Why you need to watch for a clawback clause

RENTAL vacancy rates in Sydney are at a 13-year high, according to an SQM Research report, but what does this mean for investors?

It may mean the best time to invest in Sydney has passed, while cities like Brisbane and Perth now potentially offer better value. This is because their vacancy rates are travelling in the right direction, according to SQM Research managing director Louis Christopher.

“The relative direction the rates are moving is as important, if not more so, than the rates themselves,” Mr Christopher said.

“Sydney, for example, has moved from a low of 1.6 per cent five years ago to now recording 2.8 per cent.

“That may still sound OK, but the fact the vacancy rate 165 BUNDA ST CAIRNS has moved higher has put downward pressure on rents.”

While Brisbane’s vacancy rate is still higher than Sydney’s at 3 per cent, the market is improving, down from 3.6 per cent year on year.

“Brisbane has had a slowdown for a number of years, where prices have not done anything,” Mr Christopher said.

“Affordability is quite good, vacancy rates in our THEY are the four-figure fees that can sting diligent home loan borrowers, but the majority of us have no idea what “clawbacks” are.

Banks charge mortgage brokers a clawback fee in order to recoup the commission they pay them if a borrower refinances with another lender too soon – usually in the first two years of a mortgage. view have peaked and there are more renters coming from Sydney, which is showing up in the interstate migration data.”

He said Brisbane’s former issue of slow job creation had improved, prompting more people to relocate there.

Mr Christopher also nominated Perth as a potential target market for investment, its vacancy rate of 4.1 per cent having plunged

In rare cases, brokers have been known to pass the cost of the lost commission on to their clients.

A CoreData survey of 1500 mortgage holders, commissioned by uno Home Loans, found 81 per cent of respondents were not aware that clawback fees existed.

When made aware of the clause, 79 per cent said they would be put off choosing a broker that charged clawbacks. from 5.4 per cent at the same time last year.

PRDnationwide’s Affordable & Liveable Property Guide for the first half of 2018 names Brisbane as the country’s most affordable and liveable city, due to slow growth in purchase prices and rents.

PRDnationwide national research manager Dr Diaswati Mardiasmo said “we are finally seeing a shift in property trends”, adding that most capital cities could now be expected to return to a sustainable level of growth.

Markets with vacancy rates between 2 and 3 per cent are generally regarded as steady.

Australia’s tightest market is Hobart, with just a 0.7 per cent vacancy rate, followed by Canberra (0.9), Adelaide (1.5) and Melbourne (1.6).

FLAT CHAT: Brisbane could be a safer rental investment bet than Sydney. Picture: iStock

Most brokers don’t charge clawbacks, but it is important to know if they do before signing up, said uno Home Loans founder Vincent Turner.

“The ones that do it have to disclose it, but if you’re not diligent you might miss it in the fine print,” he said.

When borrowers engage a mortgage broker, the broker will draw up a credit proposal, which outlines the terms of the agreement and discloses their commission and how they are paid. “If there’s a clawback, it will be in the credit proposal and the broker will get you to sign the document,” Mr Turner said.

“The best thing to do is to know what they are and ask the broker if you’re not sure … If a broker wants you to sign a clawback, you should be able to say no, because someone else will be able to get you the same deal.”