Help getting onto the property ladder for first time buyers

Help getting onto the property ladder for first time buyers

Buying your first home is always a big step, but with property prices rising faster than pay packets, taking that first step seems more challenging than ever. This month we take a look at the best options for getting a foot on the first rung of the ladder.

National house prices rose 20 per cent in the year to September, the fastest growth since 1989. Higher prices have also fanned out from capital cities to the regions, as city folk discover the country lifestyle and cheaper housing during the pandemic.i

While this is great news for homeowners and investors, it’s putting home ownership further out of reach for many hopeful first home buyers. The combination of rapid price growth and weak wages growth have pushed up the cost of an average first home deposit from 70 per cent of income to more than 80 per cent.ii

And in another blow to first home buyers, the Australian Prudential Regulation Authority (APRA) has told lenders to assess whether new borrowers can afford their loan at an interest rate at least 3 percentage points higher than the current rate on their home loan. Previously, banks used a 2.5 per cent buffer.iii

So what strategies are available to help younger Australians get a foot on the property ladder?

Government supports

In recent years, the federal government has launched three schemes to close the deposit gap for first home buyers.

The First Home Loan Deposit Scheme (FHLDS) and the New Home Guarantee (NHG) allow eligible first home buyers to purchase a home with a deposit of as little as 5 per cent. While the Family Home Guarantee helps eligible single parents buy a home with an even lower deposit of at least two per cent.

Another way for first home buyers to build a deposit is to contribute voluntary savings to your super account and withdraw up to $30,000 plus investment earnings when you are ready to buy. The First Home Super Saver scheme takes advantage of the low tax super environment and investment returns that have consistently outpaced bank savings accounts.

Rentvesting

If you can’t afford to buy your dream home in a suburb or location you like, “rentvesting” may be worth exploring.

Rentvesting is where you buy property in a location you can afford with good rental yields and capital growth prospects and lease it out, while renting in an area you prefer. Or live with your parents for minimal rent and pay off the mortgage on your rental property even faster.

You can also claim a tax deduction for allowable expenses, depreciation, and interest on the loan for your investment property. The downside is you will be liable for capital gains tax when you sell.

Alternatively, under the six-year rule if you buy and live in the property for at least six months before you rent it out, you will be exempt from capital gains tax on the growth of your investment for up to six years.

Bank of Mum and Dad

It’s not just younger Australians who worry about housing affordability. Their parents often worry just as much. So much so that recent research found the Bank of Mum and Dad is the nation’s ninth biggest mortgage lender.

According to research by Digital Finance Analytics (DFA), 60 per cent of first home buyers are getting help from their parents.iv Parents typically do this by giving their children cash towards the deposit or by going guarantor for the loan.

DFA found the average parental contribution was $92,000, indicating parents may be choosing to help with the deposit. Not only are banks reluctant to lend to first time buyers with less than a 20 per cent deposit, but any less means borrowers must pay lenders mortgage insurance.

Going guarantor

Parents without cash to spare sometimes agree to guarantee their child’s loan by using the equity in their own home as security. This can have the advantage of helping children get into the market sooner, but there are risks.

If the borrower can’t make repayments the guarantor is responsible for the debt, putting their home at risk. To limit this risk, you can choose to guarantee a portion of the loan, so you are only liable for that portion if the borrower defaults. You can also arrange to be released from the loan once the borrower builds up the same portion of equity in their home.

Saving for a first home is a challenge in the current market, but there are strategies to help make your dream a reality. So get in touch if you would like to discuss your options.

i https://www.corelogic.com.au/sites/default/files/2021-09/211001_CoreLogic_HomeValueIndex_Oct21_FINAL.pdf

ii https://theconversation.com/as-home-prices-soar-beyond-reach-we-have-a-government-inquiry-almost-designed-not-to-tell-us-why-168959

iii https://www.apra.gov.au/strengthening-residential-mortgage-lending-assessments

iv https://www.savings.com.au/home-loans/we-need-to-talk-about-the-rise-of-the-bank-of-mum-and-dad

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Have you subscribed to the popularity of the podcast?

Have you subscribed to the popularity of the podcast?

Thanks to the internet we have so many options when it comes to the way we find information and how we choose to absorb it. The way we access content has also changed significantly over the past couple of decades.

Podcasts aren’t new, they predate the internet with the first known podcast, known as ‘audio blogging’, created back in the 1980s. This format allowed people to share their thoughts and opinions via an audible recording.

‘Podcast’ was coined by journalist Ben Hammersley in 2003 and exploded in 2005 when Apple™ added podcasting to iTunes and released a newer version of the iPod supporting audible content on-demand.i

Accessing content is easy

Podcasts are an easy and convenient way for us absorb information, especially when our lives and routines are busier than ever. Streaming is also easy - you can listen to them on different devices simply by downloading the app and episodes on your smartphone or via a web browser on your laptop, computer or tablet.

One of the most loved benefits, is that you can listen to a podcast virtually anywhere. If you are streaming a podcast on your smartphone you can listen to it on the go – whilst you’re exercising, cleaning the house, gardening, commuting to work, or driving in the car, and the good thing is, majority of the podcasts available you can download for free.

Some podcast creators will have advertising throughout their episodes which helps cover the cost of creating the podcast, allowing them to share their content for free rather than charging listeners to subscribe. Most popular podcasts release episodes weekly keeping their listeners engaged.

So many topics to choose from

With so many varied subjects and topics readily available, there is something for everyone - there are programs designed to improve your health and wellbeing, foster personal growth and professional development or you can simply download content specifically for entertainment purposes. For example, if you missed one of your favourite programs on a radio station, download it and listen on-demand, or rather than read a book you can download it and listen to an audible version.

Many businesses are also choosing podcasts as another way to communicate, educate and engage with their customers and clients. They can be short weekly episodes or longer and less frequent.

With the explosion in popularity, online communities have been formed for podcast creators and fans alike. This allows like-minded people to join a forum to discuss ways to create or improve their podcast or fans can chat to others about their favourite podcast.

Some of the most popular topics downloaded are - pop-culture, true crime, business and finance, comedy, health and wealth, news and sport, and technology-based podcasts – the choices are endless.

What are we listening to?

To give you an idea of what Australian’s are currently subscribing to, here are the most popular podcasts in the countryii:

West Cork – this non-fiction podcast focuses on the longest unresolved murder in Irish history.

Darling Shine – a weekly Q & A with Chloe Fisher & Ellidy Pullin for women about women.

Conversations (ABC) – with over 3000 episodes, this podcast covers topics from indigenous issues through to sporting triumphs.

Casefile – an award-winning true-crime podcast that investigates solved and unsolved cases globally.

Hamish & Andy – the comedic duo continues to make us laugh with their highly contagious podcast.

China – If You're Listening – this ABC podcast discusses the recent change in relationship between China and Australia and more.

She's on the Money – Victoria Devine hosts this highly relatable, easy to understand finance podcast for women.

Mamamia Out Loud – this covers a wide range of topics from beauty, pop culture through to parenting and the Kardashian’s.

Coronacast – stay up-to-date with the latest news and insights to help you live through the current pandemic.
As you can see, there is something for everyone!

Whether you’re a tradie, a retiree, small business owner, or a podcast lover in general there are podcasts out there that will motivate, educate, inspire, or simply entertain us all. Happy listening!

i https://brandastic.com/blog/why-are-podcasts-so-popular/

ii https://www.podcastinsights.com/top-australian-podcasts/

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


What are the pros and cons of an SMSF?

What are the pros and cons of an SMSF?

Many Australians like the idea of managing and investing their own super. It can make a lot of sense too, but it's definitely not for everyone. We take a look at the arguments for and against setting up your own Self Managed Super Fund (SMSF).

Taking control of your super

People choose to run their own SMSF for many reasons. From a desire for flexible investment choices through to dissatisfaction with their existing super fund, tax and estate planning concerns.

According to a recent SMSF Association survey, many people’s desire for control over their personal retirement income goals and the ability to take control of their financial future are key motivators in the decision to run an SMSF.

For small business owners, the ability to invest in assets related to their business – such as their business premises – is also very appealing.

All these reasons are valid and may make it worth considering an SMSF for your retirement savings.

Benefits of your own super fund

Key benefits are having control over your investment plan and selection of the assets in which your retirement savings are invested.

As an SMSF trustee, you are responsible for developing your fund’s investment strategy, so you get to choose which investment approach to use to grow your money.

There may also be cost savings compared to using a traditional, large super fund.

An SMSF can also give you more flexibility when it comes to tax management and estate planning.

SMSFs can be time consuming

On the other hand, running an SMSF can require significant amounts of time to complete and lodge the necessary paperwork and to meet the strict compliance requirements for super funds.

We can help take a lot of the hard work out of running an SMSF for you and ensure you comply with all the rules. Failing to comply can result in significant penalties.

Although many people enjoy being accountable for their own retirement and tailoring their investments, achieving strong returns requires investment knowledge and skills, plus sufficient time to actively research and manage your investments.

It’s also worth keeping in mind the ATO is the main regulator for SMSFs, so you will have the tax man looking over shoulder.

Are SMSFs cost competitive?

There is no hard and fast rule about the amount of super you need in order for your SMSF to be cost competitive with a large public super fund. Generally, an SMSF is less cost effective if your fund has low member balances.

Smaller balance SMSFs are also less able to achieve sufficient diversification with their assets compared with larger funds, making it harder to spread your investment risk.

Aside from the establishment costs, running your own SMSF incurs annual costs such as the annual ATO supervisory levy, auditing and legal fees, any administrative tasks and any investment-related expenses.

SMSFs can be cheaper

Despite these costs, running your own SMSF can actually be cheaper than using an APRA-regulated super fund to save for retirement.

The SMSF Association’s Cost of Operating SMSFs 2020 report found an SMSF can be cost-competitive with industry and retail super funds when it has an asset balance of $200,000 or more, even for a fund paying for a full administration service. An SMSF with accumulation accounts and a total asset balance of $200,000 using this type of service generally has annual running costs ranging from $1,518 to $3,078.

SMSFs are even more attractive for large asset balances. In fact, the study found an SMSF with a total asset balance of $500,000 or more is generally the cheapest alternative when it comes to a super fund.

For people interested in running their own SMSF but with a balance of only $100,000 to $200,000, you will need to keep an eye on your administration costs and consider what you may be able to manage yourself.

SMSFs with less than $100,000 are not cost-competitive.

If you are interested in controlling your retirement savings, make an appointment to talk to us about us about whether and SMSF is right for you and how we can assist.

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


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