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Short-term rental properties like Airbnb have flourished in recent years, yet lenders still struggle to accept them as a valid income stream for borrowers.
Cairns Mortgage Brokers director Roger Ward feels that lenders think such properties are merely “a casual-type income, when in reality they’re used in different ways in the short-term rental community”.
Ward told MPA there’s a large portion of the Airbnb income stream that comes from full-time short-term rental opportunities, with years of figures to look back at.
“This group has a minimum of two years of fully documented rental income, which in my books should be considered because the property looks more like a commercial property,” Ward said. “Banks just don’t seem to recognise this as a serious business. I have a client who generates over $300,000 per annum from four properties.”
Ward recognises the great returns brokers can get from Airbnb properties. But he reminds them that, as in any sales environment, the client’s needs should be considered first. Brokers can suggest their clients invest in tourism areas, where Airbnb properties seem to particularly thrive — especially areas located near transport systems with a high standard of accommodation. Many online forums can help clients market the property, Ward added.
From a lending point of view, brokers need “to make the lending stack up on a permanent rental basis”. Ward tells brokers to brief borrowers who are looking to leverage their fantastic returns that banks will not assess all their income; at best, the assessment will be restricted to a 6% return on the asset value.
He also advises brokers to source banks that will best utilise a client’s income to achieve his or her goals. For him, banks that disregard such income do so at their own peril, and those with policies that recognise the billion-dollar industry will benefit from it. However, if a borrower has a two-year income history, the bank should take either the full net income or the discounted net income, which can be 80% of its value.
Ward has been educating lenders via their BDMs about the strong income that comes from clients with Airbnb properties. He said that while everybody knows how slow credit policy moves, “banks are missing out on high quality borrowers with investment propertiesconsistently returning 10-15% per annum”.
“History is full of missed opportunities, and simply put, the Airbnb genie is out of the bottle and isn’t going anywhere,” Ward said. “The first lender that treats this income seriously will have the entire broking network at its door.”
Roger Ward at Cairns Mortgage Brokers is very excited to let you know that we have been nominated as a finalist in the MFAA Awards For Excellence, Regional Mortgage Broker Of The Year QLD 2018, Residential Mortgage Broker Of The Year and the 2018 Queensland Community Champion Of The Year.
We could not have done it without you so THANK YOU.
We are very honoured to be a finalist in 3 categories in this prestigious award which we won in 2016 and 2017.The winner for 2018 will be announced in June.
We are a small Brokerage in Cairns so to be a finalist is already a great accomplishment. Again, Thank you to you, our valued client.
A recent spike in funding costs is happening at the worst time for Australia’s big banks, as intense public scrutiny crimps their ability to pass on increases to customers.
The banks are fighting to defend their reputations in the face of an inquiry into misconduct and mistreatment of customers. Two weeks into hearings in front of a Royal Commission, allegations have included claims some bank staff took cash bribes to facilitate mortgages based on fake documentation, while others sold unnecessary insurance policies.
At the same time, the big four lenders – Commonwealth Bank of Australia, Westpac, Australia & New Zealand Banking Group, and National Australia Bank – face a jump in their short-term financing costs both at home and offshore. The Libor-OIS differential, a key indicator of US dollar borrowing costs, has more than doubled since the end of January, and domestic three-month bank bill rates have also surged.
Cairns has been chosen as regional Australia’s hottest property investment destination for 2018.
Simon Pressley of Propertyology said investing in the Tropical North was a “no brainer”, citing our affordable housing market, tropical attractions and lifestyle as key factors in the city’s top ranking.
While the “affordability driver” is the top reason for the number one ranking, Pressley told Sky News Real Estate that our clean environment, food experiences, beautiful beaches, agriculture and major projects were also important drawcards.
Mr Pressley has already personally endorsed the regional city with his own investment property in Cairns, pointing out that you would be “flat-out getting a pantry in Sydney or a carport in Melbourne” for the median purchase price of a three-bedroom house in Cairns.
He also said you can expect a “big bang for your buck” in Cairns with 600-800 sq. m blocks, low maintenance homes with pools, and, with tight vacancy rates – a 5% yield on your investment.
Pressley says the trend of more people leaving capital cities is expected to continue, with 20,000-plus currently leaving Sydney each year for tree and sea changes.
He says the outlook for Cairns is strong, citing the city’s proximity on the map as the ideal gateway to Asia, the fifth largest international airport in Australia, and major tourism and business infrastructure.
An over-reliance on tourism is in the past Pressley points out, with the estimated $700 million worth of investment by Crystalbrook Collection, the expansion of two major universities, the port and naval hub and the Cairns Convention Centre upgrade, together with regional agriculture.
An added attraction is Cairns’ employment rates, growing at 11.2%, more than three times the national average of 3.7%.
Reflecting on the current state of the market, Rick Carr of Herron Todd White Cairns notes in CairnsWatch November 2017 that price movements for individual properties have been mixed and prices overall are relatively static.
But Mr Carr’s research found the median vendor discount – the difference between the asking price first advertised on a property and its ultimate selling price – has reduced for units and houses alike.
“The latest trend median prices, for properties sold in the month of October 2017, came in at $405,000 for a house, $205,000 for a unit, and $212,000 for a block of land,” Mr Carr wrote in the latest Cairns Watch report.
“Despite relatively flat market conditions in terms of volumes and prices, other market metrics have shown some improvement in the latest quarter.
“The median time taken for listed properties to reach a sale has decreased from 59 days for houses sold in the 12 months to May 2017, to 56 days for houses sold in the 12 months to August 2017.
“The median time taken to sell a unit remained unchanged at 74 days over the same period. Article from Tropic Now
The Government is going to make it easier for authorised deposit-taking institutions to call themselves banks, in the hope it will reduce the cost of loans.
Currently only ADIs with more than $50m in capital can call themselves a bank but Treasurer Scott Morrison says this prohibition will soon be removed.
“There are approximately 58 ADIs in Australia that will then be entitled to call themselves a bank, boosting their market appeal and their ability to secure cheaper funds,” Morrison noted. “The benefits to the customer are simple - cheaper loans.”
Morrison pointed to the UK, where easing usage of the word bank in 2013 encouraged the growth of new ‘digital banks’ such as Monzo and Starling. According to Morrison “it led to a flood of new online lenders into the market, forcing the major banks to slash their interest rates and product pricing.”.
Investor housing loans struggle to grow as APRA’s crackdown on higher risk lending continues. The latest figures released by APRA and RBAseparately yesterday show investor loans hardly grew in January.
APRA’s monthly banking data shows that investor loans increased weakly by 0.04% to $553.3bn in January from December, while owner-occupied loans went up 0.6% to $1.05tn.
RBA’s figures show slightly stronger growth – with investor lending going up by 0.2% over the previous month and by 3.2% from a year ago, both in seasonally adjusted terms. Owner-occupied lending rose by 0.6% in January and was up by 8% over the previous year.
Total housing loans stood at $1.6tn in January, up by $6.2bn from the previous month, according to APRA’s statistics. In RBA’s data, housing loans grew 0.5% in January after a gain of 0.4% the previous month, but annual growth eased from 6.4% in January 2017 to 6.2% last month.
Slower growth in mortgage lending does not come as a surprise amid tougher lending practices and lower investor demand. Besides added restrictions on lending, borrowers also face stricter loan serviceability criteria and approval process, limiting their access to mortgage products.
Zooming in on APRA’s January figures for major banks, Westpac’s investment loans went up 0.3% or by $473m from December to reach $151bn in January. It is the only major bank that saw an uptick in investor housing loans and remains the biggest player in this type of lending.
Second largest player CBA recorded the most month-on-month decline in investor housing loans in terms of value by $125m, while NAB posted the least decrease at $4m.
For owner-occupied loans, all four recorded increases over the previous month, but their growth rates seem to have moderated. ANZ made the biggest growth at 0.6% to $174bn.
With property prices in Australian cities continuing to rise out of reach for first home buyers and first-time investors, using a guarantor to secure a home loan has become a popular route to entering the property market.
A guarantor is someone who will offer the lender the equity in their own property as additional security for someone else’s home loan. In most instances, this will be a parent assisting an adult child to buy their first home.
1. Beware the risksWhile going guarantor on your son or daughter’s home loan is a wonderful way to help them get into the property market, be aware that there are serious risks attached. Signing that guarantee means that you are legally bound to pay the entire loan off if your family member defaults on the repayments or cannot pay the loan out in full for any other reason.
The repercussions can be severe for the guarantor if the borrower defaults on their loan, including the possibility of having to sell your own home to service or clear the debt.
Before agreeing to go guarantor, you need to be sure your child will be able to service the loan now and well into the future. This is where ALI loan protection insurance steps in. Pending meeting the eligibility requirements, either you, as the guarantor, or your child, as the borrower, can be covered by an ALI Group Loan Protection Plan.
2. Seek independent adviceEven though you are dealing with family, going guarantor should be treated as a business agreement. Before signing, seek legal and financial advice to ensure you fully understand this commitment.
3. Be aware of the effect on your ability to get creditIf, during the life of the loan you have agreed to guarantee, and you are in need of credit, the credit provider will include the guarantor loan as a liability when assessing your application. This may mean you cannot get a loan yourself if and when you may need one.
4. Go co-guarantorTo reduce your risk as a guarantor you do not necessarily need to commit to the entire loan. Some lenders will allow you to go co-guarantor with your child so you only need to guarantee a portion of the loan. For example, if you limit the guaranteed amount to 20 percent of the purchase price of a property this will cover the loan’s deposit and help your child to avoid the additional costs of Lender’s Mortgage Insurance (which applies on loans greater than 80 percent of the value of the property).
5. Know when to seek releaseOnce your child has built up sufficient equity in their property, you can ask to be released as guarantor for the loan. A fee may apply for release, along with the cost for the lender to revalue the property which will remain as the sole security property on the loan.
ALI Group provides one policy with three types of benefits:
Keep in mind that 48% of all ALI Group claims paid in the 2015/16 financial year were for people aged 40 and under. With an ALI Group Loan Protection Plan, you can help ensure you’re not left in a difficult position.
By reducing your risks and protecting yourself and your child with an ALI Group Loan Protection Plan you can be more confident about going ahead with a guarantor loan. While most plans pay the lender, Loan Protection Plan benefits are paid directly to the claimant. This can allow you, or your child, to use the payout for purposes such as covering large debts or urgent medical bills if needed. There are no medicals, flexible payment options and all jobs and hobbies are covered.
Cairns Insurance customers have a new way to chose the best deal with the launch of Cairnshomeinsurance.com.au as comparison website. The site list 4 tier one insurers including Warren Buffets global insurance company Bershire hathaway and was launched by Cairns Mortgage Brokers director Roger Ward.
Mr Ward said the business was a last ditch effort to try to combat the high price Cairns Residents paid for insurance. Clients are able to compare numbers of insurance offering in just minutes. Queensland home owners pay up to 5 times what our southern cousins pay. Competition is the only method we have to drive prices down. The addition of Bershire hathaway is a major step forward for competition and lets hope this gets the major domestic insurers worried. They have been making billions from excessive prices on Queensland Property.
BORROWERS Should Check Their Existing Home Loan Interest Rate !
The latest cash rate is a record low of 1.75 per cent and this has seen both variable and three-year fixed rate deals on owner occupier loans plummet with some below the four per cent mark.
Roger Ward said borrowers should be maximising these ridiculously cheap deals while they last and expects offers to become even cheaper with possibly two more rate cuts this year.
The writing is already on the wall for another rate cut by August, with a third now also on the cards.
This would take Australia’s cash rate to a record 1.25 per cent — a figure few would have predicted, even a month ago.
If these cuts transpire, we’re likely to see rock-bottom home loan interest rates of under 3.5 per cent for some borrowers, while rates under 4 per cent will become the new norm.
If you have an older home loan it is worthwhile checking what interest rate you are on as many banks have not been passing on the full reduction. Roger Ward said.
This rate should be under four per cent.
If you are torn on whether to fix or stick with a variable rate, you have a few options.
You can do a mix of fixed and variable — the split is based on how you feel about whether the market has bottomed or not — or stick with variable,’’ Roger said.
Either way it is worth giving Roger a call on 0413 713 534 to see if you can secure a better deal. This is only worthwhile for loans over 2 years old because the rates Roger has secured for new mortgages are always going to be the best available. Older home loan holders, however could benefit from the lower rates.
Call for a free Home Loan Health Check – 0413 713 534
With over 20 years experience in Home Loan Lending and Financial Planning, You can feel confident Cairns Mortgage Brokers will get you the best deal on the market. Call us today: 4057 9746