April 2020 Finance Update
In some ways, things are starting to settle down in the home loans industry and there’s a clearer picture about opportunities and trends in the market.
Here’s 4 things we’re noticing:
Refinancing surges as rates tumble.
At-home Aussies embracing renos.
ATO warns investors about tax claims.
Investors turning from units to houses.
Refinancing surges as rates tumble
Refinancing is popular right now – over 75% of valuations ordered in the past few weeks were for refinancing, according to property research group CoreLogic.
And for some borrowers, there may never be a better time to refinance.
Mortgage rates are at historically low levels after five rate cuts in the past 10 months. So if you’re confident about your employment, now may be the ideal time to switch to a better loan.
That said, there are several things to bear in mind:
Your property appraisal value may have recently fallen, especially as valuers are being conservative right now
Some banks are offering cash-back incentives to refinance – one major is offering $4,000 until the end of May if you meet certain eligibility criteria.
In the current market, lenders are reluctant to lend to people who work in certain roles and industries.
Some lenders are experiencing slower processing times, however there are many that are operating as normal.
Get in touch if you’re thinking about refinancing. I’ll know which lenders are right for you in this current environment.
Get your finances in order before renovating
With everyone stuck at home, you won’t be surprised to learn there’s been a surge in renovations activity.
Renovations can be a great way to add liveability and value to your home – but they can also be costly.
Last year’s annual Houzz & Home Australia survey of more than 8,800 respondents found kitchens are the most popular rooms to renovate, followed by living rooms, bedrooms, bathrooms and laundries.
However, half of homeowners in the Houzz survey were renovating three rooms per project, at an overall median spend of $20,000.
So if you’re looking at doing a larger scale renovation during the quarantine, and need help paying for it, these are the three common ways people pay for their renovations:
Taking out a personal loan
Adding the costs to their existing home loan
Taking out a new home loan
Another way to fund the renovation is to pull out equity from your current home.
For example, if you had a $500,000 mortgage on an $800,000 property, you’d have $300,000 of equity. A lender might allow you to use some of that hypothetical $300,000 to fund your renovations.
Be aware that you need more than 20% equity in your property to make this work. If your loan-to-value ratio (LVR) climbs above 80%, you might have to pay lender’s mortgage insurance (LMI).
Tax office delivers warning to investors
Last year, the ATO found that 90% of deductions made by property investors contained errors, based on a random sample.
As a result, the ATO has been auditing more and more investors – about 1,500 in the 2017-18 financial year and about 4,500 in the 2018-19 financial year.
Here are three of the common errors cited by the ATO:
Deducting 100% of the interest payments you make on your investment loan even if you divert some of the home loan for non-property expenses
Deducting 100% of your renovations expenses immediately (capital works are deductible over a number of years)
Deducting holiday home expenses when you're not genuinely using your holiday home as an investment property
If you’re a property investor, you should take care this tax time, because the ATO is paying closer attention to investors. It may be a good idea to consult your accountant before you file your tax statement.
The ATO can cross-check your tax statement with data from banks, rental bond offices and Airbnb, so it’s important you declare all your income and claim only legitimate deductions.
Property investors turning from units to houses
Investors are now favouring houses over units, according to a study of 4,000 investment properties by MCG Quantity Surveyors.
The study found that last year, 37.5% of the properties purchased by investors were houses, while 33.7% were units (with the rest being townhouses, granny flats and duplexes).
In comparison, units were more popular than houses, by 47.2% to 43.2% in 2016-17.
As with all things in life, investing in a house comes with pros and cons.
The pros include:
Houses are expected to hold their value better during COVID-19
Houses are often more popular with tenants, because they’re roomier and may include gardens and extra parking
Houses are easier to renovate than units, and thus have more value-adding potential
Houses can be renovated without needing approval from an owners’ corporation
The cons include:
Houses generally cost more to buy than units
Houses may have negative cashflow (when investors collect less in rent than they pay out in mortgage repayments and other expenses)
Disclaimer: The advice provided in this article is general advice only. It has been prepared without taking into account your objectives, financial situation or needs. Before acting on this advice you should consider the appropriateness of the advice, having regard to your own objectives, financial situation and needs. We encourage you to consult a finance professional before acting on any advice provided in this article or on this website.
