Haven – Spring 2023

Flatter your finances

Ensure your assets look their best when you are up for a new loan.

As anyone who’s tried to get fit in a weekend can tell you, it doesn’t work. The same goes for trying to whip your finances into shape overnight.

It takes patience and a longer-term commitment. So, if you’re planning to refinance, but worried about being trapped in mortgage prison, give yourself time to get your ducks in a row.

Most lenders will review at least three months of activity on bank accounts and credit cards.

Allow yourself this window to get cracking on changes that will give you the best chance of landing a more competitive rate.

Do your homework

Open your thinking to lenders who have signalled they’re willing to help credit-worthy Australians bust out of mortgage prison.

At present, the Australian Prudential Regulatory Authority (APRA) dictates lenders should stress test loans on a 3 per cent serviceability buffer. So, if interest rates are 6 per cent, borrowers need to be able to demonstrate they could make repayments at 9 per cent. But, after a record run of rate rises, this relatively high bar has left many borrowers with no option to change lenders because they can’t bridge the buffer.

However, lenders are able to make individual exceptions and, as we hit what is probably the top of the rate cycle, several have flagged applying a lower buffer to approve borrowers with a solid credit history. Talk to your broker to find out which

lenders may be willing to apply a modified buffer if it can reduce your repayments and improve your financial position.

Get your credit in order

This is a bit of a no-brainer. Pay down debt, avoid late payments and carry out a ruthless cull of rolling subscriptions. There are also some less obvious areas to tighten:

• Think about reducing your credit card limit. No matter what your current balance, your lender will consider your entire limit as debt – whether that’s $5,000 or $25,000 – when weighing up your assets and liabilities and your ability to service a loan.

• Keep credit inquiries to a minimum. When you apply for credit (this includes traditional loans and credit cards along with store cards and interest-free finance plans) it will usually prompt what’s known as a hard enquiry on your credit file. If lenders see too many of these they may wonder why. Are other lenders turning you down? Are you juggling debt with credit cards? As a guide, lenders generally like to see no more than two hard enquiries in six months. While your repayment history stays on your file for two years, credit inquiries and payment defaults remain for five.

Maximise your valuation

When you apply to refinance, one of the first things a lender will do is value your property. While this is commonly done

using online data, more and more companies are opting for inperson valuations to solidify their loan books.

This is a great opportunity for home-owners to maximise outcomes, particularly if they’re close to the 80 per cent loan-to-value ratio (LVR) threshold, where lenders’ mortgage insurance generally kicks in. Get started on budget improvements that can boost your valuation when you’re ready to apply. Why not:

• Give the garden some attention. Valuers say the biggest boosts come from adding street appeal or creating outdoor entertaining areas. An on-trend firepit/barbecue area can be as simple as a couple of bench seats and some crushed gravel.

• Paint. Never underestimate the power of a fresh coat of paint. Focus on the facade. Inside, new specialist tile and laminate renovation paints can work wonders.

• Declutter. Presentation shouldn’t necessarily impact valuation, but valuers are people too and some admit it can be difficult to look past the mess.

• Get some paperwork together. Try not to overstep the mark and annoy valuers, but it may be helpful to prepare a small folder of documentation on any improvements made to the house. Include details on local schools if you’re in a highperforming catchment.

Embrace boring

No one wants to be a killjoy, but when you’re planning to refinance it’s not a great time to book expensive holidays, have Uber Eats on speed dial, spend money on gambling apps or look for a new job. Stable work in a secure industry is music to the ears of lenders.

Download a digital conscience

Create a budget and use technology to help you stick to it. There are a host of personal budgeting apps that can be linked to multiple bank accounts to not only track spending, but automatically categorise it as well. At a glance you can see how much you’ve been spending, and on what.

It can be confronting but it’s also empowering, helping you understand where money is leaking. A few popular apps include Frollo, Buddy, Beem and Raiz.

Sticking a tracker on yourself will also make things easier when it comes time to apply for a loan, as you’ll already have an accurate record of your very sensible spending on hand.

Please get in touch anytime if I can help with advice on planning for your refinancing.

Hidden income

Is your house earning its keep?

Anyone for tennis?

All Wimbledon tennis balls are stored at a perfect 20 degrees Celsius, because the temperature of a tennis ball affects how it bounces. When the ball is warmer, gas molecules inside it expand, causing it to bounce higher. When cooler, the molecules shrink and the ball bounces lower. To guarantee equipment consistency, the more than 54,000 tennis balls that Wimbledon go through each year are stored at exactly 20 degrees.

Golden hour

Ralph Waldo Emerson said that every sunset brings the promise of a new dawn. If you have an exceptional photo of a sunset that you’ve taken, that sunset might also bring you $1,000! Letting us know where it was taken, and any interesting backstory, send us your sublime sunset shot to be in the running to win.

How: send your sunset photo, its location and any backstory we might enjoy.

Send to: havencompetitions@afgonline.com.au

Include: your name, address, email, phone number and the name of your mortgage broker.

Dates: opens on August 14 and closes on October 16.

Winner: will be decided on October 17 and notified by telephone.

Terms and conditions: visit http://bit.ly/HavenWin

Former Reserve Bank governor Philip Lowe copped a lot of flak when he suggested earlier this year that the solution to housing affordability was to get a flatmate.

For those who missed it, Dr Lowe faced a grilling in parliament about Australia’s soaring housing costs and said it came down to supply and demand.

“We need more people on average to live in each dwelling,” he said. While it’s unlikely we’ll see Mr Lowe advertising his spare room on flatmates.com.au anytime soon, it’s not bad advice.

Taking in a tenant seems like a neat solution to the twin problems of rising mortgage repayments and an unprecedented rental squeeze. Put simply, people need somewhere to live and lots of homeowners could do with extra cash.

And it doesn’t need to be a long-term commitment, with some economists predicting rates should start to fall again this time next year. So why not think about getting your home to work a bit harder in the meantime?

RENT OUT A ROOM

Do you have a spare room that could be earning income? Giving up your home office to take in a tenant could generate $200-300 a week in rent. Over a year, that’s more than $10,000 – enough to cover additional repayments and a holiday (if you need time away from that new housemate.)

Flatmates.com.au, one of the country’s largest house-sharing platforms, reported June was its busiest month since 2020. The site logged 50,000 new members, with listings up 55 per cent on the same time last year and 30 per cent more people seeking accommodation.

If you’re worried about diving in over your head, you could dip your toe in the water first by hosting a short-stay overseas student. Universities and language schools are always looking for host families, with organisations such as the Australian Homestay Network helping co-ordinate placements and vetting students and hosts.

Rooms are so scarce on the Queensland’s Gold Coast that the local council recently backed a Host for the Coast campaign to encourage locals to open their doors to overseas students. It can be a great way to make lasting international connections, with room rentals starting at a minimum of one month.

Pros: You can make a significant second income. On top of that, you might make some new friends. There’s also the feelgood factor that you’re helping ease the rental crisis.

Cons: It’s not always easy sharing personal space with someone you’ve just met. And you’ll need to invest considerable time in screening applicants. There are also tax implications. You’ll need to declare rental income and your home may be subject to proportional capital gains tax when you sell. On the flipside, you may be able to claim some maintenance costs. Do your research and seek professional advice.

DON’T LIKE PEOPLE? HOW ABOUT BOXES?

Renting out space in your home doesn’t mean you need to roll the dice on a random tenant.

If you have a spare room, garage, carport or storage cage, you can rent that out too.

A growing number of peer-to-peer online platforms are helping connect people who have storage with people who need it around Australia. Some of the more popular sites include Spacer, Spaceout and Store at my House. Users can make around $100-$200 a month, although this is generally higher if your space is located in a valuable CBD location.

Spacer host Elliot listed his inner-Sydney car parking space and now earns $270 a month. In another example on the company’s website, single parent Lisa rents the storage cage at her apartment in Sydney’s Neutral Bay for $130 a month and uses the cash to cover extra-curricular activities for her children.

Pros: It’s passive income with little intrusion on personal space. You won’t need to do much beyond an initial listing and correspondence. It is usually free to list space.

Cons: Hosts would need some reassurance about what people are storing and how often they would need access. Unit owners may need to consider any body corporate issues.

PUT IN A GRANNY FLAT

The market for granny flats is booming as state governments make it easier for Australians to build and rent out freestanding units in their backyards.

Queensland became the latest state to legalise leasing granny flats last year, in response to the rental crisis. As of July, South Australia and Victoria remain the only states where these secondary dwellings can’t be rented on the open market.

For those who can take advantage of flexible new rules (some councils waive development approval), putting in a self-contained granny flat can cost around $70,000. Consider DIY kits and portable pods.

Pros: You can earn rental income without the inconvenience of having someone share your space and amenities. Having dual living options can add value to your home.

Cons: There are substantial upfront costs, and you’ll need to investigate your local planning laws carefully. As with renting a room, there are income and capital gains tax implications, but also potential deductions.

A good egg

Thanks to our love of coffee, Australians chuck out more than 1 billion disposable coffee cups each year. With most of them lined in non-biodegradable plastic, our collective caffeine habit is contributing towards polluting our environment at a staggering rate.

Help support planet earth and an Aussie small business by acquiring one of these excellent ceramic cups. Hand crafted by an industrial designer in Byron Bay, your barista will appreciate the heads up too –you can also personalise your mug with both your name and favourite brew. With present-giving season around the corner, these would be fab personalised pressies for the coffee fiends in your life. goodeggs.com.au

HAVEN LIKES

Congratulations to Mila who wins $1,000 for taking out our budding Picasso competition from the last edition of Haven.

Mila’s mum Amy tells us that Mila created this Sidney Nolan-inspired work at prep school when she was just six. Mila is a keen arts and crafts kind of girl – always colouring, painting, drawing, and doing all things arty. Mila is inspired by her late Poppy, an incredible landscape painter, who would take photos of landscapes on his camping trips around Australia and return home to spend hours in his shed turning photos into paintings. He is remembered through his paintings that hang with pride on Mila’s Nanny’s walls. If this example is anything to go by, Amy is predicting Mila will turn out being extraordinary at art just like her Poppy.

The cost of building a house has soared by as much as 40 per cent in the past two years. Unless your home insurance has kept pace, it’s likely you, and many other Australians, are significantly underinsured.

Even before COVID and the situation in Ukraine influenced the rise in building costs, the Insurance Council of Australia estimated about 80 per cent of Australians were not covered for the true costs of rebuilding.1

It’s not really something homeowners want to think about, with pressure on all sides from rising interest rates, insurance premiums and inflation. But, if the worst happens and you’re caught short on insurance, it can set you back decades.

Look for red flags

Some homeowners are at greater risk from underinsurance. Look for warning signs your home may be in this category.

• Do you live in a bushfire or cyclone zone? This not only means your property is at greater risk of total loss, but more stringent construction codes can add significantly to rebuilding costs.

• Have you renovated or landscaped without updating your insured amount?

• Is your home on a sloping block, or does it have access issues that could raise construction costs?

• How long is it since you reviewed and updated your policy valuation? Insurers usually raise the insured amount around 5-7 per cent each year. But in the past two years building costs have far outpaced this. A Choice magazine article cited the case of a Blue Mountains teacher who lost his home to bushfire in 2013 and was left shockingly out of pocket. He had insured his home for the estimated construction costs when he bought it in 1996 and had relied on his insurer’s annual 5 per cent increase in coverage to keep it current. His pay out was $370,000, but quotes to rebuild came in between $650,00 and $680,000. He was unable to rebuild and bought a cheaper property elsewhere. 2

How to value your home

The average homeowner can’t be expected to stay abreast of rising construction costs. There are two main ways to put a realistic value on rebuilding.

Free online calculators: These can be contentious, with some quantity surveyors claiming they contribute to underinsurance issues.3 However, the Insurance Council of Australia recommends the Cordell Sum Sure construction calculator, which is built and maintained by real estate data firm

1 Underinsured and overexposed – Most Australians risk financial hardship through underinsurance, understandinsurance.com.au, 28 November 2017, https://understandinsurance.com.au/mediarelease/plain/1

2 Vergnani, L. Are home insurance calculators accurate?, choice.com.au, 17 September 2018, www.choice.com.au/money/insurance/home-and-contents/articles/building-insurance-calculators

3 Wood, D. Rising building costs: Will they force insurers to use quantity surveyors, 14 December 2022. www.insurancebusinessmag.com/au/news/property/rising-building-costs-will-theyforce-insurers-to-use-quantity-surveyors-430515.aspx

HAVEN MONEY

CoreLogic. According to CoreLogic, the Cordell Sum Sure is a real-time, live rebuild calculator that’s updated with materials prices, building code changes, and transport, storage, and wage costs.

It is based on postcodes, with users able to add high-level detail, such as the quality of finishings, floor area, and level of architectural design. A disclaimer on the ICA site states figures generated by the calculator are an approximate guide only and should not be taken as advice or a recommendation to acquire any product or level of insurance cover.

Quantity surveyor: This is considered the gold standard. Costs for having a quantity surveyor estimate the rebuild cost of your home can be upwards of $500. However, if you have a tricky location, or unusual home, it can be invaluable to give you a reliable costing. As opposed to valuers, quantity surveyors are experts on building costs, not what properties would fetch if sold. These can be two very different figures.

Surveyors recommend homeowners have their rebuild estimate reviewed every 3-5 years and after any renovation work.

Dos and d’ohs

When estimating the replacement cost of your home watch for common pitfalls.

• Don’t just subtract land value from total valuation to guesstimate the rebuild costs. The purchase price or valuation does not give you an accurate indication of rebuild costs because it won’t

take into account things such as site access or fluctuating construction costs.

• Do remember that if your home is destroyed it can easily take one to two years to get building contracts in place. This means prices will continue escalating, so this needs to be factored in to the insured amount.

Keeping costs down

Everyone wants to be properly insured, but let’s be honest, we don’t want to pay a cent more than we have to. There are a few simple tips to save:

• Raise your excess: bumping your excess up from say $500 to $1000 can save hundreds, particularly if you rarely claim anyway. A Choice magazine analysis from this year found consumers could save 10-12 per cent in premiums for every $500 increase in their excess, with the sweet spot an excess of $1000-$1500.4

• Shop around: it doesn’t pay to be loyal when it comes to insurance. Look for insurers who offer discounts for bundling insurances – building, contents and car.

• Install alarms: advanced security and fire protection measures not only saves lives, they can save on premiums too.