Details

Created: 26 November 2024

All eyes will be on the Reserve Bank of Australia on December 10, as it makes its final cash rate decision of the year. In the meantime, here's what else is making news:

• Top 3 ways to finance your renovations
• New insights into property investment
• Are redraw & offset right for you?
• More homes needed to improve affordability

Call me now on: 0402 408944

Top 3 ways to finance your renovations

Are you considering renovating? If so, you’re not the only one, because renovations are incredibly popular, with homeowners investing $2.84 billion on alterations and additions in the June 2024 quarter, according to the Australian Bureau of Statistics. Typical costs range from about $2,000 to $5,000 for bedrooms, $15,000 to $30,000 for bathrooms and $25,000 to $50,000 for kitchens, according to JDL Constructions.

Here are three ways to finance your renovations:

• Take out a construction loan. With a construction loan, the funds will be distributed in stages throughout the project, rather than in an upfront lump sum, and you’ll be charged interest only on the funds you’ve already received. Your construction loan will be interest-only during the building phase and will then revert to a standard principal-and-interest home loan once the building has been completed. 
• Take out a personal loan. Compared to a construction loan, the application process is likely to be faster and your chance of approval is likely to be greater, but your interest rate is likely to be higher as well. 
• Pay cash. This is the simplest option. 

If you’re thinking about paying for the renovations with a credit card, please be careful, because while you will not have to go through an application process, the interest rate will be extremely high and could leave you susceptible to falling into a debt trap.

New insights into property investment

More and more Australians are turning to property investment, new analysis has revealed.

CoreLogic’s head of research, Eliza Owen, found that the number of investors entering the market was exceeding the number exiting, by comparing home loans data with listings data.

“Investor inferred listings have been trending higher since March this year, to 13,000, but remain well below the peak of investor listings activity in November 2021,” Ms Owen said. 

“As investment listings remain below these highs, the number of new loan commitments remains high at 18,400. The previous five-year average for the month was 14,516.”

Why is property investing so popular? Probably because it offers three big potential benefits:

• Capital growth – if your property rises in value 
• Ongoing rental income – which can be used to pay down your mortgage 
• Tax benefits – you can reduce your taxable income if your property is negatively geared 

Reach out if you’re thinking about buying an investment property. I’ll model different repayment scenarios for you, so you can make an informed decision about whether investing is right for you.

Redraw and Offset- are redraw & offset right for you?

There’s a lot more to a home loan than just the interest rate. The features of the loan can also have a big impact on your total mortgage costs and repayment flexibility, which is why it’s important to understand the potential benefits of a redraw facility and an offset account.

Redraw and offset have one thing in common – they reduce the amount of interest you get charged. If, for example, you have $500,000 outstanding on your loan and $40,000 in either redraw or offset, you’ll be charged interest on only $460,000 (i.e. $500k minus $40k).

But there are subtle differences between the two features.

Redraw is a facility that sits within your loan. The way you accumulate money in redraw is by making extra home loan repayments. The lender will allow you to borrow back (or redraw) these extra repayments, subject to certain conditions. But because this money belongs to the lender, it’s technically possible the lender might decide one day not to allow you to reclaim the money, or change the conditions of redraw.

Offset is a separate transaction account that’s linked to (but separate from) your home loan account. The way you accumulate money in offset is through deposits – for example, salary payments. The money in your offset belongs to you, so the lender can’t prevent you accessing it.

• Pros: you can use redraw and offset to reduce your interest bill and pay off your home loan sooner. 
• Cons: your lender may charge you a higher ongoing fee or higher interest rate to access these loan features. Also, you may be charged a fee for each redraw transaction. 

  ---

More homes needed to solve affordability problem

The federal government is aiming to improve housing affordability by increasing the supply of housing, which would be expected to reduce demand and put downward pressure on prices. As a result, the government is attempting to facilitate the building of 1.2 million homes in the five years from July 2024. So what does the latest homebuilding approvals data show?

Unfortunately, it suggests the government will struggle to achieve its target.

In the five years to September 2024, only 937,950 approvals were issued. This is a drop-off from the five years to September 2023, when 949,469 approvals were issued, according to the Australian Bureau of Statistics.

It’s also worth noting that because some projects never proceed after receiving the green light, the building of 1.2 million homes will require an even greater number of approvals.

But there is some good news: Housing Industry Association economist Maurice Tapang said “the market is past its trough” and more buyers are now choosing to build new homes. 

“The cost of homebuilding materials are growing at a more normal pace, while build times for houses are back to pre-pandemic levels,” he added. If that trend continues, it would represent good news in terms of affordability. 

Mortgage Broker with over 30 years experience, I can help first home buyers - buy their 1st home, home buyers buy their second, third or fourth home, investment property investors and people who want to build a home.

Based in Victoria Point, I have helped clients all over Australia purchase a home including Gold Coast, Brisbane, Cleveland, Redland Bay, Thornlands, Thorneside, Ormiston, Alexandra Hills, Mt Cotton, Victoria Point, Wellington Point, Birkdale, Shailer Park and the greater Logan area.