of supply and demand.

When economic growth – spending and expansion – is in danger of going up too fast, the RBA increases interest rates to reduce spending and to slow down growth in the economy.

When the economy looks like it might slow down too much, the RBA cuts rates, to free up or create some spare money and keep spending ticking along.

Its guiding measure, however, is inflation. However, these decisions are made in advance of the growth or the slowdown actually taking place so RBA board members must constantly estimate what will or won’t happen in the future.

So the great news is our economy is in a strong position and will only continue to go from strength to strength. The down side, interest rates need to increase in line with this.

Now is the time to make sure your portfolio is stable and can withstand the increase. Implement those strategies that are going to see you through the market ups and downs coming through with a portfolio that will enable you to realise your future dreams.

The question on many people’s lips is if I extend my debt position now will I be able to hold my portfolio when the market returns to its ‘normal level’?

It is in response to this question that some people make the decision to fix in their debt, at least now knowing that their repayments won’t be changing for a set period of time. History does however show that those that ride the waves of variable are better off in the long run. This is where a redraw or offset facility could come in handy. You could simply calculate your payments based on an interest rate you are comfortable with long term, say 8.5%. Putting this amount into your loan or offset facility each month would allow a surplus to build up during the lower times and give you somewhere to dip into during the higher times.

You need to also realise that when a bank lends you money they assess your ability to repay the debt. As we know banks are generally quite conservative and therefore they use sensitivity when establishing what you can afford. When assessing your loan repayments they will often do this at 1.5% above what you are actually paying. When taking your rental income into consideration they generally only use 75% of what you are currently being paid. So as you can see the bank is ensuring that when there is a change in the market for the worst you can still make your repayments.

It’s also important that you understand the position you are in now and where you want to be in the future. Unfortunately we can’t predict all of life’s twists and turns however we can take the steps to ensure that we are making educated decisions at the time and thinking down the track.

One thing I always recommend to my clients is to have a ‘buffer’. This is a surplus of cash or borrowed money put away for a rainy day. Many of our clients use the strategy of unlocking equity to fund that next investment, all we do is ensure that we borrow that little bit extra to tuck away. This is where you go if the council rates all come in at once and you haven’t put enough money away, or if you’re having to pay for repairs whilst waiting on reimbursement from the insurance company. This ‘buffer’ will bring life’s surprises back into your control and save an adverse effect.

So as you can see with a little forward thought and planning it is possible to reduce your risk in property investing. This is where a Finance Strategist brings value to the table over your every day mortgage broker. They can ensure you are considering every aspect of your investment journey. If you haven’t already, take the time to talk to one of our Strategists you will soon discover if they have something different to add.

What I have observed to be the case in many instances, is that it is your smaller lending institutions like credit unions, community banks and the like, at face value tend to carry some of your most competative interest rates.

So where’s the issue with chasing the greatest rate? If your single goal in life is to own your own home and pay off that mortgage as quickly as possible, then nothing. However if you’re considering going beyond that then there is so much more you need to consider.

Many of the smaller lenders choose not to carry as higher level of risk as other lenders, they tend to put the brakes on much sooner. This means that based on your income, assets and liabilities you won’t be able to borrow as much money into the future, therefore limiting the number of properties you can accumulate.

This can particularly be the case if you choose to fix with these lenders as you will inevitably be faced with the decision of paying high fees to break out of your loan to buy that next property or wait out the term of your loan and lose that great buy.

So as you can see there really are so many more questions that need to be considered when funding your property. We don’t have a crystal ball but as much as possible we need to be considering the future and the consequences of our decisions now. What is it they say, ‘short term pain for the long term gain’!

Who you take advice from to grow your property portfolio is of high importance, so stop and ask the question – “Are you a property investor yourself”?

 The housing gain meant prices have now recovered most of the ground lost since the start of last year and have gone a long way towards dispelling any lingering concerns that local housing markets could be headed for the sort of double-digit declines seen abroad said Westpac senior economist Matthew Hassan. The 4.2 per cent increase in house prices during the June quarter had helped drive the positive consumer mood.

 The Westpac-Melbourne Institute Consumer Sentiment Index increased by 3.7 per cent in August. According to Mr Hassan, the index has risen 27.8 per cent since May, the biggest three month gain since the survey began in 1975.

 The other major positive was the surprisingly strong July labour market result which showed an unexpected rise in employment, as well as the unemployment rate stabilising at 5.8 per cent.

 “These two pieces of news [have] helped alleviate two of the biggest sources of consumer anxiety over the last year: fear of losing money on their biggest single asset – the family home – and fear of losing their jobs,” Mr Hassan said.

 Notably, the Index showed that comments by the Reserve Bank of Australia regarding the official cash rate had no impact on consumer sentiment. Even in the ‘hyper-interest-rate sensitive’ mortgage belt, sentiment still posted a robust 6 per cent gain in August, according to the Index.

 So I guess it is to be expected that confidence will return to the market now more rapidly than over the last number of months.

 It has been said “the first step towards knowledge is to know that we are ignorant”. We don’t know what we don’t know, that’s why it’s so important to surround yourself with likeminded people that will help you gain the knowledge you need to discover you’re investment goals. Those in the know are saying that times are right to take advantage of the opportunities in this market. What are you going to do with that knowledge?

How it works

A mortgage offset account is simply a savings account linked to your loan account. Unlike an all-in-one loan that combines your credit card with your transaction accounts, an offset account works like a regular savings account. The big difference is that the balance in the savings account is offset against that owing on the mortgage. You are therefore earning interest on your savings at the same rate as the linked loan.

Over time, savings in your offset account can help to reduce the loan principal, allowing you to pay off your loan sooner or build up equity so you can invest in that next property.

The best thing is your money is still sitting in a savings account so its fully transactional, you can go to the ATM and withdraw $20 or write a cheque for $100, so there is no reason for this to become your everyday account.

Types of offset accounts

There are two different types of offset accounts – a 100 per cent offset and a partial offset account. As the benefits of offset accounts have become more widely understood, most lenders and borrowers opt for a 100 per cent offset facility.

Example:

Bill and Mary have a $100,000 mortgage and $10,000 in a linked 100 per cent offset account.

• The principal on a $100,000 loan is reduced by the $10,000 offset account to $90,000.
• As a result interest only accumulates on the $90,000 balance of the loan.
• Repayments continue to be made on the entire $100,000 principal and applicable interest.
• While savings in the offset account are actively working to reduce the loan, repayments are working more effectively to reduce both the principal and interest it attracts
• Over a number of years, both the principal and interest on your loan are repaid faster.