4 priorities and another rate cut to kickstart the new financial year

Well didn’t the new financial year start with a bang!

The RBA has now made its first back-to-back rate cut since the European bank crisis in 2012, and the cash rate is now at an historic low of 1 per cent.

There’s also more good news for the property market with signs of lending restrictions easing, and the latest CoreLogic data revealing that Melbourne and Sydney house prices have turned a corner, rising in June for the first time since November 2017 and July 2017 respectively. [1] 

This is as good time as any to review your financial affairs, and make sure they are on track.

First and foremost, readers should take stock of their current financial position, and determine what their medium and longer term goals are.

It’s impossible to strategise if you don’t know your starting position, and/ or if you don’t have clear targets established moving forward.

Most of the clients I see have a good understanding of their assets and liabilities, but they lack detail on their income and expenditure, and their forward looking strategies are either misaligned, or very vague.

Here’s a list of 4 priorities for the new financial year, which can help guide you…

#1 Review your lending

• List your loans and associated repayments, then separate them into those where the interest is tax deductible, versus non-tax deductible. Deductible interest may cost substantially less due to the tax advantages, so as a priority you should consider what resources can be put towards reducing your non-tax deductible debt first.
• Interest rates have come down substantially as a result of the latest two RBA rate cuts, and particularly the larger banks seem to be competing more aggressively for new business now that the banking royal commission has concluded – so is your deal still competitive?
• If you have any Interest Only loans, question whether these are these still appropriate, or if they are and they are expiring soon, is it time to have them renewed?  (clients should start this process early to avoid ‘repayment shock’, repayments could increase by up to 40% when principal & interest repayments commence)
• Are you in a position to ‘release equity’ from your current portfolio, to help protect or advance your position further?
• Now may be an opportune time to obtain or restructure your finance, so consult your adviser.

#2 Review cash flow and firm-up your money strategies

• Perhaps now is a time to review your spending patterns, and ensure you are allocating sufficient funds towards savings and investments.
• Over the longer term, as companies growth their earnings, the total dollar value of dividends from the share market is likely to increase, and similarly property and land prices in the well
• located inner suburbs of large capital cities with population growth should increase too.  So to what extent are you exposed, and to what extent can you stay in the game long enough, to maximise your potential upside?
• Too many of us conjure up haphazard plans to make ourselves better off in the short term, but these rarely have any material or lasting impact.  Very few Australians have any serious plans for building wealth over the long term which they then fastidiously stick to, and this is perhaps the primary reason why very few Australians ever achieve financial independence.
• Strategies do not need to be complicated, they may be as simple as setting a monthly budget, or just being disciplined enough to allocate a certain amount of money each month towards a strategic category.
• If you’re living beyond your means, and you don’t have risk mitigants in place (see point #4 below), you are in a danger zone!
• How motivated are you to optimise your financial position?  It all starts with psychology.  Nothing will change unless you make a genuine commitment.

#3 Review your portfolio and/ or proposed purchase timing

• After 18 months of consecutive falls, the latest June 2019 CoreLogic data shows that the Melbourne and Sydney property markets have increased in value for the first time since November 2017, clearance rates in June were also the strongest since March 2018. [2]
• Many experts are predicting that Melbourne and Sydney will continue rising from this point forward, as both markets enter the new recovery phases of their cycle. [3]
• With many housing markets across the country having fallen by a greater magnitude than any time since the recession of the early 1990’s, some 30 years ago, long term investors can consider buying investment grade properties soon, while they are still ‘on sale’.
• With finance in place, first home buyers and upgraders can consider buying before the markets potentially move against them.
• It costs nothing to consult your mortgage broker or banker to get pre-approvals established, and we advise starting this process early, so you’re not scrambling for finance at the last minute.
• Also not all properties will outperform the market or meet your personal requirements, so we strongly advise consulting trusted experts for unbiased advise.

#4 Review your risk

• What is your level of job security, and how certain is your income – are you protected if you lose your income, and how long for?
• Do you have the sufficient ‘buffers’ or insurances in place to protect you, and if not how can you go about establishing these?
• Few people realise but one of the biggest risks associated with property is not being able to hold high quality assets for the long term.  And when I use the phrase ‘long term’, I’m not referring to a 10-15 year holding period, I’m referring to 20-40 years, or even longer.
• For investment grade assets, those which can consistently outperform the averages over the long term, compound growth has its greatest impact towards the back end of the investment horizon, and it’s in this phase of any investment where the real fortunes tend to be made.
• If you are exposed to the risk of having to sell, then you might find yourself missing out on this great potential reward.

The above strategies can all be fine tuned with a team of specialist advisers, and often the strength of your advisory team will dictate much of your success.

Perhaps use this new financial year as a driver to take action.

A few years of procrastination often costs dearly…

References:

[1] Sydney and Melbourne property prices rise for the first time since 2017, the Guardian, 1/7/2019, see here

[2] CoreLogic auction results, accessed 3/7/2019, see here

[3] The experts, Has the property market hit the bottom?, by John McGrath, Switzer, 2/7/2019, see here

About Daniel Gold Daniel Gold is an investment savvy finance broker specialising in residential real estate. He is a rising star in the industry and was recently recognised by Mortgage Professional Australia as being the 5th top mortgage broker in Australia. Visit www.longproperty.com.au