EMail Newsletter

September 2006

House Price Index

I have attached a bulletin showing the Housing Price Index figures from the Bureau of Statistics.  As you can see there is a vast difference in the growth figures in Perth compared to Sydney. 

These figures highlight the difficulty the Reserve Bank faces in setting interest rates on a national basis when there are really a number of different economies operating in different parts of the country.

It would be great if everyone West of Alice Springs got a 0.5% rate rise and everyone else got a rate cut.  I wonder if that job at the Reserve Bank is still available now that Ian Macfarlane has retired....

Click here for figures

Book Review – Forbes Greatest Business Stories Of All Time.

I don’t plan to make this a regular feature of the newsletter as I really can’t read that fast.  But I am just finishing a great book so I thought I’d share my thoughts.

This book has 20 different stories about great business people of the last 200 years, from J.P. Morgan and Henry Ford to Walt Disney and Bill Gates.  I liked the story about Cyrus McCormick.  He toured the USA demonstrating his “Reaper”, showing farmers how his machine could cut the time it takes them to harvest their crops.  His business grew into the giant International Harvester Company.

It's well worth a read if you like a quick story that you can get through in one night of reading.

Out of interest, have you ever read a book about someone who has made $20billion only to find they cover the first million in about one paragraph?  Personally, I’d like to see a whole book about how they made their first million….and we’ll get back to you when we need to know about the other $19.9billion.

No Deposit Home Loans – In Two Minutes

I have had questions all week about No Deposit Home Loans.  So here it is.  Everything you need to know about 100% loans but were too afraid to ask.

Do I need a Deposit for a No Deposit Home Loan?

Many lenders still require some history of genuine savings to show that you can meet the repayments.  If you are paying $1,000 per month in rent and will now pay $2,000 in mortgage payments, the lenders will want to see that you have the ability to meet the higher payments.  You will also need additional funds for a solicitor, removalists etc

Will the First Home Owners Grant cover the costs?

*** Read this bit *** this is the bit that most borrowers forget to factor into their calculations ***

Borrowers will have to pay Mortgage Insurance (or a “risk fee”) for a No Deposit home loan.  On a loan of $300,000 this will be around $7,500, eating up the entire FHOG.  Most borrowers are usually counting on the FHOG to cover some of their expenses.

What if I don’t qualify for a First Home Owners Grant?

Unfortunately, you will miss out on the $7,000 AND you will have to pay Stamp Duty.  You will either need savings to cover this or we have a range of loans up to 106% of the purchase price that allow you to borrow the stamp duty as well.

How do I pay the deposit?

The lender is paying 100% of the purchase price so you won’t have the 10% deposit.  You can cover this using a Deposit Bond, which we arrange for you.

Is the lender taking a big risk by lending 100%?

Yes, the lender is taking a bigger risk than an 80% home loan.  But lenders take out a mortgage insurance policy to cover them against any shortfall if they have to sell the property for a reduced price.  The Mortgage Insurance fee is payable by the borrower.

Can parents guarantee a loan for their kids?

Yes.  If the loan is secured against the purchase property AND the parents property then the loan is likely to be less than 80% of the property values so no Mortgage Insurance is payable.

These days most lenders limited the parents exposure to around 25% of the loan, with the other 75% covered by the purchase property.

Can parents assist their children with a “gift” towards the purchase costs?

Yes.  If you want to get rid of (I mean assist) your kids in buying their own home you can give them a gift to help them out.  However most lenders still require some proof of genuine savings.  Genuine savings are accumulated over 3 to 6 months rather than one lump sum gift from an outside source.

You will usually need additional savings in addition to the gift.  If a gift is your only source of funds we have lenders to cover that situation too.

What is the biggest factor stopping people buying their own home?

Car Loans and Credit Cards.  A $500 per month car loan can reduce your borrowing capacity by $100,000.  Try to limit any loans or credit cards if you are trying to purchase a house.

Will working a second job help me get a loan?

Working a second job is a great way of accumulating extra savings to put towards your new house.  If you are relying on the second job for income to prove you can “service” the loan, most lenders will not include that income unless you can prove that you have been doing the two jobs long term.  You can’t just work a second job for a few months to bump up your income for serviceability purposes.

What if I’m thinking about getting a No Deposit loan in 6 to 12 months?

My suggestion is to come and see us now and find out the rules.  It’s no good calling us two weeks before you want to buy a property only to find that your gift doesn’t count towards your genuine savings and your second job doesn’t count either.

It makes the target so much easier to hit if you know what you are aiming for 6 months in advance.