Taking interest in property
Banking taxes and rising interest rates will have various effects on home buyers and investors. Graeme McDonald writes
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 If you only do your gures once a year, then by December this year your 2016 gures are 18 months out of date.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 signicant.
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”