Navigating Your Home Loan
Amid a fluctuating property market, effectively managing your home or investment finances has never been more crucial! Anthony O’Flynn, the senior mortgage adviser at IFA Mortgages & Finance, chats to Jacqueline Maya about the considerations of obtaining a mortgage, and offers some priceless advice to first-home buyers.
Can you tell us a bit about how IFA Mortgages & Finance operates?
Established in a reasonably up-and-coming industry in 2001, IFA Mortgages & Finance has assisted many thousands of clients in realising their property goals. We provide tailored expertise in meeting property goals, and, most importantly, ensure that our clients’ needs are being met over their lifetime, rather than simply getting the new loan over the line. We provide advice on purchasing a first home or investment property; obtaining funding for commercial properties; construction loans; self-managed super fund purchases; asset finance for vehicles and equipment; as well as refinances and reverse mortgages.
How is the Sydney property market fairing at this point in time?
Sydney’s property market is a funny one. Like any product, prices will be dictated in part by supply and demand, and I think this is certainly the case here. We have seen a relative oversupply of new apartments in certain areas of Sydney, as developers have tried to hop on the back of a booming market, but in hindsight, the demand for property has really diminished over the past 18 to 24 months. There is a litany of factors at play here, and I think a lot of this boils down to uncertainty.
Is there really such a thing as the perfect time to buy?
Timing the market is incredibly hard and purchasing a property shouldn’t be your ‘get rich quick’ scheme. We look at purchasing a property as a long-term strategy and you need to account for changes in the market over the journey of home ownership. Fluctuations also tend to occur in different areas at different rates, so a decline of five per cent in Sydney will appear very differently in an area with an oversupply than in a blue-chip suburb where demand will always be high. We have often seen customers too focussed on the market that they miss out and are far too late when it picks up again.
What are the processes involved in applying for a mortgage for your first home?
The first step in applying for a mortgage is setting aside some time to discuss your finances and your goals over the next 12 months, ten years and beyond. Your broker is a member of your team, and over time will develop a unique understanding of what you want to achieve in your life, and can therefore offer advice that is tailored to your situation. At IFA Mortgages & Finance, we work with you to show you the products and lenders that best fit your needs and objectives, while working closely with you to navigate what can be a highly complex and intimidating process.
Afterwards, we apply for your loan and liaise directly with the lender to answer any follow-up questions on your behalf. The freedom of knowing you have an expert negotiating with the lender for you is one of the most loved aspects of our service, especially for those who are time poor or hesitant to take the reins on their application. We see the application through from submission to approval and then to settlement when you finally pick up the keys, ensuring the process is as seamless as possible, thus relieving one of the major stresses in what can be a very trying time in anyone’s life.
What are the most common challenges first-home buyers currently face?
Over the past few years, first-home buyers have been attempting to compete in a highly competitive market against investors who are easily able to outbid them with higher incomes and the ability to bid on property without a cash deposit. A softening of the market has meant that borrowing capacity is now less of a concern as prices are now falling into attainable limits, with the major ongoing concern relating to saving up a large enough deposit.
The most important thing to remember is to not rush the process. Keep in mind that you are setting yourself up for what you want to achieve later in your life.
While your dream home might be out of reach for your first purchase, you should have a plan in place for when that does become a reality – this is where your mortgage broker can assist. I think that it is vital to remember that the first property most people purchase isn’t the final one that they will reside in. I also would give additional consideration to how a new mortgage will impact your cashflow. Home ownership carries with it additional costs beyond your new monthly loan repayment. You should think about the other costs, such as council rates, strata levies and insurances, and what this will mean for your budget. Your broker can assist in generating forecasts for cashflow based on your current and forecasted expenses to ensure you are not setting yourself up for years of financial stress.
What are the differences between financing a home directly with a major bank and through a mortgage broker?
A mortgage broker is acting on behalf of you, the client, whereas a bank teller will of course be acting for the bank. Ultimately, what this will mean is that access to products and competitive offerings will be far greater when applying via a mortgage broker. We can compare the differences between hundreds of loans across a panel of more than 30 lenders, whereas bank staff are likely to only have access to what they sell. How do you know that what they are offering is competitive? And moreover, how do you know that it is the best loan for you?
We take the pressure off the customer and control the application for you to ensure the best outcome. The best thing about it all is that we get paid by the bank, so there is no charge to use this service.
What are the main financial considerations for buying an investment property?
Property, like a lot of investments, should be considered a long-term strategy. If you are in it for a quick buck, it probably isn’t the best strategy for you. Consider the costs of entering the market, which will include stamp duty and legal fees, among others. All of a sudden, that purchase of $750,000 is now costing you closer to $800,000, and it will take some time for the investment to start paying off in terms of capital growth. Similarly, from a cashflow perspective, you are again exposed to the costs of ownership such as strata levies and council rates, and you should keep in mind the likelihood of a shortfall between what a property rents out for and its monthly repayment.
It is important to know what home ownership will look like to your bank account each month, and allow a buffer in case your tenant moves out, or a water pipe bursts. Home ownership is rarely the walk in the park it is often described as.
What are your tips for maximising return on an investment property?
It is vital that you consider the location alongside the type of property you want to purchase. Consider a one-bedroom versus a two-bedroom property, for example, where the difference in price might only be marginal. Since the two-bedroom home can accommodate that extra person or couple, the rental return is going to be much greater, with the actual monthly outlay being quite similar to that of a one-bedroom abode. Further, always remember to account for the unknowns, such as the longevity of a tenant. Your budget should account for periods where the property remains empty for a month or more, so it’s wise to put a little extra aside to cover this.
What are the main reasons you would recommend refinancing?
I would encourage everyone to know what the current rate is on their mortgage, and listen to what their friends, family and the media are saying. I would advise reviewing your mortgage every 12 months with a trusted advisor or broker, who will outline what the market is doing and highlight any savings that are up for grabs.
If your broker isn’t providing this information to you every year, it is time for you to go elsewhere as it could be costing you thousands!
Has entering the property market really become harder than before?
With the benefit of hindsight, I’m sure more of us baby boomers would have invested far more into property having seen the constant growth over the decades. Over this period, an ever-growing population alongside a relative undersupply of property has driven prices up to the point where millennials are now required to spend a greater percentage of their income to purchase a home than previous generations.
On the flip side, interest rates remain at historic lows, with the Reserve Bank of Australia (RBA) leaving rates on hold for close to three years, and there is a record number of lenders in the marketplace. With more banks and lenders on offer, competition for business is growing, and the easiest way to break into the market is by offering a cheap product. Loan products are more flexible than they have ever been.
What final advice do you have for Generation Y on entering the housing market?
I would strongly recommend sitting down with a mortgage broker and discussing the best way for you to enter the housing market. There is no silver bullet as every household is different, however it is important to have a clear understanding of what will be the best option in the individual accounting for the minutiae of your own position.
There have been a number of instances where we have helped first-home buyers purchase their home with no deposit saved, as they may have spent some time travelling or are only new to the workforce from university, and just don’t have the savings behind them.
It is all about speaking to someone who knows what the banks can do in these cases, so you have a clear picture of what steps you need to be taking to overcome that elusive first hurdle.
Images courtesy of IFA Mortgages & Finance