Deposit dilem­mas

Some politi­cians may mean well but their pol­icy ideas don’t al­ways add up, writes Graeme McDon­ald

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W ell, hello to you all and wel­come to March. Hasn’t time own al­ready. First- quar­ter BAS re­turns will be due shortly and by now you should have done your com­pany and per­sonal tax re­turns.

It’s also a great time for head­lines; the lat­est and one of my fa­vorite top­ics is when a politi­cian tries to tell the busi­ness world how it should op­er­ate.

The one that caught my eye this week was from fed­eral MP and Mem­ber for Mallee An­drew Broad.

His view was that banks should lend money to renters with a three-year good rental his­tory with­out the need for a 20 per cent deposit.

I’m be­gin­ning to think that most politi­cians just open their mouth and talk with­out think­ing. 1. There are al­ready  nanciers out there who will use a good rental his­tory as part of a sav­ings his­tory quali cation 2. There are also  nanciers out there that will lend to you with­out the manda­tory 20 per cent deposit, you just have to con­tend with mort­gage in­surance 3. You may be able to also use other fam­ily-re­lated se­cu­ri­ties to help you get into a house; parental guar­an­tees and the like for the deposit amount.

There are plenty of op­tions out there to get you into a house. But the deposit is not the real stum­bling block in a lot of cases, it’s the abil­ity to ac­tu­ally pay the bills and ser­vice the loan.

When you rent, you don’t have to pay all the costs as­so­ci­ated with a house: things like rates; the ser­vice charges that re­late to wa­ter, gas and elec­tric­ity; and full in­surance cover. All th­ese things cost money.

Typ­i­cally,  rst home buyers also are un­pre­pared to live with sec­ond-hand fur­ni­ture and the like. It all needs to be bright, shiny and new. Can’t af­ford that? That’s okay, get a credit card or store card and its only $ 300p/ m for the next … ve years.

My ad­vice be­fore you buy a house is check out your par­ents’ bill for a year and see if, based on that, you can af­ford the home re­pay­ment and liv­ing costs etc.

Strangely, though, I can’t see how this will ul­ti­mately help any­one try­ing to buy. If the bank agreed to do this, there would sud­denly be an in ux of buyers into the mar­ket who would then be com­pet­ing for an al­ready lim­ited sup­ply mar­ket of houses. This would also drive the prices higher and, deposit or no deposit, they prob­a­bly still won’t be able to buy a house.

Deposit is there to pro­tect all par­ties. In the case of the banks, it gives them com­fort that they have some room to move in the event of values drop­ping – they don’t need to over­re­act and move on you straight away. It’s also there to pro­tect the bor­rower. In case of a cer­tain life event, you have com­fort in be­ing able to get some help from the  nancier or at least some time to get things back in or­der. Life events such as los­ing your job, be­com­ing ill, or be­com­ing un­ex­pect­edly preg­nant. All th­ese things see a change in cir­cum­stances, and a deposit gives you breath­ing space.

Fi­nanciers are con­stantly in the gun from the me­dia and that’s why they err on the side of cau­tion. If they head down the no- deposit path, I can see the head­lines now if it starts to come un­stuck.

Any­way, enough from me for now. If you would like to know more or dis­cuss any­thing, please feel free to give me a call. I some­times get lonely and it’s al­ways good to hear a friendly voice.

The views ex­pressed above are those of the writer and not those of the Pub­lisher soft his mag­a­zine. If you want to know more on this, or you have a sug­ges­tion for an ar­ti­cle please feel free to email me on graeme@mon­eyre­ The above in­for­ma­tion and/ or sce­nar­ios are for in­for­ma­tion pur­poses and should not be treated as spe­cific ad­vice. Please re­fer to your ac­coun­tant or fi­nan­cial ad­vi­sor for in­for­ma­tion re­lated to your own par­tic­u­lar cir­cum­stances.

Graeme McDon­ald A mem­ber of the Money Re­sources Group

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