The Housing Market – Problem or Potential?
Owning a house is central to many Australian’s financial strategy and indeed life plans, but tackling a mortgage can seem like climbing Everest.
This is not surprising considering descriptions of the housing and property market situation in Australia have been eerily similar for some time – Ability to enter the market is low due to overvaluation, household debt is high and increasing, and there are the ever-present clairvoyant-like visions of an impending crash.
Added to all this are the recent (and dramatic) speculation over incoming tax reforms and an increase in housing prices in Sydney of 1% and Melbourne of 2.3% since the start of 2016.
But it’s not all doom and gloom…
Taking advantage of low interest rates
Despite the atmosphere of negativity, investors do still have a fighting chance at seizing their own slice of real estate.
Interest rates are sitting at 4% and the lending environment is extremely competitive, giving investors the opportunity to engage in the housing market without an overinflated risk of sacrificing their long-term financial development strategy.
The message for the market is simple: take advantage of the current lending climate while you can.
The positive of negative gearing
Along with tax reform, negative gearing has come into focus with some proposals suggesting the practice will be restricted to new housing purchased prior to July 2017. While a change this drastic is unlikely, nearly 70% of people who are negatively gearing property earn below $80,000 per annum, meaning the prospect of change has direct and serious implications for the financial circumstances of many Australians.
While just what changes will be made is a debatable mystery, negative gearing still presents a viable means for investors to offset asset losses as a tax deduction. Further, with only 70% of those who utilise negative gearing only doing so for a single property, an assessment of your circumstances and an astute approach can greatly assist in enhancing your position.
A long-term negative gearing plan accounting for capital gains adjustments in conjunction with a strong mortgage strategy creates the foundations for a manageable investment that helps grow rather than risk your wealth.
Is your mortgage working out for you?
Whether entering into a mortgage or servicing an existing one, everyone can benefit from the current climate by giving some thought to their current situation. To build confidence in your strategy and ensure you’re getting the most out of your mortgage, consider the following:
- Affordability Assessment – What can you realistically afford in your current circumstances?
- Rate Options – Is fixed or variable going to fit into your financial strategy more appropriately?
- Ownership Structure – Under whose name will the property be purchased? Will guarantors be involved?
- Essential Loan Features – What do you really need from your loan? Is an offset facility necessary?
- Contingency Planning – What will happen if your circumstances were to change? What will happen if interest rates rise?
- Principle + Interest vs Interest Only – What is more suitable for your circumstances?
Let us help
Managing your own mortgage while paying attention to interest rates, CGT and negative gearing among other elements can seem daunting. That’s why we pay attention to the details and offer tailored advice based on your situation, goals and preferences.
Call one of our mortgage specialist today on (02) 9997 4647 to arrange a mortgage assessment and see how we can help.
Demystifying Self Managed Super Funds
The upward trend of SMSFs is continuing steadily, with nearly one million Australians opting to take control of their retirement savings and investment strategy. The ability to take ownership of investment decisions that align with your own specific goals for retirement is encouraging many to get hands-on with their finances.
While empowering it can also be a minefield and with the added flexibility and transparency of SMSFs comes a long list of considerations and pitfalls.
Attention to detail
Setting up your own SMSF requires making a number of decisions about members and trustees, establishing the appropriate structure, registration with the ATO and creating an investment strategy for the fund. However, it doesn’t stop there.
Once established, your existing super may need to be rolled-over, employer contributions organised, contributions managed to ensure they are within limits, legality of investments confirmed and documenting and maintaining records for up to 10 years.
Every year, you must value your SMSF assets, prepare accounts and financial statements, appoint a registered SMSF auditor, lodge a return, pay the SMSF levy and any tax that may be incurred.
On top of all this, there are reservations about what implications the May budget holds in store for superannuation and associated tax procedures, which is a great advertisement for the importance of financial contingency plans.
Proper preparation prevents poor performance
All of this sounds like a lot of work – and it is – but it can definitely pay off.
In creating a strong SMSF strategy that matures efficiently, certain strategies can be highly effective. Have you considered the following?
- Transition to retirement plans: In commencing this strategy, earnings can be supplemented by income from your super fund, while an employer is still making contributions taxed at a lower rate. This can present serious benefits for many over 55.
- Contribution reserves: You may be able to achieve tax advantages by utilising contribution reserves to make concessional contributions above the maximum $35,000 limit in a financial year. As well as enhancing your position, it can also facilitate a larger tax deduction.
- The bring-forward rule: Certain individuals are eligible to inject non-concessional contributions up to $540,000 in a financial year if they meet age-based criteria and have not brought-forward contributions in the previous two-year period.
- Topping up sooner rather than later: The consensus is that changes are on the horizon for tax applied to voluntary super contributions. Therefore, topping up now with any available cash or transferable assets will leverage the current tax rate of 15%.
It doesn’t have to be complicated
While SMSF can present challenges for individuals and small businesses alike, there are also clear benefits to being actively involved in the management and generation of your retirement wealth.
We can streamline the process and take the stress out of creating and implementing strategies that will help you achieve your financial goals. Talk to Financial Decisions today to ensure that as you mature, your wealth does too.
Disclaimer: This publication has been compiled by Financial Decisions (AFSL/ACL Number 341678). Past performance is not a reliable indicator of future performance. While every effort has been taken to ensure that the assumptions on which the outlooks given in this publication are based on reasonable data, the outlooks may be based on incorrect assumptions or may not take into account known or unknown risk and uncertainties. Material contained in this publication is an overview or summary only and it should not be considered a comprehensive statement on any matter nor relied upon as such. The information and any advice in this publication do not take into account your personal objectives, financial situation or needs. Therefore you should consider its appropriateness having regard to these factors before acting on it. While the information contained in this publication is based on information obtained from sources believed to be reliable, it has not been independently verified. To the maximum extent permitted by law: (a) no guarantee, representation or warranty is given that any information or advice in this publication is complete, accurate, up-to-date or fit for any purpose; and (b) Financial Decisions nor its employees are in any way liable to you (including for negligence) in respect of any reliance upon such information or advice. March 2016
Contact: Financial Decisions PO Box 484 Mona Vale NSW 1660, T 02 9997 4647, F 02 9997 7407