Tak­ing in­ter­est in prop­erty

Bank­ing taxes and ris­ing in­ter­est rates will have var­i­ous ef­fects on home buy­ers and in­vestors. Graeme McDon­ald writes

ABC (Australia) - - FINANCE - Graeme McDon­ald A mem­ber of the Money Re­sources Group

Well, here we are. It’s July and a new nan­cial year is upon us. I’ll get the bor­ing bit out of the road now: go to your ac­coun­tant and start get­ting your nan­cials done. I know I rant on about it all the time, but the nanciers are ask­ing for them ear­lier and ear­lier each year.

While the tax de­part­ment gives you to March to get it done, nanciers are get­ting ner­vous come December about start­ing to see these gures done.

To be fair, they are not be­ing un­rea­son­able. If you only do your gures once a year, then by December this year your 2016 gures are 18 months out of date. Eigh­teen months is a long time – in to­day’s terms, a lot can hap­pen in a just a month.

Un­less your busi­ness re­volves around limit ins and outs, re­al­is­ti­cally you should be check­ing your gures each month – or at the least ev­ery quar­ter – when you do your BAS. Most busi­ness ac­count­ing soft­ware pack­ages nowa­days let you do this very quickly, al­low­ing you to com­pare month to month and year on year.

These pro­grams will pull the trans­ac­tions out of your bank­ing sys­tem and, once you have done it a cou­ple of times, will pre-code the items to go straight to the cor­rect parts of your nan­cials.

It is well worth the in­vest­ment in this process – these pro­grams are gen­er­ally very af­ford­able with good sup­port sys­tems and you can also al­low your ac­coun­tant to ac­cess them di­rectly, sav­ing you the ef­fort of hav­ing to save and on-for­ward data les to your ac­coun­tant. If you don’t al­ready have one, it’s well worth the money to stream­line your busi­ness – no mat­ter how small it is.

Be­sides all the usual po­lit­i­cal stuff mak­ing head­lines, there are a few things to take note of over the last month.

Firstly, the bank­ing tax got passed from the bud­get. Re­al­is­ti­cally, there was never any doubt this would hap­pen. Se­condly and ap­par­ently to­tally un­re­lated to the rst item, all the ma­jor banks moved their in­ter­est rates. The most vis­i­ble of these move­ments was in the in­ter­est-only hous­ing mar­ket – in some cases these move­ments have been signicant.

The aim by the in­dus­try reg­u­la­tory body, APRA, was to try and drive in­vestors out of the mar­ket to al­low rst home buy­ers in. The re­al­ity is there are prob­a­bly more un­in­ten­tional con­se­quences than not.

Over the last few years, many rst home buy­ers have snuck into the mar­ket­place based on in­ter­est-only pay­ments. The in­crease in in­ter­est rates in a slow­ing prop­erty mar­ket (and it is slow­ing) will im­pact af­ford­abil­ity to the cus­tomer.

A rate in­crease of, say, 0.5 per cent can have an im­pact of up to 10 per cent on your net dis­pos­able in­come, de­pen­dent on your lev­els of other debt. And let’s be real, very few people only have a mort­gage. They have credit cards, car loans, etc.

What does this mean? Well, for the in­vestor, prob­a­bly very lit­tle. Ev­ery in­crease is de­ductible and in­vestors are typ­i­cally able to weather the storm and not get emo­tion­ally at­tached to a prop­erty.

For the ac­tual home buyer, rst or oth­er­wise, you may have to start to man­age the cash ow a bit closer. Prop­erty val­ues are no longer ris­ing quickly. They aren’t go­ing back­wards, but my tip is what you are worth now is what you will be worth in six months’ time.

The banks are of­fer­ing re­duced rates and limited fees to switch to prin­ci­pal and in­ter­est re­pay­ments.

If you can, you should. It will cost more but at least you are gain­ing equity.

Al­ter­na­tively, it’s time to start to cut back on your spend­ing, as these out-of-cy­cle in­creases in this mar­ket space will con­tinue to oc­cur.

Fi­nally, do not ig­nore a nan­cial is­sue if one oc­curs. If you are strug­gling, speak to your bank/nancier – most have some kind of sup­port ser­vice that will as­sist you through the process. Do not ig­nore it, as they won’t ig­nore you. Al­ways be on the front foot – putting your head in sand can be dis­as­trous.

Well, enough from me for this month, if you have any ques­tions or you want to dis­cuss any mat­ter, please feel free to drop me an email or give me a call, I’m al­ways happy to lis­ten and give you my opin­ion.

“My tip is what you are worth now is what you will be worth in six months’ time”

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