Want To Buy A House? Get 'Finance Ready'

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Hello and welcome to NavTalk, NavTalk is proudly brought to you by the NavWealth Financial Group helping you reach your destination in life on purpose.

My name is Simon Prowse and I'll be your regular host for this series of podcasts and I look forward to bringing you interviews and content on a broad range of topics topics that will be educational inspirational informative and at times fun [Music]

Well hello everyone and welcome to today's NAB talk today's talk is entitled Finance Ready

My guest for today's talk is Sally of Sandcastle Finance. Sally is the owner and director of Sandcastle Finance as well as being a joint venture partner of NavWealth Finance who specialize in lending in all forms from individuals through to corporations

Welcome Sally

Thanks Simon

I'd rather call this topic get smart get Savvy Money Matters

Wow before we elaborate on that Sall, it sounds very interesting let me give the audience a bit of your background

So you complete your HSC in 1989 and a part of that completion you decide you want to become an accountant and started a what they called a sandwich degree in those days with UTS doing a major in accounting in 1993

You graduated uni with a bachelor of Business Degree majoring in marketing far from accounting.

In 2005 you've got a certificate for in mortgage broker followed by a diploma of Finance in 2011.

In 2016 you completed your professional investment advisor certificate and in 2018 undertook your real estate license

That's quite a resume Sally

Then in 2009 you established lifestyle, Impressions and later changed its name to Sandcastle Finance in 2014

So it's quite a journey you've had to get you Sally

I have undertaken a lot of these courses because my passion is really around property and that's how I got into mortgage broking

I realized accounting really wasn't for me probably my first year so I handed that over to you then I found out my real passion was around property

So that's sort of led me to the path of being a mortgage broker

So my whole aim at the moment is trying to get as many people into the property Market as possible because I've seen firsthand how it is a very good vehicle for wealth creation

When it comes to Property, Sally you said it's your passion, why do you think it is your passion what is it about property that floats your boat

I mean I just love looking at houses number one but I like building houses and also I've seen how it's a vehicle for wealth creation

So particularly I've been able to help people get into the market and over the last 10 years in particular we've seen massive growth of their wealth and that also creates confidence in people and helps them achieve a better lifestyle for themselves and their families

So you so in saying that because the property is quite valuable and the amount of money a person can borrow against that value is quite strong that allows them to create that wealth is that what you're saying around the leverage

That's correct

Okay so let's get into the the key points that you sort of segued into when we talk about Finance ready and you said it's not just about finances you said actually not being Finance ready it's about getting smart, getting Savvy and money matters so take us for a bit of a journey there

Well one of the when I started my own business one of the my Niche Target markets was actually helping some friends who were divorced get back into the market

And I believe like from that Target Market a lot of people who may be being married for a while and then they've separated they've actually let their husbands do a lot of the financial legwork so in the get Savvy it's more about educating people about Finance matters like money does matter like it's in terms of numbers It's always important for you as your own person to know about numbers instead of sort of bearing your head in the sand

So that's where the sort of get smart gets Savvy tool comes from it's about just knowing and not bearing your head in the sand

you're trying to educate a broader range of people and and not just the finance ones but all of them about being Savvy with their money getting to understand it and knowing what it really means and so

That's correct

So when it comes to home loans and and borrowing money there's some key factors in in the process, can you just take us for a bit of journey through that and and I think

you've mentioned it started with serviceability

That's correct, but I also just want to take a step back as well because one of the other things is you need to have the right money mindset to be able to even think about borrowing money so that is probably the very first thing we need to get people to understand that owning up your own home

is not just about your serviceability and the security is actually being wanting to able to do it and getting the right mindset about doing it

So the desire of and the dream of having that house or a a mortgage or a property is probably the key to this whole process

It's correct it's about your mindset like if you can get the right mindset of your why, why do you want to get into property you can make it happen

A lot of people I see come to me and they say oh how can I possibly own your own home. but there are ways if you have the right mindset to be able to do want to do this

Great so once we've got the mindset and we're ready to go there's some key factors that we're going to look at when we're looking at this

So to simplify things I put it as the three s's so the first step is serviceability what serviceability ultimately is income versus expenses

But each Bank can vary quite significantly in how much they're going to lend based on their parameters

So if we look at income we can look at full-time income, part-time income, casual, we can look at rental income we can actually some banks will even take trust distributions even if they're from the Family Trust

We can look at Centrelink payments and we can also look at child Support

Just for example with child support there most banks will take income for child support only up to the age of 13 where there are some banks that will take up to 18.

So that can significantly affect your serviceability for example if you do have child support payments coming from the government or your ex-partner

The other thing that can differ quite significantly from bank to bank is how they perceive rental income

Some banks might take 70percent of the rental income some banks might take up to 90 percent of the rental income

Some people might be getting Airbnb income for example and some banks will only take 50 of that income whereas others will take up to 80

So it's really important to go to someone that has an idea of or has choices for you because you might walk into a bank off the that you normally go to and they might not have the right policy for what your needs are at the moment

So Sally importantly every bank is different to where they look at and address your income and there might be a vast difference between One bank over the other on how much income that they'll assess based on your circumstances the way you derive it

That's correct

So talk to us then about expenses we've covered the income part

Okay so one of the things that came out of the royal commission a couple of years ago was how people dictated what their living expenses were

So the banks all again have different what they call is a hems which is basically your the way they've calculated your living expenses

And again some banks do this differently the majority of the banks will do it based on your income and also the postcode that you live in and the amount of children you have dependents and also if you're married or single

So they have a set criteria but each Bank differs quite again vastly it can differ by up to say two or three thousand dollars per month depending on your situation your income your postcode

So again that will affect your serviceability

So that's the number one thing that Banks look at your living expenses and then they expense things such as credit cards

So credit cards are actually expensive say four percent of the limit

So even if you don't use that whole limit and you but the banks will actually do it at that limit you might pay that credit card off every month but according to the banks they don't care as long as that they can see on your credit file they'll do it on that limit

So that again brings me to important point a lot of people actually don't know what cards personal loans and maybe leases they have on their their credit report

One of the credit cards that seemingly comes up a lot is a Latitude credit card these are cards that you can say get at the Harvey Normans like if anyone's ever got any furniture where again in their minds they think it's an interest-free period which it might be but it does appear on your credit file as a debt

So the banks will expense this so one of the first things I would always recommend is that you actually get a copy of your credit file

The way you can do this is either sign yourself up to A Veda or most Brokers will have access to your A Veda file if they if you have if you give we ask you for a consent and they'll give it we'll be able to show you a credit file

So A Veda report gives us our score our credit score you're saying it's really important we do this before we apply for a loan so we understand what's actually part of our credit report and that can be done through our broker or we can do it ourselves

Correct

Great so we're down the road of looking at this serviceability is there any more factors that we need to consider as part of this or is that pretty well covered it

Well that's pretty well covered it so I mean as well car leases even if you they're in your company name some banks will want to expense them as an individual so it's really important that you do have a choice of different banks

As I said some banks don't include company debts where other Banks do expense it but generally when those Banks expense it they will add back things like depreciation and interest

Okay and if I've got a partner I may not be married and I might be buying my first house but I've got honor and we're looking to buy together will they take our joint income and and how does that then affect joint expenses

Well that's exactly right and again there are there's probably only one bank at the moment that has a fantastic product called property share

Whereas each individual in that situation is its own entity

Whereas the majority of other Banks is if you're on title together you're joining severally liable because you both have to be on the loan together

So most instances the title has to reflect the loan

Okay okay so that's really important so income and expenses are have got to be worked out and

thoroughly reviewed each bank will have a different approach to assessing that income and expenses they're not all going to be the same and it's important to shop the right one that works for your circumstances

Correct

So let's then get into the next part of the the three s's or you're calling the three wonderful s's:

So the next one is security so what that means is what you're able to put into the purchase and this might come down to your savings

You might have a gift you might have an inheritance it's really the collateral that you are able to put into it

You may have another property whether that's your own property or with them we can go into security guarantee which we have been doing a lot of in Sydney over the last couple of years because it is hard to save in this city and a lot of people have a lot of equity build up in their properties that they are able to use to help their children purchase a further property

So I'm allowed to help my children with equity in my property

So if I wanted to assist my child into buying a property I could put up my property of security

Correct

And the way the banks do it is there's a limited guarantee so how that works is if you're buying a million dollar property or your child just buying a million dollar property

They the the bank would need 20 percent security and so you would put up two hundred thousand dollars of your property as security at that point

So the bank's still lending my child in this your example a million dollars but I'm putting up 20 which is against my property as a security guarantee

Correct

Great and and tell us a bit about short-term things like gifts and inheritances and things it's not money we've saved up how does the bank assess those

Well in my experience, if you have a 20 deposit the bank don't really care it's becoming between 90 and 95 lens is when the banks want to see five percent genuine savings

So they asked for genuine savings as in show us you've been putting the money away rather than I found this money from a family or something like that they're going to want some proof that you you can save money

That's correct but it's generally over when it's under 80 lvr they're not so they don't care too much because they've got a 20 Equity already in the property

And as well what banks are also accepting now is a rental Ledger for the last 12 months to show that if you've been paying rent and you're going to buy your own home that you've been able to pay the rent so that can be included as genuine savings

And I assume in your your first section as well when it comes down to serviceability if you've been paying a lot of rent and you won't be paying rent when you're buying the property that then comes into account your access funds

Correct

Yeah great so that really helps because the rental market is obviously one where it makes it really hard to save as as a first home buying buyer

I'd like to segway from here if I might around this collateral part because I think it's really important because this is our deposit this is what really gives us a chance to put our foot in the door when it comes to property

Can you explain a little bit about the differing deposits you've mentioned 80 20 80 borrowing 20 deposit but that's sort of not a hard line is that fair to say

Well that's correct so basically most banks if you don't have a 20 deposit require you to pay mortgage insurance which is a fee in case you don't if yourself it guarantees the bank who bounce you defaulting on your loan

Harvey would have read probably in the news recently about some of the grants that have come up because the government is very encouraging to help people get into the market earlier and one of the major benefits they've introduced in the last couple of years is what they call the new home buyers scheme

In which the government is actually guaranteeing up to 15 of that deposit so mortgage insurance is not applicable

And just in terms of numbers that can save like if you're up to if you're up to the limit on what you can buy under this scheme which is nine hundred thousand dollars in Sydney

That will save you up to say forty thousand dollars in mortgage insurance

So essentially this new home buyers scheme is really a government guarantee around a deposit rather than anything so it just avoids the need for mortgage Insurance

Correct

Okay and it's not actually money that the government are putting in

No correct

Okay and is there any others again I've I've came back in on this 80 20 it seems to be the piece to the resistance or the or the Line in the Sand

If I'm a first home owner or if I'm a returning homeowner, is 80 the hard line

Well again there are some banks that have specials out currently so they'll do 85 no LMI which means that you only have to have 15

There are banks that again the way I see it there's probably three ways to get into the market which you don't have 20 deposit

The first way is using a security guarantee always we've just briefly touched on

the second way is if you can qualify for the new home buy one of the new home buyers schemes

And the Third Way is borrowing money from somewhere like a personal line which you are able to do with some banks if your serviceability is really strong or obviously getting a gift

Okay there's a couple of others too that the government's recently introduced I think there's a superannuation scheme up there

Yeah that's correct

So there's a few schemes on offer that come under this new buyer scheme so and they're only applicable to first-time owners or single parents as well

There's two at the moment the government is pushing that help you avoid paying mortgage insurance and having the 20 deposit

So there is one that the government introduced again during covid because they saw how hard it is to save for a deposit and that is to enable first-time owners to take up to thirty thousand dollars out of their superannuation

They can only take fifteen thousand dollars of that out at the time so over a two-year period they could have thirty thousand dollars towards a new home

And the beauty about that is they're only going to pay 15% tax on any money they do take out of that scheme but that's the cap at thirty thousand dollars

Then as I mentioned they've got we've got the first homeowner scheme there is a new scheme that came into place on the first of July and there is going to be 35 000 places available from this first of July 2022 which is up from 10 000 places last year

And also within that there is massive savings for first home owners for stamp Duty because as we know stamp duty is also another scheme that has come to light in recent weeks

So currently up until January this year if you buy a property say up to the value of 650 000

There'll be no stamp Duty applicable so you could apply for say one of these spots in the new first home buyers scheme

And if you can find a property for 650 000 you'll only be contributing that five percent

I understand that there was a new scheme announced by the state government in in trying to support stamp Duty or reducing the cost substantivity when it comes to property

Yes so what I believe has happened is that as of January 16th in 2023 first homeowners up to when they're buying a property up to the value of 1.5 million will be able to choose whether they pay the stamp Duty upfront or they pay it in installments over a number of years

What I believe is behind this is the government is trying to encourage people to have property as a more liquid asset because there is so many Industries behind property so the people that get paid for a property transaction

So from a conveyancer to a mortgage broker to a real estate agent so because stamp duties become such a high expense

What they having are enabling from next January is letting people just pay an effect in annual land tax would be based on the value of the land

So just for an example the average house in Sydney at the moment is say 1.12 million a full stamp Duty on that property would be forty nine thousand dollars

We can assume land would be around about the value of 750 000 and therefore the annual tax becomes two thousand nine hundred sixty dollars so it will allow people to get in and out of property faster if they just take the opportunity to pay the annual land tax instead of paying upfront cost of forty nine thousand dollars

And I dare say that upfront cost is quite an impediment if you're pretty tight on your savings and you're you're trying to get your 80 so if you don't have the added cost of stamp Duty in year one rather you have it over the next 20 years it's it's going to save you on that initial deposit

Yeah that's correct

So the security piece out of your three S’s number two is quite an interesting one it is quite rigid in in terms of uh coming up with deposits and and how what it means so we've got cash that was saved and we've got security guarantees and we've got gifts and we've got inheritance and and obviously the rental that you mentioned the rent offset

But then we've got this moving piece part the part where the the government with their initiative and incentives can create security deposits in certain areas

So so in this instance the first home owners

But then the first homeowners and the amount seem to vary quite a bit between 650 and 1.2 million

So is that a fair summation of those security piece

Yeah it is very confusing the other thing I also wanted to talk about was the actual security of the property because that can also vary from bank to bank

So one of the things I want to especially first homeowner buyers a lot of banks don't like units say for example under 40 square meters

So this is another piece to the puzzle as well that comes under security so the bank's also got to be have acceptable security

They also don't some banks also don't like large lots of units as well so certain banks will only say you're allowed to borrow 80 when there's say more than 50 units in the block

So the security is a big piece of the puzzle

Yeah so a big piece of the puzzle that really requires some expert guidance and and and management through the process because it's a bit of a Minefield

Yeah that's correct

Okay so we've covered our security and we've covered our serviceability your last of your your super s's is the strength of character talk to us a little bit about what all that means

Okay so what as I mentioned before is it's very important to have a Veda check and because what the banks do now is a generally a comprehensive credit report

So everyone is scored and you can have scores up to high 900s and anything below 600 on this credit check is deems not acceptable by some banks

So again it's very important to know what your credit score looks like with that strength of character also things that come into play are such as how many jobs have you had say in the last five years

You'll if you ever have to go through a fact find with a broker which you'll have to do for an application these are the questions that need to be answered

How long have you been employment employment and they especially want to look at the last three years

Credit inquiry is extremely important if you've had more than say three or four inquiries in last 12 months that will definitely affect your credit score income to strength of character

Things like as well change of address and employment all affect the strength of character and as I said before the worst thing that could ever happen is that you have your identity stolen and that can I've seen cases where it's very negative on your credit file and it's really hard to get out of these things

So always making sure that when you do apply for credit it is something that you want to do and you're not just doing it for the sake of doing it

Okay so we're coming back to this credit check approach and and making sure that's fundamental part of our application process

The length of employment so it seems to be more of a fact that these days people have more than one job in their lifetime you're saying that the banks actually sort of devalue or or score you worse if you've got more jobs

Correct it can come up because this is one of the things that comes up on your credit file

However again like some banks want you to be in a job for say at least six months whereas some banks again will only require one payslip

So again every bank has different policies in regards to this

And you mentioned here also credit inquiries over the past 12 months so everything we do involves a credit inquiry when it comes to finance

Correct

So if you apply for say again a Latitude credit card a zip file which you know most retailers now allow you to do paid I'll pay now like so pay later credit cards all come up on your credit file

They're all on your credit file

Even if they say they're interest-free for six months

Wow so if even if I go to Harvey Norman and I go 12 months interest fee and sign up for that that is a credit score a credit card and that's going to affect my borrowing

Yes and the actual limit is on your credit file

Wow and and more so if I if I if I pay it by a day late or I miss it in any way shape or form change address don't even realize again my credit score

That's correct

Okay so if credit score is so important in this whole process

And you said before and I'll reintegrate on this or sort of hang back on it

A lot of people aren't even aware when you when it comes to when you do a lodge and application

Well they just forget they've applied for they've bought a fridge back in 2005 and did it at Harvey Norman and ditto three-year interesting free period and then um

So it's important they close that account clean it all up and and then re-lodge or Lodge with the bank at that time

So that was great Sally so in in summing up the the three s's uh are the vital Parts when it comes to getting getting that mortgage or getting a mortgage over the line

And that's the serviceability which is your income over expenses and how much you can afford to pay a month for a year or whatever the measure is

The security and the amount of money you've been able to build up or can access as as your deposit

And then the strength of character which is you being a a reliable and and a strong borrower whether it's you or or a or a spouse or a partner you're assessed on the strength of character and and it's vitally important to go off and get a credit score or a beta report on on your strength of character or your overall circumstance before you Lodge

So do you see that as a fair summation of how how it works for a mortgage

Correct and one of the things I'd like to just also mention is that Brokers give you Choice

So it's critically important in this process to see an expert and in this case a broker to really present your case around these three S's and and getting your loan modes alive

That's correct Brokers will give you choice and we will be able to present your application to the most suitable Bank in the best light as we see fit

Tell me a little bit probably about the current climate we're seeing interest rates climbing or going up is there any cause for alarm as you as from what you're saying

I don't believe so we've been in a low interest rate environment probably for the last two and a half years and it's just going back to normality

So even like a 0.85 percent rate of The Reserve Bank has not been seen really in is still one of the lowest rates we've had in history there is prediction that it might go up another two percent but still that is fairly low if you have a look at the last 20 years of interest rate history in Australia

So at the moment I don't believe there's any need to panic what it's actually doing is when interest rates go up it means the economy is in good stead so we're trying to decrease Inflation

And hopefully it will all balance out a lot faster than is originally anticipated

So already from some seminars I've been attending the last couple of weeks that they believe the spending is starting to slow down which is what I believe the interest rates going up it was trying to do to the economy

So the the interest rates going up is yes we've got to keep an eye on it to be able to to manage it

But also you mentioned when the banks are working out uh borrowing capacity they're adding three percent to to your capacity to to affect absorb these interest rate Rises is that fair

That's correct so basically when we've had our low interest rates of the low two percents which we've had over the last couple of years the banks were already doing the servicing at five and a half percent

So to make sure that you could afford the home loan that you've currently got

And what about those ones those people that have been locked in on interest only style loans and they're now coming off their interest

There are a lot of people coming off fixed rates that have been at you know again the low two percents uh

So they those people will find that they won't be able to get another fixed rate of that at the moment but what they will fight is that they should be able to get a variable rate still in the two percents for the next while and the banks are willing to negotiate on the variable rates

So again come to a broker who can assist you get get a better rate than the headline rate is that fair at the bank

Correct

And and what sort of discounts are you able to negotiate quite often for your clients

Depending on the loan amount and one of the big things the banks are also looking at the moment is uh lvrs which is loan to value ratio

So for example if you have a lvr under 70 I've been seeing discounts of 2.5 of the standard variable rate of one of the big Banks so that's again we're looking at a variable rate I think in the high fours at the moment so we're down to the low the high twos

So from the high fours to the to the to the two

Yeah

A two percent discount 2.5 off the standard variable rate we've been seeing at the moment

For the life of the line so by seeing a broker you could save two percent off a standard loan

That's correct and all as well it all also as I said mentioned earlier it will help towards that serviceability piece

Oh Sally wow

So in terms of a mortgage be ready as in get your mindset around it you want to buy a house you determined you if you're determined you can make it happen and through a broker they can find you the right place and get you over the line by getting your house in order and then putting the best foot forward

Get smart get Savvy money does matter

Oh thank you Sally we really appreciate your time today and thanks for talking to us on NavTalk

Yeah Welcome

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