AFG congratulates departing director John Atkins

The AFG (ASX:AFG) board today congratulated long-standing non-executive director John Atkins on his appointment to the role of Western Australia’s Agent General, based in London. Mr Atkins proposes to resign from the AFG board effective 31 August 2015 to take on his new role.

AFG Chairman Tony Gill praised Mr Atkins’ contribution to the organization. “On behalf of the AFG Board I would like to thank John for his dedicated service,” Mr Gill said.

“John has most recently been involved in the successful listing of AFG and his advice and support of senior management was instrumental in the process.  I and the rest of the Board wish John all the very best for his new role.”

Mr Atkins said he believed he left AFG in great shape.  “I am grateful to have spent the past 8 years with a wonderful organisation,” Mr Atkins said.

“AFG has been a great WA success story, and I am very proud of all that we have achieved – especially in transitioning the organisation from a private company to a listed entity”.

“I am confident that AFG is well positioned for its next phase of growth. I look forward to watching the organisation’s continued success.”

Media Contacts

Brett McKeon
Managing Director
Australian Finance Group Ltd
+61 8 9420 7888

John Gardner
Managing Director
Citadel-MAGNUS
+61 413 355 997

 

How to have an incredible shrinking mortgage

Consider this: 30 years ago it cost about 3.5 times the average annual salary to buy an average priced Australian home – today, it costs around 7.5 times our yearly earnings 1.

With the average new home loan nudging $444,0002, it’s more important than ever to look at strategies to shrink your mortgage and work towards greater financial freedom sooner.

The trick is there is no trick. Unless you strike it rich, debt reduction always takes financial discipline and usually some sacrifice. But if you are prepared to prioritise your spending and adopt a long-term focus, there are ways to slash your mortgage and get ahead.

GET THE RIGHT LOAN

With interest rates at historical lows, you might be lulled into thinking there is little to be gained by shopping around. Apart from possibly paying for features you don’t need or missing out on a lower rate, you need to think beyond the here-and-now and consider your debt if interest rates climb.

Look for a loan that suits your circumstances. If you plan to make extra payments, consider a redraw facility that allows you to tap into the buffer you have built up, with no penalties or restrictions.

Securing the lowest possible rate is important, but make sure the offer is not a honeymoon rate, which will expire in six or 12 months and may leave you paying a higher rate for the life of the loan than if you had borrowed elsewhere.

If switching lenders or to a new type of loan, make sure you weigh up the cost of any switching or early exit fees against what you expect to save before signing on the dotted line.

A mortgage broker can help you navigate and compare the hundreds of loans available to find the right one for your situation.

MAKE EXTRA PAYMENTS AS SOON AS POSSIBLE

You pay the most interest in the first few years of a loan when the principal is at its highest. The sooner you can start reducing your principal, the better.

Let’s say, for example, you start out with that average new home loan of $444,000, taken out for 30 years at 5.5 per cent per annum. And say you tip an extra $100 a month (a modest $23 a week) into the repayments. You would knock $84,951 or 2.7 years off your debt. Pay an extra $200 a month and save $147,930 or 4.89 years. Super-size that to $300 extra per month and you will slash a massive $203,054 or 6.71 years off your mortgage.

You should also pay any windfalls, such as tax returns or work bonuses, into your mortgage to chip away at the principal faster.

SET YOUR SAVINGS TO WORK

Another way to make big dents in your mortgage debt is to leverage any savings via an offset account. Basically, your savings work for you because they are offset against your loan balance to reduce the amount of interest you pay. If you have a $200,000 loan, for example, and $20,000 in a savings account linked to your mortgage account, your interest repayment will be calculated on $180,000. To maximise your savings balance and cash flow management, have all of your income paid directly into the account and all of your expenses paid out of it.

Hopefully, your cash in is greater than your cash out, so there are savings to offset against your loan. Maximise your savings further by putting as many of your expenses as possible on a 55-day interest-free credit card and pay the full balance by the due date. That allows you to maintain as much in your savings account for as long as possible each month, with interest on your home loan calculated daily but charged monthly. The example above is a very neat one to illustrate the concept. Your savings account will fluctuate depending on your monthly cash flow, and so will your interest repayments. As long as month on month, the savings are growing and the loan balance shrinking, you are heading in
the right direction.

If you struggle to save or be disciplined with credit cards, this strategy may not be right for you. You might be better off setting up a direct debit straight from your pay for extra repayments on your loan.

Instead of an offset account, your lender may offer you a line of credit, where all of your income and debt run in and out of the same account, so your mortgage basically becomes your transaction account. The more funds that go in – and stay in – the lower your interest repayment each month and the faster you pay down the debt. The problem is many borrowers find they are not disciplined enough to keep reducing the debt and tend to treat the available balance as disposable income. While they can work for shrewd owner-occupiers, lines of credit are generally better suited to property investors who are looking to negative gear and rely on capital gain over time.

CASH FLOW IS KING

You may be wondering where to find funds for extra loan repayments or how to stockpile savings in an offset account. It comes down to how you manage your cash flow, which is essentially how you prioritise your spending. Make an honest appraisal of your expenses each month and look for discretionary costs you can get rid of or cut back. It may mean eating out less, taking your own lunches to work, cleaning your own home, taking cheaper or fewer holidays or buying less expensive clothes. Most people who have made significant inroads on their mortgages faster than others have made sacrifices along the way. Think of it as short-term pain for long term gain, which is ultimately a better financial future.

1. ATO & ABS data
ABS Average Weekly Earnings, Australia, May 2015
ABS Average Weekly Earnings, States and Australia, March Quarter 1985 – published June 1985
ABS Residential Property Price Indexes: Eight Capital Cities, Jun 2015
RBA Dwelling Prices and Household Income, published December 2012

2. AFG

Masterplan – Guide to sell off the plan

New home sales are back on the rise, fueled in part by many investors and owner-occupiers buying off the plan.The concept is straightforward: put up a deposit (usually 10 per cent) to help the developer fund construction and pay the balance when the build is complete. Apartments are now springing up at a rapid rate in capital cities and popular holiday locations with the confidence that property prices will rise, handing buyers a tidy capital growth when they eventually take possession.

Developers sell off the plan to entice as many sales commitments as possible to then secure from their lender the finance they need for the build. Because buyers are essentially handing over their deposit for the promise of an apartment they won’t see for one to two years (or more), prices are set at current market rates with incentives often offered to entice buyers. This adds to the capital gain potential, but price rises are never a sure thing, as we have seen in past years.

In exchange for your deposit, the developer should provide a contract that outlines the details of your particular purchase, the completion date for the development and the deadline for when a decision must be made as to whether the development will go ahead. That decision usually hinges on whether sufficient finance has been secured. If the developer pulls the pin or passes the decision deadline, you should be entitled to a refund of your deposit, but this depends on the conditions of the sale contract. It is imperative that you read this document carefully, and we recommend that you seek thorough legal advice. Full payment for the property is not required until settlement, which is usually one to three months post completion.

While buying off the plan looks great on paper and can reap rewards, getting in on the ground floor of a new development is not always a fast track to making money. We look at how you can make the most of the opportunity and avoid some of the common pitfalls.

Time on your side

One of the biggest advantages of buying off the plan is time. Unlike traditional property purchases with relatively short windows to round up the total finance, you will have at least 12 months, if not longer, to settle. Savvy buyers will take advantage of this extra time to save their pennies and reduce their borrowings.

New home, no hassles

If you dream of a new home but have nightmares at the thought of building one, an off-the-plan purchase may be the perfect compromise. Although you will not get to design everything as you would with a custom-built home, most off-the-plan developments allow some customisation of finishes and fixtures. Make sure your contract outlines what you can tailor and that you are clear on any additional costs.

First-home-buyer advantage

Various incentives are still being dangled in front of first-home-buyers, which may add to the appeal of buying off the plan.

Concessions vary across Australia and some have been curbed since January 1, so visit your State or Territory web site for the latest information on grants and exemptions. You can also research your eligibility for stamp duty concessions on new properties at ASIC’s MoneySmart website.

Investment incentive

Off-the-plan apartments are often pitched heavily at investors due to the tax* benefits that come with depreciation on new properties and rental assurances. Tax savings will depend on your individual circumstances, but generally the newer the property, the higher the depreciation allowance for the building and fixtures.

Investors may also be offered attractive rental returns for a limited period. Make sure you do your homework on rental returns on similar properties in the area before accepting the developer’s terms. Be wary of over-inflated rental figures. Builders will sometimes promise a high-rent yield to lure investors, build the cost into the property price and then subsidise any gap themselves for a short period. When the rental guarantee expires, you may find the actual market rent falls well short of what you originally pocketed. If investing, make sure you have the option to manage the property yourself or with your chosen property manager from the time you take possession.

Beware a boom

Many buyers get swept up on a wave of rising property prices when they hand over their deposit in exchange for a floor plan. Historically, property is a consistent long-term performer, but property prices can plateau and even wane at the mercy of economic factors.

Buyers also need to be wary of over-supply, which may devalue their property. Queensland’s Gold and Sunshine Coasts are carrying a glut of apartments on the back of many years of off- the-plan sales, while the skylines of capitals such as Canberra have real estate commentators urging caution.

Make sure you consider the bigger picture if buying off the plan. Research how many other developments are planned in the area and whether any increase in apartment numbers is justified by new or improved infrastructure, such as transport corridors, business precincts, universities or hospitals.

Be discerning about the developer

Make sure you purchase from a reputable builder and take the time to research their previous projects. Do they use quality contractors? Do they deliver projects on time? Make a point of visiting some of their projects so you can assess the finished product first-hand.

Top Tips

• Investments like this are big decisions, so investing in the right professionals to have onside before you commit is money well spent. Ensure you get professional legal advice on any contract before you sign it and that you speak with your financial advisor or tax professional to make sure you’ve got the right advice from day one.
• Make sure your deposit will be refunded if the project doesn’t go ahead by a certain date.
• Make sure the contract contains as much detail as possible about the finished product.
• Be clear on what finishes and fixtures you can customise.
• Find out if you can on-sell during construction in case your circumstances change.
• Ask if you can inspect the site during construction.
• Talk to your mortgage broker about the right loan structure for your circumstances.

AFG Mortgage Index – June 2015

Record-breaking May for mortgages as refinances increase: AFG

Australian Finance Group (ASX: AFG) has today released its monthly mortgage index for May 2015. A surge in the number of borrowers looking to refinance their mortgages saw the total home loans processed last month by AFG rise to a record-breaking May. AFG processed a total of $5,017 million during May – an increase of 18.9% on May 2014, and of 14.5% on April 2015. This is the second month this year that AFG has broken through the $5 billion barrier – the first being in March.

AFG’s Mortgage Index reveals shifts in the mortgage market, with the proportion of loans processed for investors softening, while those for refinancers increased. Investment loans moderated from 43.1% of all borrowers in April to 40.9% in May in an early indication the APRA driven lender policy and pricing changes may be starting to have an effect. The proportion of existing borrowers arranging new home loans comprised 38.2% of all loans, compared to 33.9% in April. The average proportion of refinancers for the 12 months leading up to May was 35%.

Fixed home loans spiked from 13.6% in April to 15.2% of all loans processed in May as more borrowers chose to fix the rate on all or part of their loans.

Brett McKeon, Managing Director said: ‘Interest-rate cuts, like the one we had in April, not only encourage new borrowers – but also prompt existing borrowers to review their arrangements. After the April rate cut, it appears many borrowers came to the view that we are at, or very close to, the bottom of the interest rate cycle.

The attractive owner occupier offers available from lenders, along with the changes that are occurring in the investment market, make it a very busy time for brokers.

Non-major lenders fought back to recover some of the ground they lost to major lenders during the first four months of the year, increasing their combined share from 25.3% in April to 28.1% in May.

Download full report here: AFG – Mortgage Index – June 2015

News and Data.

AFG Mortgage Index – Going Forward

Historically AFG has released the AFG Mortgage Index on a monthly basis. AFG will continue to do so for June 2015, however, following AFG’s successful listing on the ASX, AFG has determined that the AFG Mortgage Index will then be published on a quarterly basis from July 2015 (ie the first quarter will reflect the 3 months ending 30 September 2015) on the ASX markets announcements platform and on AFG’s website. This change follows a review of AFG’s market reporting and disclosure activities as a newly ASX listed entity.