First Home Loan Deposit Scheme

First Home Loan Deposit Scheme

First Home Loan Deposit Scheme

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What is the First Home Loan Deposit Scheme?

The First Home Loan Deposit Scheme is a new Australian Government initiative to help eligible first home buyers get into the property market sooner.

The Scheme does this by providing a guarantee that allows First Home Buyers to purchase a home with a deposit as little as 5%, without the requirement to pay for lenders mortgage insurance (LMI).

Usually, first home buyers have to either save up a deposit of at least 20%, or pay LMI (which can cost thousands of dollars!).

When does the First Home Loan Deposit Scheme begin?

The Scheme commenced on the 1st January 2020 and will support up to 10,000 loans per financial year.

What type of property can be bought under the Scheme?

The property must be ‘residential’. Eligible residential properties include

  • An existing house, townhouse or apartment
  • A house and land package
  • Land together with a separate contract to build a home
  • An off the plan apartment of townhouse

Are you eligible for the Scheme?

To be eligible for the Scheme, you must meet the following criteria:

  • Australian citizen and at least 18 years of age
  • Have a taxable income of up to $125,000 per year (single) or $200,000 (couple)
  • Only those who are married or in a de-facto relationship count as a couple (no siblings, parent and child, etc.)
  • Have a deposit of at least 5%, but no more than 20%
  • Intend to move into and live in the property as your principal place of residence, typically within six months of settlement (owner-occupiers, not investors). They must also continue to live in the property for as long as their loan “has a guarantee under the Scheme”
  • Must be a first home buyer who has not previously owned or had an interest in a residential property, either on their own or jointly with someone else.

How much can you spend on a home under the Scheme?

The Scheme intends to only be available to purchase a ‘modest home’ and so price caps do apply and these caps differ depending on your location.

Region Price Cap ($AUD)
NSW – Sydney and regional centres $700,000
NSW – Other $450,000
VIC – Melbourne and regional centres $600,000
VIC – Other $375,000
QLD – Brisbane and regional centres $475,000
QLD – Other $400,000
WA – Perth $400,000
WA – Other $300,000
SA – Adelaide $400,000
SA – Other $250,000
TAS – Hobart $400,000
TAS – Other $300,000
ACT $500,000
NT $375,000

Important things to consider before taking up the Scheme

There are risks which need to be weighed up prior to applying for a home loan with a smaller deposit such as:

  • A smaller deposit may mean you take on more debt than you can afford and financially overcommit.
  • While you are able to potentially purchase a home much earlier, you are borrowing more money and therefore you could pay significantly more interest over the life of the loan.
  • Having a lower amount of equity in your home could make it difficult to refinance to a new lender in the short term
  • If home prices fall, as you have less equity in the home, you are at greater risk of going into negative equity. This means you owe more than your home is actually worth.
  • A smaller deposit may limit the lenders and loans you are eligible for and you could miss out on some of the more competitive rates available to borrowers with larger deposits

For further information on the Scheme and details on how to apply, please visit https://www.nhfic.gov.au/what-we-do/fhlds/

IMPORTANT: The guarantee is not a cash payment or a deposit for your home loan

Need more help or information?

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Are you paying too much for your Mortgage?

Are you paying too much for your Mortgage?

Are You Paying Too Much For Your Mortgage?

On the first Tuesday of October, the Reserve Bank of Australia officially announced another rate cut, taking the official cash rate to a record low 0.75%.

Great news for those who have borrowed money, not so good for savers.

Let’s take a look at two different mortgages and the impact of a slight change in interest rates.

Luke has a mortgage of $400,000 with a 25-year term. He has negotiated an interest rate of 4.00% with his bank that he has banked with for his entire life as he is a loyal customer.

Luke’s mortgage looks like the following:

If Luke does nothing and just continues to make the minimum repayments, he will pay over $230,000 in interest over the life of the loan.

Luke sees on the news that interest rates have been going lower, but his mortgage rate has stayed the same. He calls his lender to ask for a reduction in his rate. Luke’s lender grants him his wish and cuts his rate to a much more competitive 3.50%.

Luke’s new mortgage now looks like this:

Luke’s ten-minute phone call has saved him more than $30,000 over the life of the loan.

Luke decides to go one step further. Before his interest rate was reduced, Luke was accustomed to paying $2,111 every month, so he decides that he will keep his repayments at the higher rate even though the minimum amount is less. Luke’s mortgage now looks like the following:

Therefore, by calling his bank and lowering his rate, and keeping his repayments the same, Luke now saves $50,000 over the life of the loan and the loan is repaid nearly two years faster.

For those who still have an outstanding mortgage, it is worth taking the time to take a look at the rate you are paying and see if you can do better. If your rate is above 4.00%, you are probably paying too much. A quick phone call to your lender may make a massive difference as you can see from Luke’s example above.

You may ask yourself “Why would the bank lower my rate when they can keep it higher and earn more money?”

The answer to this is that it is much easier to keep an existing customer than to get a new one.

Your bank will not want to lose you as a customer as they will lose all those interest payments you will pay over the next 20 or more years. They would much rather lower your rate and sacrifice a little to gain a lot.

Further, with more and more lenders coming into the market, competition for home loans has never been more competitive. This works in the borrowers’ favour.

So, what if your bank doesn’t lower your rate?

If you bank refuses to reduce your rate and you think it is too high, it may pay to move lenders.

Sometimes the threat of moving to another lender forces your bank to lower your rate. Remember, they don’t want to see you go, you have the power.

Finally, remember, it doesn’t pay to be loyal to your bank.

If you would like to discuss your interest rates and see if you are paying too much, please contact our Financial Planning team.

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What Does The Latest Interest Rate Cut Mean For You?

What Does The Latest Interest Rate Cut Mean For You?

What Does The Latest Interest Rate Cut Mean For You?

On Tuesday, the Reserve Bank of Australia officially announced another rate cut, taking the official cash rate to a record low 0.75%.

Great news for those who have borrowed money, not so good for savers.

For those who still have an outstanding mortgage, it is worth taking the time to take a look at the rate you are paying and see if you can do better. If your rate is above 4.00%, you are probably paying too much. A quick phone call to your lender may make a massive difference.

Now for the savers, you have probably noticed that the interest rate on your savings accounts has taken a serious hit. Today’s announcement will be no help. Expect rates on your savings accounts to drop by the full 0.25% cut.

What this means is for the conservative parts of your investment portfolio (term deposits, bonds, fixed interest), you now have to expect returns of around 2%, perhaps 3% if you are lucky.

Current term deposit rates are sitting below 2%, so locking your money away in this type of investment and living off the interest may no longer be viable. Gone are the days where you were able to lock in a term deposit at 5% and live on the proceeds.

So, what will the rate cut mean for your growth assets such as your shares and property?

Typically, when rates get lowered, investors begin to move their money out of cash and into these growth investments to try and get a greater return. As investors move their money, the value of these growth investments increase as the demand for these investments has also increased. This is what the Reserve Bank is after when it lowers the cash rate.

We are already seeing this at work with the Sydney and Melbourne property markets experiencing monthly gains the past two months. This is a direct result of investors and home buyers being able to borrow more money.

The share market has also increase over the last quarter by 1.51%, not including dividends. Expect more of the same with this latest rate cut.

This may not be the end of it either. Economists are expecting another rate cut in the near future to take us to an official cash rate of 0.50%.

A key thing to take away here is to expect your returns to be lower if you are invested conservatively, but do not take your eye off your long term investment goals.

While growth investments may perform greater now, it will remain important that you stick true with your preferred asset allocation and don’t go chasing the greener pastures by cashing in your term deposits and bonds.

Investing is never about the short term, always think long term.

You may have heard that interest rates in some European countries are in fact negative. In this situation, you are actually paid to borrow money! While this sounds great for borrowers, it does in fact mean the economy is in a bit of trouble and something we don’t want to see.

We do not see this happening in Australia anytime soon, however, it is something to keep in mind that it is in fact possible.

One final thought, with interest rates at record lows, we have now well and truly entered into a low interest rate environment. Some economists are expecting low interest rates to be the new normal. While this is impossible to know with any certainty, what we do know is that investing in this type of environment has new risks which we need to maneuver through.

Remember though, with new risks comes new opportunities as well.

If you would like to discuss your portfolio options, please contact our Financial Planning team.

wealthadvisors@plus1group.com.au

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Market Volatility – The Order of the Day

Market Volatility – The Order of the Day

Market Volatility – The Order of the Day

Up 1% one day then down 3% the next day then up 2% then down 2% then flat for 3 days then down 2%. It is enough to make us jittery especially when this sort of VOLATILITY continues for a month or more.

Keeping it simple – Sometimes it is important to remember just like a lift in an office building:

“IT MUST GO DOWN BEFORE IT CAN GO BACK UP”

The lift cannot go up for ever (before it needs to go down again) – there is a limit to the top floor. A bit of philosophy – in our own makeup for one to be happy then this state of mind has to have been preceded by unhappy, or at least, not so happy.

A negative or positive must be (at some stage) preceded by one or the other. That is mathematics.

We ask ourselves what is around the corner. We don’t have a special ‘around the corner’ mirror (as per multi story shopping centre parking areas) to see ahead. It would be nice if we did. We could sit on the beach all day and invest with no jitters because we know what is going to happen.

Share markets over 20 to 30 plus years have provided returns of approximately 10% to 12% per annum (income and capital growth). It would be nice for this to be a fairly even steady say 1% a month, every month. But unfortunately, the market does not work that way and we get variations (sometimes extreme). This is the price we pay for trying to get a return well above inflation over the long term.

Nevertheless, we can invest (especially regularly to get the benefits of dollar cost averaging into the market) knowing that “things” will turn around (meaning perhaps less volatility) and returns from the share market (with a well-diversified portfolio) will revert to a mean over the long term.

RECESSION – LONG TERM BOND RATES ARE LOWER THAN SHORT TERM BOND RATES

There is a lot in the media about the INVERTED YIELD CURVES and the possibility of these leading to a US recession – again we cannot predict with absolute certainty however, with continued support from US monetary policy, US unemployment falling to record levels and limited growth in US public sector debt, there is little supporting indicators to suggest a recession is nearby.

In the immediate short-term, share markets will most likely continue to be volatile and could still fall further as US trade issues and economic growth uncertainties remain at the forefront of World News.

Moreover, the following points need to be kept in mind during these uncertain and volatile times:

  • While shares may have fallen in value, on average the dividends being paid from the overall market have not fallen. The income you are receiving from a diversified portfolio of shares remains much the same and very attractive versus fixed interest rates as well as franking credits that may apply.
  • Daily/Weekly/Monthly drop downs in markets are healthy and normal. This volatility is the price we pay for the higher long-term return from shares. Recent good growth since last year meant there was always going to be some pullback.
  • Selling shares or switching to a more defensive or conservative strategy after falls in the market just locks in a loss of capital. We should always have a long term investment view which has been well planned and not subject to the emotion resulting from volatility.
  • For retirees in particular (but even accumulators) with cash rates at very low rates, a large portion of our investments in this area will have an impact on “HOW LONG WILL MY CAPITAL LAST IN RETIREMENT”.
  • Try turning off the TV, the phone and not reading the newspaper as this makes you more oblivious to all the hype/noise – not practical and just kidding of course. They (THE MEDIA) don’t talk much about a market that does 3% in one or two days.

At Plus 1 Group, we are available at any time to discuss issues of this nature with due regard to your investments or financial planning generally.

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Are we at Risk of a Recession?

Are we at Risk of a Recession?

Are we at Risk of a Recession?

There seems to be a lot happening in the world right now with many economists predicting that a recession is on the horizon.

Interest rates at record lows, markets at record highs, trade wars, record debt levels, Brexit, global economic growth slowing and the Australian property market decline has led to many gloomy economic predictions.

In Australia, the interest rate has been cut twice in the past two months to a record low of 1.00%, while the US Federal Reserve last week hinted at a rate cut in the short term.

Generally, interest rates are cut when there is a need to stimulate economic growth as when rates are lower, it decreases financing costs, which can spark more borrowing and investing.

This seems to be working, with the major US market indices of the Dow Jones, S&P 500 and the Nasdaq all hitting record highs last week, while back home, the All Ordinaries is also approaching its all-time high, which we haven’t seen since before the Global Financial Crisis.

With markets at record highs, some are concerned that we will see a crash, as markets cannot keep going up forever. That is true, however, just because we are at record highs does not mean we cannot go higher for some time yet.

Of course, there are more reasons than increasing borrowing and investing as to why Reserve Banks cut interest rates. Rate cuts can also assist with creating more jobs and boosting wage growth which are all ways in which to boost the economy.

Furthermore, in Australia, there is a considerable amount still in the pipeline which should stimulate the economy with the election result reducing policy uncertainty, tax cuts and some loosening on lending for housing all positive contributors to the economy.

While the property market in Australia has fallen, most notably in Melbourne and Sydney, it hasn’t fallen off a cliff like many predicted. The market has definitely corrected, which it needed to, as house prices were getting out of hand. The re-election of the Coalition – and therefore the removal of the threat to abolish negative gearing and capital gains tax, along with the RBA’s recent rate cut – has seen a resurgence in buyer interest.

Our population growth is still strong which helps the economy through supporting demand growth and while the cash rate is at its lowest levels, there is still some room to move if need be.

Moreover, if the RBA does not want to lower rates any further, they also have the option of quantitative easing. Quantitative easing would involve boosting the economy by injecting more cash into it using printed money. This could be done by using printed money to finance fiscal stimulus such as increasing spending on infrastructure. However, we believe that Australia is a long way off needing to do this.

So, what does this all mean? Yes, Australian and global economic growth is going through a rough patch right now and may for a little longer yet. However, there is also a lot of good things the economy has going for it as well. It is not all doom and gloom as some may lead you to believe.

In saying all of this, it remains important that your investment portfolios remain well diversified and in line with your risk profile. During times of economic uncertainty, it is vital that you are best prepared for anything that may happen. No one can predict what that market is going to do, however, we can ensure that we are not over-exposed to growth investments if something does happen. This does not mean selling out of your growth investments and have all of your money sitting in cash. What it does mean is to ensure you are comfortable with how you are invested.

If the economy does happen to go into recession and share markets do fall, it is important to remember that you are invested with a long-term view. Do not make decisions based on emotion and sell at the worst possible time. We all know that the share market can produce negative returns in some years, however, we also know that markets do recover and riding the ups and downs is all part of it.

If you are concerned with the current economic state and would like to discuss your options, please feel free to contact us at the office on (03) 5833 3000 and we can organise a time to discuss.

STOP PRESS: On the very day of sending this, it is significant to note that the All Ordinaries Index today broke its previous all time high of 6,873 previously reached on 31st October 2007

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End of Financial Year Check-List

End of Financial Year Check-List

End of Financial Year Check-List 

Are you ready for the End of Financial Year?

Tax deductions for personal contributions

 From the 1st July 2017, the requirement that an employed individual has to earn less than 10.0% of their income from employment related activities to qualify to claim a tax deduction for a personal super contribution no longer applies. Broadly, this means that any individual who is eligible to contribute to super will be able to claim a tax deduction for their personal super contributions. There are limits as to how much you can contribute and claim as a deduction. You cannot contribute any more than $25,000 during the 2018/19 financial year. It is important to remember that this figure includes any super guarantee or salary sacrifice contributions. If you exceed this limit, the additional amount will be included in your assessable income and taxed at your marginal tax rate. You will also attract an excess concessional contribution charge. At the same time, you will receive a refund of the 15% contribution tax that would have already been applied to your contribution. It is important to remember, that you must complete a “Notice of intent” or a “section 290 notice” to claim a tax deduction and lodge this with your super fund. This must be done before you lodge your income tax return for the income year in which the contribution was made. The cap remains $25,000 during the 2019/20 financial year.

Government Co-Contributions

The superannuation co-contribution is a Government initiative to help eligible individuals boost their super savings for the future. If you are a low or middle-income earner, you may be able to take advantage of the super co-contribution payment by making eligible personal super contributions to your super fund. You are eligible to participate in this initiative if you earn 10% or more of your income from carrying on a business, eligible employment or a combination of the two. The maximum Government payment of $500.00 will be available for a non-concessional contribution of $1,000 or more by an individual who earns below $37,697. The co-contribution phases out completely once total income reaches $52,696. The individuals eligibility for the co-contribution reduces by $0.03333 per dollar of income in excess of the lower threshold. Individuals must also be under the age of 71 at the end of the relevant year and meet the work test for any contributions made after reaching the age of 65. It is important to remember, your contribution needs to be applied to your account on or before the 30th June 2019.

    Spouse contribution

    A tax offset of up to $540.00 may be available for a spouse superannuation contribution of up to $3,000.00. The tax offset is reduced where the receiving spouse’s income (assessable income + salary sacrifice contributions + reportable fringe benefits) exceeds $37,000, cutting out at $40,000. The contribution rules and caps are treated on the receiving spouse. Therefore, no work test applies where the receiving spouse is under the age of 65. This is a great opportunity to reduce your tax bill and improve your overall retirement savings at the same time.

    Review salary sacrifice arrangements

    Even during turbulent investment markets, salary sacrificing into superannuation is still an effective strategy as the tax saving between your marginal tax rate and the superannuation contributions tax rate of 15% could be significant. Furthermore, any earnings achieved by your superannuation program will be taxed at a maximum rate of 15% as opposed to your marginal tax rate. Where an individual earns in excess of $37,000 (tax neutral position or thereabouts) and has other income sources available to them, an opportunity exists to sacrifice a portion of their income. Where a bonus is obtained and payable before the end of the financial year, consideration could be given to applying a portion of the same to your superannuation program. However, the election to salary sacrifice into super must be made before any income and/or bonus is derived.  It is important to remember that the contribution limits outlined in point 1 still apply and allowances need to be made for any superannuation guarantee contributions (9.50% post 1st July 2014) and/or additional employer contributions made during the financial year. Furthermore, if you participate in an employer sponsored superannuation scheme and your employer pays for your insurance costs, these contributions are counted towards the limits previously outlined. While it may be too late for this financial year, it is never too early to start planning for next year.  

    Top up your super (Non-Concessional Contributions NCC)

    If you have some surplus cash sitting in a bank account earning very little interest, consideration should be given to topping up your superannuation to create greater wealth for retirement purposes. It is important to remember that any money you apply to your superannuation account will be preserved until such time as you meet a condition of release. During the 2018/19 financial year, the non-concessional contribution limit is $100,000 per annum or a maximum of $300,000 over a 3 year period using the bring-forward cap. From 1st July 2017, the amount of the bring-forward that can be triggered is dependent on your Total Super Balance (TSB) and reduces where this balance exceeds $1.4m.

    Allocated pension draw-downs

    The minimum allocated pension draw down requirements will reflect your account balance as at 1st July each year. These minimum payment amounts are based on the following criteria for account-based pensions;

    Imputation credits

    The basis of the imputation system is that shareholders or unit holders who receive dividends or distributions are entitled to a tax offset for the tax paid by the company or trust on that income. This credit is extremely valuable due to it’s tax advantage status for all investors, even those who do not pay tax as the excess imputation credits can be refunded. If an individual is not required to lodge a tax return, they can complete a form requesting the ATO to refund the franking credits. If you have any direct shares and/or managed funds in place, please ensure that you consider your entitlements in this area. 

    Superannuation contribution splitting

    Superannuation contribution splitting is a strategy that involves splitting certain superannuation contributions with a spouse. It allows a single income family to share their superannuation benefits in a similar way to dual income families. An individual can split concessional contributions to an account held by their spouse, either within the same fund or any other complying superannuation fund, subject to the fund rules. Members can apply to split 2017/2018 contributions before 30th June 2019. Two of the key benefits of this strategy is to: A) Access two tax free thresholds from preservation age to age 59, effectively doubling the amount that is able to be withdrawn as a tax free lump sum ($205,000 x 2 = $410,000) and B) To shelter assets that will form part of Centrelink’s asset test. Due to the uncertainty surrounding contribution limits, this strategy may also offer some financial benefits at a future date.

    Prepay deductible expenses

    A tax deduction may be claimed for up to 12 month worth of interest prepaid on an investment loan on a rental property, margin loan on a share portfolio or managed investment, provided that the loan has the facility that allows this. In addition, the payment of other deductible expenses such as professional memberships or pre paying salary continuance/income protection insurance by 30th June 2019 will reduce taxable income.

    Employment terminations

     Where an employee has the ability to choose his or her leaving employment date, they may be able to optimize the tax treatment of payments received. For example, in a redundancy situation, the amounts able to be received tax free are indexed at the 1st July each year and are based on years of “completed service” or terminating employment after the 1st July rather than before also means that marginal and concessional tax rates can be best utilized if little or no other income is earned in that year.    

    Manage capital gains tax

    Where there is a potential capital gains liability from selling an asset during the year, it may be appropriate to sell another asset to crystallize a loss. Realising a loss allows individuals to offset capital gains and thus minimize or even eliminate a tax liability they may otherwise be facing. At the same time, this strategy may allow individuals to offload a low quality or under performing asset that has little likelihood of recovering in the short to medium term and to invest in a quality asset.

    Work test exemption for retirees

    Beginning from the 1st July 2019, a person who is age 65 or over can make voluntary super contributions without having to first meet the work test in the year the contribution is made. This is known as the work test exemption and is a once only opportunity. Broadly, the member can make voluntary contributions, both concessional and non-concessional in the year immediately following the year in which they last met the work test. However, the recent retiree must have a prior 30th June Total Superannuation Balance (TSB) of less than $300,000 to be eligible for this opportunity. Normal contribution restrictions apply.

    Unused concessional contributions

    Beginning in the 2018/19 financial year, a person can commence to accrue unused amounts of concessional contributions (CC) and carry forward these unused amounts. The first year a person can make additional CC’s from their unused amounts is in the 2019/20 financial year, provided their prior 30th June Total Superannuation Balance (TSB) was under $500,000.

    Downsizing contributions into Superannuation

    From 1st July 2018, if you are 65 years or older and meet the eligibility requirements, you may be able to choose to make a downsizer contribution into your super fund of up to $300,000 from the proceeds of selling your home.

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    If you need to get us documents quickly, access remote support, or the MYOB Portal click the button above.

    Contact Us

    27 Welsford Street
    Shepparton, VIC 3630

    T: (03) 5833 3000
    F: (03) 5831 2988
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