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The Anne Street Partners People’s Champion Award recipients go to Lorna Smyth from our Accounts Team and Samantha Jones, from our Legal & Compliance Team. This Award recognises the efforts that our highly-valued support teams make to the entire organisation. Lorna and Samantha have both been recognised as trusted, professional team players who have made a considerable effort during the year. These two are unsung heroes who have continually gone beyond their roles to make a difference.

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So far 2017 has proven to be a turbulent ride for home loan interest rates and all the signals are pointing towards higher rates on the horizon.

So why are rates starting to increase and what can you do to ensure your lending remains in line with your life? Jason Dunn, General Manager, Strategy & Distribution takes us through the detail.

Rate increases are dependent on a range of factors

At a macro level, home loans are subject to the same market forces as many other commodities. Competition between lenders, deposits and bank rules also play a huge part in how mortgage rates move, as well as Global bond rates, the Reserve Bank of Australia (RBA), monetary policy and volatility in markets.

The way your mortgage is structured and the type of loan you have also plays a large part. You may have a variable loan rate, which can move in line with a lenders parameters – up or down. The type of loan can also have an impact – if the purpose of the borrowing is for an investment, this can incur a higher interest rate which may reflect the overall risk level the lender feels is appropriate given the risk it may be exposed to.

Let’s examine some areas in more detail.

Bank funding

Banks generally obtain their funding globally. They spread the risks over the long-term, but these rates can move – especially when there is an increased level of market volatility or uncertainty. There’s more to this – including credit spreads (a difference in yield between two different bonds) which can help to reduce sudden spikes and soften the impacts, but the reality is banks need to refinance portions of their book regularly and this can lead to increased rates which are basically driven by increased funding costs.

Saving Deposits

Saving deposits play a huge part in funding for banks – about 60% of their books. Although this seems high, many other nations have levels which match or exceed their lending. In this case Australian banks generally turn to the wholesale market to cover any shortfall in lending needs. This and any increase in deposit rates can impact a banks funding costs which are generally passed on.

However, saving deposits aren’t really rising to any great degree. New rules require the banks to maintain a “stable funding ratio” (a banking reform which is designed to promote a more resilient banking sector) which sets a priority on retail deposits. This can impact the way a bank lends, as they are required to raise deposits to fund for any lending. In reality this may impact lending rates as banks increase the interest rates to attract more deposits.

Banks are under pressure

Banks are becoming increasingly pressured to generate high returns, largely driven by shareholders who expect good returns on investment. There is also additional pressure through increased regulatory requirements to shore up balance sheets to counteract any market changes – a bit like the Global Financial Crisis (GFC) experienced in 2008, and the rising costs of operations and funding costs. The take away here is that this has placed increased pressure on banks to maintain and increase profits which in turn has led to these costs being passed on.

Loan types

The type of loan that you take out can impact the cost of borrowing. Investor loans are slowly increasing in cost, mainly due to the regulators’ concerns about the continued ferocity of investment loan growth. This can be reflected in the investment market being a more volatile environment – as an investor who is under financial stress is more likely to offload an investment than an owner occupied home – maybe at a discount which could impact the ability to repay the loan. The regulator imposed various limits on investment loans which has driven the price of these loans up.

Owner occupied loans, designed for the home you own and live in, have had less restrictions imposed, which has rendered this area of the market more desirable and therefore still quite competitive. Whether you have a variable or fixed rate loan will obviously impact on the cost of borrowing too – simply put, this is usually a reflection of the banks wholesale funding costs – if they go up, so does the cost of your mortgage.

Competition – the more the merrier

It’s hard to imagine a more competitive loan environment – even though we’ve seen some interest rate increases recently. Competition certainly has played a part in helping to drive an increased level of competitive behaviour from banks and smaller lenders who have been keen to grow market share. Many new and smaller players, have been using very attractive rates to entice borrowers onto their books. Home loan brokers have also had a part to play as they scour the market for competitively priced home loans that reflect the borrower’s needs.

It could be argued that banks have been discounting to attract borrowers and this won’t continue for the long-term as they begin to fulfil their funding mixes of owner occupied and investment loans and lending to deposit ratios.

The Reserve Bank of Australia’s official cash rate has been left at a consistent 1.5% from August 2016, is enabling lenders to pass on highly competitive rates to borrowers. As the lucrative home loan market continues to grow as the population increases, it’s likely that competition is only going to remain strong and get stronger.

So what does 2017 have in store?

It’s hard to deny that the regulator’s desire to slow investment lending hasn’t impacted the home loan market. Slowly but surely banks are taking measures to balance their books and encourage deposits (usually by developing higher interest returning products) to shore up their balance sheets.

The recent scrutiny on the banking industry also looks like it’s impacted some banks’ policies as they increase their deposit rates and desire for capital. Sure, there is increased competition in the market which is keeping lenders competitive, but the impact of the regulator’s desire to slow the fast growing investment lending market seems to be taking hold. Some banks are placing increased restrictions on lending or reducing their appetite for investment lending overall. What this is starting to indicate is that rates will increase, maybe not severely, but its likely 2017 will be a more expensive year for borrowers than we’ve seen in 2016. What this means for borrowers is simple – if you haven’t reviewed your lending in the past 12 months, it’s worth doing it now.

General Advice Disclaimer

The information contained in this article is general in nature and does not constitute personal financial advice. It has been prepared without taking into consideration your personal objectives, financial situations and needs. Before acting on any information contained in this article you should consider the appropriateness of the information having regard to your objectives, financial situations and needs.

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Did you know the amount you can contribute to superannuation will decrease from 1 July 2017? Paying extra into your superannuation now may make a big impact later in retirement.

Making before-tax contributions

Right now the total amount you can contribute to your superannuation before tax, is capped at:

  • $35,000 per year if you are aged 50 or over.
  • $30,000 per year if you are aged under 50.

Your before-tax contributions include your Superannuation Guarantee contributions, any other employer super contributions, salary sacrificing (if you do this) and any contributions that you have claimed a tax deduction for.

The cap will reduce to $25,000 per financial year from 1 July 2017, regardless of age. There will be additional flexibility from 1 July 2018 if you have less than $500,000 in total superannuation which will allow you to carry forward your unused before-tax (concessional) contributions for up to five years.

Making after-tax contributions

Take advantage of the current higher after-tax contributions cap to boost your super before it changes. From 1 July 2017, the cap on after-tax contributions will reduce to $100,000 per financial year. It’s currently $180,000 for those under 65 years. From 1 July you will also only be able to make after-tax (non-concessional) contributions if your total super balance is less than $1.6 million. If you have spare cash on hand, whether an inheritance, dividend payments, a bonus or even just change after bills, you might consider contributing this to your superannuation sooner rather than later. And, if you are aged under 65, you can bring forward up to three years of after-tax contributions, allowing you to invest up to $540,000 in one go. This cap will change to $300,000 from 1 July this year.

Entering retirement

If you’re retired or about to retire, there are a few changes you should know about. From 1 July 2017, the maximum amount you can have invested in the retirement phase will be $1.6 million. If you’ve already retired and your balance exceeds this cap you will be required to either

  • Move the excess back to the accumulation phase or
  • Withdraw the amount as a lump sum by 1 July 2017 or have a tax penalty applied.

Note: This deadline is 31 December 2017 if the excess amount is $100,000 or less. If you’re currently invested in a Transition-to-Retirement (TTR) pension, from 1 July 2017, the earnings from this pension will be taxed at up to 15% pa (compared to its current tax-free status). Talk to your Financial Adviser to evaluate whether this style of pension is still right for you. To learn more about end of financial year strategies for your super, please don’t hesitate in contacting us.

General Advice Disclaimer

The information contained in this article is general in nature and does not constitute personal financial advice. It has been prepared without taking into consideration your personal objectives, financial situations and needs. Before acting on any information contained in this article you should consider the appropriateness of the information having regard to your objectives, financial situations and needs.

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When you hit retirement, it can become more difficult to find a consistent income beyond your pension.

While a pension is a fine source of income, there are better ways for seniors to supplement their income, and you don’t even have to expend much effort at all!

Seniors are increasingly turning toward property management as a method for increasing their income after they have retired. Owning and managing property is a relatively low-effort, low-impact way to keep your income up, and it can serve as a very effective investment for anyone willing to make the initial purchase.

Paying for the property itself is a bit of an initial cost, yes, but prices on property are actually relatively low right now, so you can make more money on property if you get into the field soon.

From that point on, it becomes a very easy process of earning money from your property. Whether you invest in an apartment building or a house, you can rent it out to tenants.

As the landlord, you will be able to select tenants that will reliably pay their rent and keep their living area clean.

With a small regular effort in maintaining the property, you generally make back your money and plenty more via your tenant’s rent payments. What does this mean for you? It means plenty of supplemental income for you with minimal effort that will continue for as long as you care to maintain the property. Then, as a final source of income, you can sell off the property when you no longer have time to work on it.

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RENT roll manager RUN Property has boosted the number of residential leases it has under management through a deal with Lord Aschcroft’s Australian financial services group Anne Street Partners.

Under the agreement, RUN Property will become the preferred referrer of new rental agreements for Anne Street Partners Realty.

It will also oversee the management of Anne Street Partner’s growing rent roll. The deal will bolster RUN’s existing rent roll of 15,000 properties.

To continue reading the article via The Australian please click here

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