The Reserve Bank has expressed concerns over how some borrowers on low fixed-rate mortgages will cope once their loan expires.

Incremental home loan interest rate hikes have been eating into the household budgets of millions of Australians ever since the Reserve Bank of Australia (RBA) began lifting its official cash rate in May 2022.

This month the RBA decided to leave its cash rate unchanged at 3.60 per cent following a cumulative increase in interest rates of 3.50 per cent over 11 months.

The RBA says it took the decision to hold interest rates steady so it has more time to assess the impact of the increases in interest rates to date and the economic outlook.

That’s certainly good news for most borrowers, especially people with variable rate home loans.

Many of them have seen their monthly mortgage repayments creep up by between 30 and 50 per cent from what they were back in early 2022.

The average interest rate on a standard variable mortgage with a 70-80 per cent loan-to-valuation ratio is now around 5.50 per cent. Some mortgage products are charging customers over 6 per cent.

But there’s another large sub-set of home loan customers – around 1.33 million according to the RBA – that are clinging to the edge of what many have described as a fixed-rate mortgage cliff.

When interest rates were at record lows in 2021, many of them were able to secure two- to three-year fixed-rate loans at rates close to 2 per cent. Some two-year honeymoon rate deals were priced under 2 per cent.

In a research paper released last month entitled Fixed-rate Housing Loans: Monetary Policy Transmission and Financial Stability Risks, the RBA estimated that 880,000 fixed-rate home loans will expire and roll over to variable rate loans during this year. Another 450,000 will expire in 2024.

Large repayment increases ahead

A borrower with a $500,000 mortgage (over 25 years) currently locked in at a low fixed-rate loan of 2 per cent would see their monthly repayment jump from around $2,100 to $3,100 (assuming they move to a 5.5 per cent variable rate) once their fixed-rate loan expires.

A 0.25 per cent rate rise increases loan repayments by around $80 per month.

The RBA notes that while these monthly increases are large, most borrowers on fixed rates have benefited from a long period of paying low rates compared to borrowers on variable rates.

Yet, while that has definitely been the case, there are general concerns that some borrowers on low fixed-rate loans may struggle to afford a large increase in their repayment obligations.

“A key issue for the economic outlook, and by implication financial stability, relates to the ability of borrowers with fixed-rate loans to adjust to substantially higher borrowing costs when their fixed-rate mortgages expire,” the RBA says.

“While many borrowers on fixed rates may have saved or be saving in preparation for higher loan payments, some may have used the period of low fixed borrowing costs to consume more than they would have otherwise”.

The RBA says the “large and discrete increase” that the fixed-rate loan borrowers have faced or will soon face in their mortgage payments is one of the factors expected to contribute to slower household consumption in the period ahead.

Loan refinancings continue to surge

Borrowers on low fixed-rate loans may have little alternative but to refinance their outstanding loans to a higher variable rate when their fixed term expires.

Fixed-rate loans that roll over to a variable rate loan with the same lender don’t show up in official lending statistics. However, the Australian Bureau of Statistics (ABS) does keep a monthly record of home loans that borrowers refinance with another lender.

ABS lending indicators data released at the start of April shows that “external refinancing” of owner-occupied mortgages reached a record $13.62 billion in February 2023. This was up from $13.16 billion in external refinancings in January.

Over the six months to the end of February this year the value of external refinancings for owner-occupied loans was just under $78 billion.

Credit ratings agency Moody’s in March 2023 gave a “credit negative” review of the Australian residential mortgage-backed securities market.

Many of the mortgages in this segment are provided to higher-risk borrowers in the form of “low-doc” loans – meaning the relevant borrowers were able to secure loans without having to show extensive documentation to the lender demonstrating their ability to repay their outstanding debts.

However, some major Australian home loan lenders are reporting that at this stage mortgage defaults and home repossessions are occurring at a rate no higher than they were at the peak of the global financial crisis.

A view on interest rates

Vanguard believes the RBA is now likely to keep rates on hold as it assesses the impact of all its rate rises on bringing inflation down. A base case is that the RBA may then start cutting rates in mid-2024.

“We have pencilled in May 2024 as a rough date,” says Alexis Gray, Senior Economist, Vanguard Asia-Pacific. “We believe that the conditions for a rate cut will not be met until that time.

“Those conditions are that inflation has cooled, and is projected to fall back to target, or even lower. At the moment the economy is still resilient despite a significant increase in interest rates, and the labour market remains tight.

“As a result, inflation is uncomfortably high and monetary policy must remain restrictive to help guide inflation back to the RBA’s 2-3 per cent target.”

If you’re currently on a fixed-rate home loan or have concerns about your current home loan and would like to discuss your options, please contact us on Phone: 07 5641 4134 today.

Source: Vanguard

Important information and general advice warning

Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer and the Operator of Vanguard Personal Investor. We have not taken your objectives, financial situation or needs into account when preparing this article so it may not be applicable to the particular situation you are considering. You should consider your objectives, financial situation or needs, and the disclosure documents for any Vanguard financial product you are considering, before making any investment decision. Before you make any financial decision regarding the subject matter of this commentary, you should seek professional advice from a suitably qualified adviser. A copy of the Target Market Determinations (TMD) for Vanguard’s financial products can be obtained at vanguard.com.au free of charge and include a description of who the financial product is appropriate for. You should refer to the TMD of a Vanguard fund before making any investment decisions about that fund. You can access our IDPS Guide, PDSs, Prospectus and TMD at vanguard.com.au or by calling 1300 655 101. Past performance information is given for illustrative purposes only and should not be relied upon as, and is not, an indication of future performance. This commentary was prepared in good faith and we accept no liability for any errors or omissions.

© 2023 Vanguard Investments Australia Ltd. All rights reserved.

The latest earning season proves that company dividend payouts are choppy. Casting your net wider will help capture broader income returns.

If you own shares in one or more listed Australian companies, you may have been keeping an eye on the latest round of corporate earnings announcements.

Earnings season is the equivalent of “peak hour” for many investors as the roughly 2,300 companies listed on the Australian Securities Exchange (ASX) report their half-year or full-year results.

Importantly, as well as announcing their financial and operational performance details, it’s the time when companies will announce if they’re going to pay a dividend per share.

But, as the latest earnings season finishing at the end of February has just shown, you can’t necessarily bank on receiving a steady dividend income stream from individual companies.

Varied dividend results

Of the 200 largest companies listed on the ASX, almost 90 per cent declared that they would be paying a dividend to shareholders from the most recent half-year earnings period.

Of these companies, over 50 per cent reported they would be increasing their dividend per share payout.

Around 12 per cent said they would be maintaining their dividend per share payout, but around 20 per cent said they would be cutting them.

Feeding into the payout equation were factors such as whether companies would use their available cash to maintain or increase their dividends to investors, or reduce their payouts and keep some of their cash for operational purposes including to cover costs.

Many companies reported the dual impacts of rising interest rates and inflation on their results, particularly in relation to higher debt repayments, higher materials costs, higher wages, and lower revenues.

Income challenges for investors

The variability of company dividend payouts is nothing new.

Far from being stable income streams, individual company payouts can be changeable due to a whole range of factors.

Even holding a portfolio of select top-tier company shares doesn’t guarantee you’ll receive the same level of dividend income from one reporting period to the next.

That’s a genuine problem for many investors, especially those reliant on steady cash flows.

Increasingly, many investors are using equity exchange traded funds (ETFs) and managed funds to cast their investment net much wider than just a few companies, to capture the dividend flows from hundreds of companies.

Harnessing broad dividend streams – rather than relying on dividends from a select group of companies – is another element of portfolio diversification.

ETFs and managed funds receive dividend payments from the companies (or bond issues) they invest in which can then be aggregated and passed through to unitholders as distributions.

Typically, these distributions can either be taken as cash or reinvested back into the same fund to purchase additional units, at the unitholder’s election.

The size of the distribution paid to you as a unitholder depends on how many units you hold as well as the aggregated amount of dividends paid to the fund by the companies in which it invests.

Taking a total return approach

As noted above, there are no guarantees when it comes to receiving dividends from individual companies.

In the latest earnings season dividends (in cents per share) from the top 200 ASX companies rose by 5 per cent. But in total dollar terms, dividends fell by 3 per cent, reflecting lower payouts by some companies.

The dilemma for income-focused investors is choosing an investment strategy that supports one’s lifestyle without having an over-reliance on income streams such as dividends.

In terms of investment income strategies, it’s therefore important to look beyond specific earnings seasons and to take a broader, longer-term approach.

This should involve looking at all sources of investment returns: both income and capital growth.

A total-return approach assesses individual or household goals and risk tolerance, and then focuses on asset allocation to ensure it can sustainably support one’s spending needs.

Unlike an income-oriented strategy, which generally seeks to use income returns for cash flow and preserve capital, a total-return approach encourages using money that has been achieved from capital growth returns over time when it’s necessary to do so.

If your income return falls below your spending needs, you have the option of offsetting the shortfall by reducing your investment holding (that is, taking out some of your profit).

When income returns rise, you have the option of reinvesting to increase your investment holding.

This approach can help to smooth out income during volatile market periods.

While capital returns – which are primarily achieved via upward share price movements – can be a volatile and relatively high-risk component of this strategy, taking a long-term view is paramount.

In addition to the benefit of smoothing out your income, a total-return strategy can allow you to better diversify your risk across different investments.

This diversification can be done across countries, sectors and securities, rather than skewing a portfolio to a segment of the market with higher income yields, or worse, taking excessive risk by reaching for a desired yield.

To find out more about dividends and how they work, call us on Phone: 07 5641 4134.

Source: Vanguard

Important information and general advice warning

Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer and the Operator of Vanguard Personal Investor and the issuer of the Vanguard® Australian ETFs. We have not taken your objectives, financial situation or needs into account when preparing the above article so it may not be applicable to the particular situation you are considering. You should consider your objectives, financial situation or needs, and the disclosure documents for any relevant Vanguard product, before making any investment decision. Before you make any financial decision regarding Vanguard investment products, you should seek professional advice from a suitably qualified adviser. A copy of the Target Market Determinations (TMD) for Vanguard’s financial products can be obtained at vanguard.com.au free of charge and include a description of who the financial product is appropriate for. You should refer to the relevant TMD before making any investment decisions. You can access our IDPS Guide, PDSs Prospectus and TMD at vanguard.com.au or by calling 1300 655 101. Vanguard ETFs will only be issued to Authorised Participants. That is, persons who have entered into an Authorised Participant Agreement with Vanguard (“Eligible Investors”). Retail investors can transact in Vanguard ETFs through Vanguard Personal Investor, a stockbroker or financial adviser on the secondary market. Retail investors can only use the Prospectus or PDS for informational purposes. Past performance information is given for illustrative purposes only and should not be relied upon as, and is not, an indication of future performance. This article was prepared in good faith and we accept no liability for any errors or omissions.

© 2023 Vanguard Investments Australia Ltd. All rights reserved.

Helping you breakdown technical terms

There are some tricky terms used throughout the home buying process that can be confusing for first-time buyers. It’s important for you to understand this terminology when navigating your home ownership journey to avoid having to make changes down the track which can be costly.

Key loan terminology

An important indicator for you to consider when evaluating the cost of a loan from different lenders is the comparison rate. It is a percentage rate figure that evaluates the interest rate, taking into account the fees and charges associated with the loan. For a home loan, the comparison rate is usually calculated based on a standard loan amount of $150,000 for a 25-year term. Put simply, the comparison rate is intended to help you to compare the true cost of the loan across several lenders.

Line of credit (also known as revolving credit) is a flexible ongoing loan arrangement that allows you to borrow within a specified and agreed credit limit. Like other loans, a line of credit charges interest as soon as money is borrowed. Interest is added to the loan each month up to the loan limit, or you can make interest-only repayments during the loan term while the loan is within its credit limit. Lines of credit are often used for everyday transactions to cover any gaps in irregular monthly income or for costs that cannot be predicted upfront.

Lenders Mortgage Insurance (LMI) is insurance taken out by a lender to protect itself against the risk that a borrower defaults on their loan repayments. With LMI, a lender may accept a smaller deposit than the 20 per cent usually required which can accelerate the home ownership journey.

The Loan-to-Value Ratio (LVR) refers to the proportion of the loan amount to the lender’s valuation of your property. LVR is used by financial institutions as an assessment of lending risk and will typically require that LMI be obtained for the loan if the LVR is greater than 80 per cent. This is calculated by dividing the loan amount by the assessed value of the property. This means a property valued at $500,000 and a deposit of $50,000 would require a $450,000 loan, equal to an LVR of 90 per cent.

Before switching loan products, making additional repayments to your fixed rate loan or repaying your loan in full during the fixed rate period, it is important to consider break costs. These fees are the calculated amount of loss incurred by lenders when your repayments exceed the fixed rate repayments due during the year, or if you repay your fixed rate loan early, which are passed onto the borrower. Some lenders may allow you to make a small amount of repayments above your fixed repayments annually without incurring break costs. Make sure you are aware of these costs and understand when they would apply to your loan to avoid any unwanted fees.

Your home loan can also be linked to an everyday banking or debit account which is called an offset account. Any savings deposited into this account will be offset against the balance of your home loan, meaning you only pay interest on the difference between the loan balance and amount in the offset account. This may help to reduce your home loan term.

A guarantor loan is a type of home loan that allows you to rely on third party’s assets as part of your loan approval. If you don’t have a 20% deposit, then generally a lender may accept a third party guarantor to support you to purchase a home of your own (usually a parent or close relative). You still need to make your loan repayments, and the guarantor accepts the obligation to step in. Should you default on your loan they may by required to make the repayments or the bank may exercise their security interest over your property (and potentially the guarantor’s) in order to recover their loss.

An establishment or application fee is charged by lenders when you take out a home loan. This fee is charged to cover the costs of setting up your home loan and its necessary documentation.

You will receive a formal approval in the form of a letter where the lender confirms that they have everything needed to proceed with your home loan. This is different to a conditional approval, which is generally obtained earlier and is subject to various conditions.

Key property terminology

It is important to protect yourself against gazumping when purchasing property. Gazumping can occur when an offer you make to buy a property is accepted and the price is agreed upon, but the property is then sold to someone else who makes a higher offer. Being gazumped is not only disappointing but can prove to be costly as the agent and seller are not obliged to provide compensation for any money spent on legal advice, inspections or application costs. You can protect yourself against this by:

• Exchanging contracts with the vendor as soon as possible: Once contracts are exchanged between the buyer and seller, the sale is legally binding

• Have your loan financing arranged to avoid any delay in exchanging contracts

• Purchase at auction where gazumping can’t take place.

A contract of sale is the legally binding written agreement between the buyer and seller that outlines the terms and conditions for the sale of the property. This contract is often negotiated and prepared by solicitors or conveyancers.

Conveyancing is a key part of the property buying journey. It encompasses all legal work required to prepare and finalise the sales contract, mortgage and other property related documents. When purchasing a property, you have the option to do your own conveyancing or contact either a licensed conveyancer or solicitor.

Exchange of contracts is when a contract signed by the vendor is swapped with an identical contract signed by the property purchaser. This is a crucial part of the conveyancing process as it is the stage at which the sale becomes legally binding for both parties. When contracts are exchanged, you are also required to pay the deposit for the property being purchased.

After contracts have been exchanged, it is common to have a cooling off period ranging from 2 to 5 business days depending on the state. This allows you to change your mind and withdraw from the sale but may incur a financial penalty calculated as a percentage of the purchase price. However, it’s important to know that a cooling off period does not apply for houses bought at auction. Please note: The length of the cooling off period can vary between states as some do not have mandatory cooling off periods.

Settlement is when you become the legal owner of a home and you’re able to move in. It usually occurs 6 weeks after the exchange of contracts and is when your lender disburses funds for your loan that cover the remaining sale price.

If you’re considering buying a home and need help, call us on Phone: 07 5641 4134, we can help you cut through the jargon. 

 https://helia.com.au/tools-resources/it-s-my-home

This publication has been produced by Helia Group Limited (’Helia’). This publication may include content which is owned by third parties (’third party content owners’) and that has been provided to Helia for publication. Opinions expressed in this publication are of the writer or contributor and do not necessarily reflect the view of Helia or its affiliates. This publication covers a variety of topics including property, insurance and other financial products and services. Although some of the information involves tax, stamp duty, legal, accounting, financial or similar issues, Helia, its affiliates and the third-party content owners (as to their materials only) (‘we’) are not in the business of offering such advice and nothing in this publication constitutes a personal recommendation or advice. You must consult with your own professional advisers to examine the legal, tax, accounting or investment aspects of any information presented in this publication and how they may affect your particular situation.

The information also does not contain all of the applicable terms, conditions, limitations or exclusions of the products or services described. We expressly disclaim all responsibility and liability for any action or inaction by you in reliance or partial reliance on any material, information, opinion or advice in this publication or referred to in this publication. The information is current as at the date of publication but may change without notice. We are under no obligation to update the information or correct any inaccuracy which may become apparent at a later date. We do not take any responsibility for any reliance on the information contained in this publication or for its reliability, accuracy or completeness. Nothing in this publication is an offer by or on behalf of Helia or its affiliates to sell, or solicit an offer to buy, any security or financial product.

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Nailing your home loan application depends on four factors — your income, expenditure, assets, and debts. But lenders also want to see evidence of a savings and (good) credit history. Here’s what you can do to improve these.

1. Start saving. Make a plan.

The BT Australian Financial Health Index found that a third of us pretty much live week to week, payday to payday.

It also found that 35% have a sound savings plan, with the remaining third falling into the ‘Could Do Better’ category. To have a good chance of getting a loan, you’ll want to be in the 35% who’ve sorted their savings.

But even if you get a substantial deposit together, lenders will still want proof you’re a regular saver.

Why? Because a sound savings record gives them confidence you’ll meet your home loan repayments on time.

If you’re savings have been a bit up and down, the good news is that banks look favourably on a record that might be just six months hard saving. So set up a designated ‘House’ account and get started today.

2. Sort out a budget

Having a budget—and sticking to it faithfully—is further proof to a lender that you’re financially responsible. A good ‘risk’.

Let’s look briefly at three basic principles to start with.

Your budget should be realistic

It can’t be too harsh or you won’t stick to it. You need to take into account all your spending—all those little treats (as well as the necessities) that are easily forgotten.

Car repairs and maintenance, for instance, can be overlooked if you’ve had a good run over the past year or two.

Your budget should be ‘disciplined’

Just because it’s not the Budget from Hell, doesn’t mean you can enter ‘Shoes. $500 a month’ into your ‘Regular Expenses’ section.

You’re working towards a long-term goal and that requires discipline and some sacrifice.

Your budget should be flexible

This doesn’t contradict the previous point. But you need a bit of wriggle room in your budget for when things don’t go to plan.

If you have a setback, you can’t afford to let everything slide. It’s a great idea to keep tabs on spending.

3. Reduce your debts

Obviously, if you’ve got a hefty overdraft and loads of credit card debt, you’re not in a good spot.

To up your chances, you need to get your debt down. This might mean considering a debt consolidation loan so you only have one repayment to make each month.

Balance transfers, if used wisely, can also help reduce the amount of interest you’re paying.

Keep in mind that banks also take into account the credit limits on your cards, even if you’re not in debt at all. They’re interested in your total potential ‘risk’ exposure. So you might want to reduce your credit limits, or cut the number of cards you have.

Contact us on Phone: 07 5641 4134 to find out more.

Source: NAB

Reproduced with permission of National Australia Bank (‘NAB’). This article was originally published at hhttps://www.nab.com.au/personal/life-moments/manage-money/budget-saving/improve-finances

National Australia Bank Limited. ABN 12 004 044 937 AFSL and Australian Credit Licence 230686. The information contained in this article is intended to be of a general nature only. Any advice contained in this article has been prepared without taking into account your objectives, financial situation or needs. Before acting on any advice on this website, NAB recommends that you consider whether it is appropriate for your circumstances.

© 2022 National Australia Bank Limited (“NAB”). All rights reserved.

Important:
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

Cash in a deposit account doesn’t necessarily equate to safety. That’s why many investors are shifting to fixed interest securities.

By any measurement, $2.8 trillion is a lot of money.

Expressed another way, it’s $2,800 billion. And it’s also the amount of money – according to Australian Prudential Regulation Authority data from January 2023 – that’s being held in millions of deposit accounts provided by Australian banks and other authorised deposit-taking institutions.

Separate data from the Reserve Bank of Australia shows that, of the total, roughly $1.6 trillion is being held in transaction accounts.

These are typically ordinary savings accounts providing people (and organisations) with quick access to their money.

A further $1 trillion is in non-transaction accounts – accounts such as term deposits, where you receive a fixed income return for effectively locking your money away for a set period of time.

For the most part, cash held in savings accounts is used for general living and discretionary expenses – to pay for mortgages, rent, food, and other everyday costs.

On the other hand, cash held in term deposit accounts can readily be classified as an investment.

It’s generally put there for periods ranging from six months to anywhere up to five years to earn a higher return than a savings account would earn if the cash was retained over the same period.

The pros and cons of cash

There is a common misconception that cash is a risk-free asset. It’s not prone to daily market volatility like shares are. As noted above, cash in a savings account is also liquid – you can generally get your hands on it quickly and easily.

Furthermore, cash savings up to $250,000 per account holder (including SMSF trustees) on deposit with an Australian authorised deposit-taking institution are guaranteed by the Commonwealth in the event the institution fails.

Yet, cash does have inherent investment risks. Firstly, a decade of record-low interest rates has meant that cash as an asset class has delivered an average annualised income return of just 1.9 per cent since 2012.

That’s lower than any other major asset class. Worse still, after taking high inflation levels into account, real cash returns have been negative for some time.

Bonds as an alternative

Investors wanting to explore other ways to invest their cash, outside of vehicles such as fixed term deposit accounts, may be interested in considering fixed interest securities.

In everyday financial language they’re referred to as bonds.

Bonds are securities issued by governments or companies that they use to borrow money.

Investors buying bonds can expect to receive full repayment of their principal if they hold it until maturity, as well as steady regular interest payments until then (similar to a term deposit).

As such, bonds are generally considered a lower-risk type of investment than shares, which can’t offer any expectations to investors of either full repayment or a steady income stream and which are usually more prone to market volatility.

Likewise, being slightly higher-risk than cash, bonds are generally expected to outperform cash over the long term.

What’s clear is that a growing number of investors worldwide are using their cash to take advantage of higher-returning, relatively low-risk, high-grade bonds, especially government-issued bonds.

That’s showing up in a range of other data, including statistics from the Australian Securities Exchange (ASX) covering monthly inflows into ASX-listed exchange traded funds ETFs that invest in Australian and international bond issues.

ETF bond funds can readily be bought and sold by anyone in the same way as listed shares, simply through any ASX-linked trading platform.

In the latter half of 2022 investment inflows into ASX-listed bond ETFs ($2.2 billion) actually exceeded the inflows into ASX-listed Australian shares ETFs ($1.6 billion) – that’s rare.

What’s attracting investors into bonds?

Three main factors have led to the increased, and accelerating, inflows into bond products around the world.

1. Higher interest rates

Rising interest rates have lifted the yields available to investors on new and existing bond issues. That makes bonds more attractive to investors seeking higher steady income streams.

Vanguard forecasts global bonds to return 3.9-4.9 per cent and domestic bonds to return 3.7-4.7 per cent over the next decade.

2. Higher capital growth

Once inflation levels fall back, it’s likely that central banks will start cutting interest rates.

Lower interest rates will likely translate to higher bond trading prices. This is another key attraction for fixed income investors with a longer-term horizon.

3. Improved portfolio diversification

Lastly, the traditional role of bonds in investment portfolios is to provide asset class diversification to help smooth out total investment returns over time.

While bonds do not generally outperform riskier asset classes such as shares over the long run, they typically have a more stable return profile because they are not prone to the same level of market volatility.

Expect to see more investors use bonds to capitalise on higher interest rates, lower bond prices, and the potential price upside from markets.

This may see a reduction in the relatively high amount of cash currently being held by many investors in low-yielding financial institution accounts.

To find out more about investing and diversification, call us on Phone: 07 5641 4134 today.

Source: Vanguard March 2023

Reproduced with permission of Vanguard Investments Australia Ltd

Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken yours and your clients’ circumstances into account when preparing this material so it may not be applicable to the particular situation you are considering. You should consider your circumstances and our Product Disclosure Statement (PDS) or Prospectus before making any investment decision. You can access our PDS or Prospectus online or by calling us. This material was prepared in good faith and we accept no liability for any errors or omissions. Past performance is not an indication of future performance.

© 2022 Vanguard Investments Australia Ltd. All rights reserved.

Important:
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

The ATO is cracking down hard on GST frauds after finding a significant number of taxpayers falsely claiming GST refunds.

The Serious Financial Crime Taskforce and Australian Federal Police (AFP) have executed numerous warrants against suspects, with a GST fraudster recently jailed for three years.

The ATO has warned it has zero tolerance for these types of fraud and has put in place a strategy to identify and pursue individuals suspected of inventing fake businesses to claim false refunds.

Falsely claiming a GST refund

GST refund fraud involves claiming a tax refund or other benefit by providing false information to the tax office. It involves more than careless or accidental mistakes, and is undertaken in a deliberate or deceitful way.

In the recent spate of GST frauds, individuals have invented fake businesses and lodged a fraudulent Australian Business Number (ABN) application. They then submit fictitious business activity statements (BAS) in an attempt to gain a false GST refund.

Detailed information about how to undertake these types of frauds has been circulating as online advertising and content, particularly on social media.

Rules for claiming GST credits

It’s important to understand the rules in this area. Registering for an ABN and applying for GST refunds when you do not own or operate a business – or are ineligible – is fraud.

You can only claim GST credits on the business portion of a purchase and cannot claim GST on private expenses (such as food or entertainment). Discounted prices must be used when claiming GST credits, even if the discount does not appear on an invoice.

GST credits can be claimed upfront for purchases under hire purchase agreements entered into after 1 July 2012 only if your business accounts for GST on a cash basis.

Purchases that do not include GST in the price (such as bank fees and stamp duty), GST-free items (such as basic food), imported goods if you are not the importer, and purchases between entities within a GST group are all ineligible for GST credits.

Warning signs for GST fraud

The ATO has made it clear if you are not operating a business, you do not need an ABN and should not be lodging a GST return. The tax regulator has significant data matching capabilities enabling it to detect patterns in taxpayer behaviour that highlight potential tax frauds.

Backdating your business registration so you can apply for a refund is another red flag and will highlight you as a potential high risk in the tax office’s systems.

A key point to remember is the ATO does not offer loans or administer COVID-19 disaster payments. Advertisements offering a way to get these types of loans from the ATO by registering fake businesses are a “rort”.

If you are caught

The ATO is urging anyone involved in a GST fraud to come forward on a voluntary basis, rather than face tougher consequences later.

If you are involved in a fake GST arrangement, the first step is to contact the ATO or your accountant so they can assist you to work through various self-help options. You may be able to correct your situation by revising your BAS, cancelling your ABN and GST registration, and setting up an arrangement to repay the GST refund.

Taxpayers caught engaging in GST fraud are liable to repay the entire fraudulently-obtained refund, regardless of whether they paid someone to lodge a BAS on their behalf. Making false declarations can also impact your eligibility for other government payments.

Fraud and compromised IDs

Selling or sharing your myGov credentials may result in other people accessing your personal information and using it for their financial gain.

If you have become involved in a GST fraud because your identity was compromised, you should contact the ATO immediately so additional controls can be placed on your tax account.

Taxpayers who have given their myGov details to a criminal should contact the ATO so it can assist them to protect their identity from being used to commit further crimes, including future tax crimes undertaken in their name.

Contact us on Phone: 07 5641 4134 if you’d like to discuss this further.

Important: This provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.

Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

Buying your first investment property can be a bold step towards a more prosperous and secure future. But it also poses risks. The Successful Investor’s Michael Sloan outlines five strategies to help you take the right path.

My 5 essential investment property tips

1. Equity

Most people use the equity from their home to help buy their first investment property. They can then use the equity from both their home and investment property to buy their next property. This makes owning a portfolio of properties far easier over time.

For this strategy to work, it’s important to understand how equity works and where you stand.

It’s also important that you don’t over-extend yourself. It’s very risky to max out your equity – especially if it leaves you in a financially vulnerable position (i.e. with no ‘buffer’ in an emergency).

2. Depreciation

Generous tax breaks (including depreciation) ensure your tenants and tax savings pay (mostly) for your investment property.

To maximise your potential tax deductions (and savings), get a professional quantity surveyor to give you a depreciation schedule. It’s definitely not a job for your accountant.

3. Negative gearing and positive cash flow

Negative gearing means you pay money towards the property each year – as the cost of the property exceeds the income of the property.

Positive cash flow, on the other hand, means you make money from the property each year (i.e. total expenditure—taking into account all costs—is less than total income, including tax breaks).

Not knowing how much a property will cost you each week is a mistake many property investors make.

It’s also very important to understand how negative gearing works. It’s the most popular way to start investing in property, but you have to be able to ‘top up’ funds towards the property each month.

In time, each property will move into positive cash flow and you won’t have to keep adding funds.

4. Investment property research

It’s important to get the basics of property investing right. The good news is that if you do your research it’s hard to go wrong. Always buy in sought-after locations, close to public transport, with easy access to good schools and amenities. This will help you find good tenants.

Don’t make the mistake of only looking around the suburb you live in (or where you imagine you might want to live). You can buy anywhere in Australia, so don’t restrict yourself to just around the corner.

It’s also wise to diversify your portfolio. Once you buy in one location, it can be tempting to buy again in the same place. However, that approach concentrates your risk.

5. A house or an apartment?

This question alone could fill a whole article, and it’s one without a straightforward answer. Both have the potential to work well for you, but it’s important to buy whatever suits your budget, cash flow, and the type of property that’s popular in each area.

A single-fronted terrace in inner city Melbourne may be great for capital growth, but it could end up costing you $300 a week (after tax). This is the kind of thing that can get people into financial trouble – and it’s out of reach for the average investor.

Only buy what you can afford. This will help keep you safe, and hopefully ensure that you can buy more properties in the future.

Contact us today if you’re considering buying an investment property. Call us on Phone: 07 5641 4134.

Source: NAB

Reproduced with permission of National Australia Bank (‘NAB’). This article was originally published at https://www.nab.com.au/personal/life-moments/home-property/invest-property/strategies

National Australia Bank Limited. ABN 12 004 044 937 AFSL and Australian Credit Licence 230686. The information contained in this article is intended to be of a general nature only. Any advice contained in this article has been prepared without taking into account your objectives, financial situation or needs. Before acting on any advice on this website, NAB recommends that you consider whether it is appropriate for your circumstances.

© 2022 National Australia Bank Limited (“NAB”). All rights reserved.

Important:
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

Just like your car needs a periodic service to stay in tune, here’s why you should rebalance your portfolio from time to time.

A portfolio’s asset allocation reflects an investor’s goals and temperament—the need for return as well as the ability to withstand market turbulence.

Over time, market fluctuations can affect your asset allocation weightings and change the risk/return profile of your portfolio.

For example, say your target asset mix is a 50/50 split between shares and bonds. You originally invest $3,000 in a shares fund, which buys 20 units. You invest another $3,000 in a bond fund, which also buys 20 units. Your $6,000 portfolio balance is split evenly between stocks and bonds, matching your target.

Let’s say that over time your share fund units have consistently outperformed your bond fund units. For simplicity, let’s also say you don’t reinvest your dividends or capital gains or make any additional contributions, so you still own 20 units of each fund.

As a result of market fluctuations alone, your 20 share fund units are now valued at $5,000, and your 20 bond fund units are worth $2,000. Your total portfolio balance—$7,000—is now split approximately 70/30 between shares and bonds, making your portfolio overweight in shares.

This scenario may be profitable right now—after all, you have more money invested in the higher-performing asset class. So what’s the danger?

What goes up can come down. If you lose parity with your target asset mix by remaining more heavily invested in shares and they go down in value, you can have more to lose than you anticipated.

Rebalancing from one asset class to another (in this case, selling share fund units and buying bond fund units) can put your portfolio back on track and make sure you’re not taking on more risk than you are comfortable with.

Why should investors rebalance?

Selling a well-performing asset and buying an investment with lower returns may seem counterintuitive, but the objective of rebalancing is to manage risk rather than maximise return.

When investors select an asset allocation, they choose a mix of assets that is expected to produce returns that can help them meet their goals with a level of risk they can tolerate.

By periodically rebalancing, investors can diminish the tendency for portfolios to drift to a risk level that is inconsistent with their risk profile.

Rebalancing can also help with discipline and emotional control when markets are volatile.

A set policy will trigger rebalancing events in a consistent manner no matter which direction markets head, which means investors are less likely to make any rash decisions to buy or sell securities that may jeopardise their long-term investment goals.

Contact us today if you’d like to talk about your investment strategy. Call on Phone: 07 5641 4134.

Source: Vanguard

Reproduced with permission of Vanguard Investments Australia Ltd

Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken yours and your clients’ circumstances into account when preparing this material so it may not be applicable to the particular situation you are considering. You should consider your circumstances and our Product Disclosure Statement (PDS) or Prospectus before making any investment decision. You can access our PDS or Prospectus online or by calling us. This material was prepared in good faith and we accept no liability for any errors or omissions. Past performance is not an indication of future performance.

© 2022 Vanguard Investments Australia Ltd. All rights reserved.

Important:
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

Developing good saving habits are an important part of life that can support you towards the home ownership journey but it can be tough to know where to start. Here’s some small changes you can implement as part of your everyday routine that quickly add up in the long-term.

1 Track where you are spending your money

It’s easy to lose track of how much money you’re spending, what it’s being spent on and the proportion of your income that makes it into your savings account.

Setting up a method to track your spending should be the first step in improving your saving habits. You can use apps, spreadsheets or keep a list of your expenditure and review this regularly. Most banks provide tracking tools and apps that categorise and provide insights into your spending habits. Your spending will consist of both fixed and variable expenses.

Fixed expenses are less likely to change from month to month and include your rent, utilities, insurances and any other debt payments. Variable expenses include items such as food, clothing, entertainment, fitness and travel.

Monitor your spending and categorise it by type of expense to develop a greater understanding of where your money is going and identify areas where you can cut back.

This research provides a strong foundation that can inform your weekly or monthly budgets and help you create one that is challenging but still realistic.

2 Automate your savings 

Avoid the temptation to spend by automating your savings. You can do this by setting up a regular direct debit to your savings account. You can also set up a bank account or app to round-up each of your transactions to the nearest dollar with the change being deposited into your savings account. This is a painfree method of building your savings, which will build up quicker than you think!

3 Plan ahead

Make sure to allocate time each week to plan out your meals before going grocery shopping. Being well-organised will make a surprisingly big difference to your grocery bill as you spend less on groceries you don’t need. Having a meal plan also makes it far less likely that you will buy your lunch at work or get take-away for dinner regularly which can become very expensive when you add it up.

4 Buy only what you need 

If you find yourself spending money on unnecessary items, start a habit of taking some time to think before you buy and only buy what you need.

It’s not a bargain if you don’t need it

Saving for a house deposit 

To save for a house deposit, you first need to understand the total amount you will need to save in order to have the ability to get an approval from a lender to purchase your ideal property, typically you will need a 20 per cent deposit. When setting saving goals, be realistic about your household situation and the timeframe you set yourself to save up this amount. There are other options to assist you achieve home ownership sooner, such as purchasing a home with First Home Guarantee (FHG) or Lenders Mortgage Insurance (LMI).

Case study

How lenders mortgage insurance can help you purchse a home sooner

Jenny and Tom have found a home they 1 1 want to buy for $700,000. Typically, they would need a 20 per cent deposit ($140,000) to secure a loan from their lender. By the lender taking out Lenders Mortgage Insurance (LMI), their lender is prepared to provide a loan up to 95 per cent of the value of the home ($665,000 if the home is valued at $700,000). This means that Jenny and Tom can secure a home loan sooner with a 5 per cent deposit ($35,000) and stop paying rent. Their lender passes on its LMI premium cost to Jenny and Tom by way of a fee.

LMI only protects the lender if Jenny and Tom default on their loan repayments. 

Saving for a $35,000 deposit instead of a $140,000 deposit is more achievable in a shorter timeframe.

Lenders Mortgage Insurance (LMI) enables you to buy a home without having a 20% deposit which is typically required by lenders.

Lenders Mortgage Insurance (LMI) may help you to: 

• Buy a home sooner and stop paying rent

• Build financial wellbeing and security

• Avoid possible property price increases in Australia by buying sooner.

Talk to us today if you have any questions regarding lender’s mortgage insurance. Call us on Phone: 07 5641 4134.

 https://helia.com.au/tools-resources/it-s-my-home

This publication has been produced by Helia Group Limited (’Helia’). This publication may include content which is owned by third parties (’third party content owners’) and that has been provided to Helia for publication. Opinions expressed in this publication are of the writer or contributor and do not necessarily reflect the view of Helia or its affiliates. This publication covers a variety of topics including property, insurance and other financial products and services. Although some of the information involves tax, stamp duty, legal, accounting, financial or similar issues, Helia, its affiliates and the third-party content owners (as to their materials only) (‘we’) are not in the business of offering such advice and nothing in this publication constitutes a personal recommendation or advice. You must consult with your own professional advisers to examine the legal, tax, accounting or investment aspects of any information presented in this publication and how they may affect your particular situation.

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If money’s too tight to mention, here’s some small steps that can make a big difference in achieving your financial goals.

How would you rate your level of financial wellness?

Do you think you’re in a good position to meet your immediate and near-term financial obligations? What about your long-term goals?

They’re tough questions, asked in a particularly tough financial environment.

The sharp rise in general living expenses over recent times has spurred central banks to raise interest rates in a bid to quell consumer demand.

Many households are already under increased financial pressure, and further rate rises are on the cards. Investment returns, including superannuation returns, have also fallen.

Yet, in assessing your level of financial wellness, it’s important to look beyond short-term events.

Sure, they definitely feed into the overall equation. Household budgets are likely to be stretched until economic conditions normalise.

But also consider whether your financial wellness is on track in terms of your future, longer-term financial goals. This includes your regular investing strategy, both inside and outside of superannuation.

This three-step framework for financial wellness may help you to identify strategies to improve your financial wellness in order to meet your shorter-term financial obligations, and to keep you on track in terms of your longer-term goals.

Step 1: Take control of your finances

Taking control of your finances largely comes down to understanding everything about your finances – the amount of money you receive in regular and ad hoc income, the amount you need to spend on general living expenses, the money being put towards specific goals (such as a house or car), and what’s left over (your savings).

Consider implementing a budgeting strategy, if you don’t already have one, to track all your expenses and identify where potential savings could be made so you can build momentum towards achieving your short-term and long-term objectives.

Reductions in certain expenses could be used towards paying off high-interest debts, such as outstanding credit card balances, and ensuring you can pay the minimum payments on all debts.

Step 2: Prepare for the unexpected

Having better control over your money will invariably put you in a stronger position to build wealth over time.

Protecting your wealth as it grows is important, and that means preparing for the unexpected.

Households can benefit from setting aside emergency savings to cover modest, unexpected expenses for when an inevitable or unlikely event occurs.

Think of events such as unexpectedly losing your job or a sudden drop in the income you generate from your business activities, and unforeseen spending shocks that can eat into your accumulated savings.

Emergency savings can ensure you have some cushions in place to help reduce the potential impacts of such events on your household budget, financial plans, and goals.

Insurance cover is also an important component of financial wellness and protecting against unexpected or unwanted financial losses. Common types of policies include health, life, disability, trauma, and income protection cover.

Given insurance premiums can be high, striking a balance between risks, costs, and coverages is prudent.

Step 3. Make progress toward your goals

To achieve your long-term financial goals, it makes sense to remove any impediments that will stand in the way of attaining them.

Step 3 of the financial wellness framework focuses on strategies such as paying off longer-term debts, such as your home mortgage. Paying higher-interest debt first will save on interest.

Depending on your life stage and investment trade-offs, you can choose to either pay down lower-interest debt, using money previously allocated to investing, or to rely on your budget and one-time windfalls to accelerate the paydown strategy.

However, having cash on hand may also be important for your peace of mind. Directing more money toward paying debt forgoes liquidity in the short term, so evaluate whether you need cash in the short term.

Also, consider using accounts paying higher interest to save for shorter-term goals, such as buying or paying off a house, vehicles, funding a holiday, or in order to retire early (before you’re able to start accessing your superannuation).

Conclusion

Attaining a high level of financial wellness comes down to a range of strategies, but first and foremost it’s about taking control of your personal finances.

Just doing simple things, like having a household budgeting system, can make an enormous difference in helping you to understand how your money is being allocated, and where you can potentially save on costs.

Having a financial buffer, or war chest, is also important to cater for unexpected events such as a major unforeseen expense, or if you suddenly lose regular income.

Think about having investments that are liquid enough to access if you need extra cash, which can include money you have invested in exchange traded funds or managed funds.

Lastly, always stay focused on your long-term goals and use a range of strategies to achieve them, such as reducing your debts over time.

Taking direct action with your finances will greatly improve your chances of achieving investment success over the long term.

Contact us today to find out more. Call us on Phone: 07 5641 4134.

Source: Vanguard February 2023

Reproduced with permission of Vanguard Investments Australia Ltd

Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken yours and your clients’ circumstances into account when preparing this material so it may not be applicable to the particular situation you are considering. You should consider your circumstances and our Product Disclosure Statement (PDS) or Prospectus before making any investment decision. You can access our PDS or Prospectus online or by calling us. This material was prepared in good faith and we accept no liability for any errors or omissions. Past performance is not an indication of future performance.

© 2022 Vanguard Investments Australia Ltd. All rights reserved.

Important:
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.