The reverse mortgage industry, worth of $3 billion, is set for a major overhaul with new laws and tougher disclosure rules expected in the new year.
A reverse mortgage is money lent against the value of the property and no repayments are made as the interest is added to the total debt. The lender receives its money and interest back when the property is sold. Given the nature of these loans, lenders generally don’t offer these loans to customers under the of 60.
The shake up here is that the Australian Federal Government plans to ban contracts which allow negative equity to build up on a reverse mortgage, and will also beef up information disclosure requirements to ensure people fully understand what they are getting into.
It appears that these tough new regulations may increase the rate at which lending institutions are already existing this type of loan. Earlier this year, several major reverse mortgage lenders have withdrawn this offering, and the bank regulator has also warned lenders about the risks involved.
Banks have begun denying funds to homeowners that are looking at upgrade and move to a bigger home. The Daily Telegraph has reported that banks are denying homeowners from bridging finance, the process where a bank offers intermediate loan that finances the purchase of a new property while the existing property is sold.
In the past, a common strategy for people looking to relocate, was that they would take out a bridging loan to buy their new property, while their existing property was up for sale. Banks are now claiming that bridging finance can produce bad debt, while some other lenders don’t even offer the product.
This position by banks may be contributing to the decrease in the property market, by delaying purchases, and forcing home owners to sell their homes before buying a new one.
This new stance may have come about for a number of reasons, some possible reasons are the relatively static property market, and that the banks are essentially issuing a second mortgage on the first property and they have no security to attach the mortgage to.
Mortgage Choice broker John Manciameli said the banks’ aversion to bridging finance may be due to the fact Sydney homes are taking a lot longer to sell, elevating the lenders’ risk profile into alarm-bell territory.
New homes sales fell a seasonally adjusted 6.4 per cent to 8,024 units in Maym following a 6.2 per cent rise the month before, the Housing Industry Association (HIA) said this week. This is a 3 month low that appears to have been caused by rising interest rates.
“This is the lowest number of new home sales since February 2010; with private house sales fell 5.9 per cent in the month while sales of multi-units slid 11.6 per cent” said Mark Forytarz and Paul Castran.
NSW has the largest sales of 13.6 per cent of detached new homes in May, while South Australia has rose up to 2.1 per cent.
Queensland has the largest decline in sales of 12.3 per cent, whereas Western Australia was down to 10.7 per cent and Victoria fell 8.5 per cent.
In April, house prices have slowed considerably with some capital cities placing marginal gains and other reporting falls. Australian has stated that RP Data-Rismark Hedonic Home Value Index, which was liberated on 31st May, 2010, reveals the nationalized standard increase for homes of 0.2 per cent, following 1.3 percent growth in March.
Generally, rates of homes, including dwellings and units have augmented 4.6 per cent this year and are up 11.9 per cent for the year to April, at present with the medium home price of $460,000. Houses in capital cities mounted 11.6 per cent for the year to April that is more than twice the 5.6 per cent increase for accommodations outside the cities. The standard worth for the dwellings declines 1.2 per cent in Brisbane, 0.9 per cent in Perth and 0.3 per cent in Darwin during April.
After been asked about the implications of market crash, Tim Lawless from PDData.com declared that they are on a cusp in considering an alteration of market situation. Chief executive of Rismark’s, Mr. Christopher Joye said that the statistics established for the country was not featuring a housing boom. He added that the medication in the value of Australian lodging will be determined by the fundamentals of demand and supply but not higher liability level.
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Positive cash flow property appeals to most, the ability to own a piece of brick and mortar and have it put money in your pocket each week is an attractive prospect. Well according to an article in the Herald Sun (http://www.news.com.au/heraldsun/story/0,21985,25684245-5013926,00.html), here is an extract:
INTEREST rates are so low it’s possible to buy an investment property and end up with money in your pocket each week, thanks to rising rents and the lowest interest rates in a generation.
Financial planners say interest rates are so low that if you have a stable income and can afford it, now could be the ideal time to buy an investment property.
Huge shifts in the property market last year caused property prices to fall 2.6 per cent. Rents rose 11.2 per cent. Add generous tax rebates and it’s now possible to own new apartments for next to nothing — and in some cases receive a payment for buying.
MAB Corporation’s Richard Marshall says many investors are cashing in on the capital growth and unsurpassed tax benefits that buying property now delivers.
"In the current environment of tax concessions and low interest rates, property investment can actually be positively geared," he says. "An investor can buy a new apartment and have $50 extra in their pocket each week."
Frank Hellier of Malcolm’s Real Estate says many properties are moving into positive cashflow.
"The property you buy returns cash in your pocket every week, from day one," he says.
Investors looking at positive gearing can opt for bigger rental returns and earn money immediately from their investment without relying solely on future capital gains.
With affordability at its lowest level on record, first-home buyers are thinking outside the square.
The home-ownership dream rarely used to feature a sibling in your bathtub and a parent on your certificate of title. These days though, first-home buyers are becoming more and more flexible.
Housing affordability fell to record lows in the March quarter this year according to the latest Housing Industry Association-Commonwealth Bank report. Mortgage payments accounting for 30.7 per cent of total first-home buyer income these days!
Generations X and Y are also settling down later meaning for many home ownership is a solo battle.
It’s not surprising then that increasing numbers of first-home buyers are teaming up with siblings, parents or friends in a bid to break into the property market.
“There’s been a noticeable trend towards family members buying property together, as property prices are still very high, particularly for first-home buyers,” says Aussie Home Loans boss John Symond.
The number of family members taking out mortgages together has jumped from about 1% of all loans originated by ‘Aussie’ to 5 per cent over the past two years! Mortgage Choice has reported a similar trend. A survey carried out by the company last year revealed more than 6 per cent of people who bought property within the past two years had done so with family or friends. And of those who intended to buy property within the next two years, over 8 per cent intended to do so with family or friends!
INVESTORS own around two million homes in Australia and every year thousands claim deductions they’re not entitled to and fall foul of the Australian Taxation Office.
The result can be a kind warning or a significant fine and large interest bill.
The tax office says investors’ should be responsible in getting their tax returns right and they can’t blame their accountant or plead ignorance if they get it wrong.
One of the most common mistakes investors make is claiming items that should be depreciated over several years.
According to the ATO, initial repairs to fix damage, defects or deterioration that existed when a property was bought are capital expenses that should be claimed as capital-works deductions over either 25 or 40 years.
Capital improvements like re-modelling a bathroom or adding a pergola should also be claimed as capital-works deductions.
Other mistakes include:
Taxpayers sometimes use loans for investing and private purposes — for example, to buy or renovate a rental property or to buy a motor boat.
The interest expense on the private portion of the loan (the boat) is not deductible!
Conveyancing expenses incurred when buying and selling a property are not deductible. These form part of the cost for capital-gains tax purposes.
If you take a holiday and visit your investment property while you’re there, you cannot claim a deduction for the full trip.
The tax office says you may claim only those expenses directly related to the property inspection and a proportion of accommodation expenses.
CASHED-UP Melburnians keen to snatch beachfront holiday homes from struggling vendors could be in for a big disappointment.
Plunging average prices for regional seaside homes don’t tell the full story.
Valuer-General Victoria sales figures released this month by Land Victoria show median house prices rose in a third of seaside towns!
From the end of 2007 to the end of last year, prices fell in 16 of 30 coastal towns and stayed level in four others!
Hardest hit is Port Fairy with a 34.6 per cent drop from $390,000 in late 2007 to $255,000 at the end of last year. Average house prices also fell dramatically in Blairgowrie, Barwon Heads, Portarlington and Rosebud West.
Anne Murphy of Stockdale & Leggo said Port Fairy sales during the summer were the best in the eight years she’s been there, with the big drop in the median house price for Port Fairy not because property values have fallen. Instead, figures have been skewed by tightly held, top-end properties being kept off the market.
“We’ve been recommending they delay selling because demand isn’t strong.”
People have owned houses here for 30 to 50 years. They’re kept in the family and passed down. So unless unforeseen circumstances such as a divorce occur, why sell in this market if you don’t have to?
But Murphy says those Port Fairy vendors on the market are more realistic than past years.
“We’re not expecting a good summer season with the economy the way it is, but we’ve had extremely good results in the number of sales and most sales were within 10 per cent of asking prices.”
“In the last 18 months in our office there has been only one sale of a property that sold for less than the vendor paid for it!”
“Most properties here are about $450,000. You don’t get much for your money under $400,000.”
That still hasn’t stopped holiday-home hunters prowling Port Fairy.
“We’ve had people come in looking for that bargain,” “I personally don’t have any bargains but there are realistically priced properties and motivated vendors who’ll negotiate.”
A historic fishing port, Port Fairy is now a popular holiday and retirement town famed for its annual folk festival about 290km west of Melbourne.