Thursday, April 25, 2019

FINANCE

Trying to get finance has always been a nerve-wracking process, but since the Royal Commission into Australian banks it has become harder. The Royal Commission had a big focus on irresponsible lending within the financial sector with banks found to be providing unaffordable loans to people. As the lax lending starts to be reined in, some might find it harder than ever to get finance. 

So, if you are keen to get a home loan this year, here are some tips to improve your chances: 

1. Go easy on takeaway and Netflix

Have you heard of "the Nexflix test"? In the wake of the Royal Commission into banking, lenders are now asking potential borrowers about things like their Netflix subscriptions, their daily coffee habits and even Uber Eats deliveries. If you are spending too much on anything deemed trivial, you could be knocked back. 

So, how should you manage this proactively? It is recommended that you look at the last three or four months' worth of your debit and credit card statements, highlight any expenses that stand out as "non-essential". Takeaways, bars, restaurants, lunches, Uber, Uber eats, streaming subscriptions, coffee on the go... tally up the total for all of this spending. If it adds up to a sum you are not comfortable with consider easing up on your frivolous spending; it is the best way to get your finances in shape, prior to approaching the bank for a home loan. 

2. Get your finances in check

Once you have got your spending under control, you need to get your finances in check. Have a look at any debts you have and check your credit report. Lenders are not keen on approving mortgages to those who have lengthy or large credit card debts against their name, because it acts as a red flag that you are not able to live within your means, so if you are in debt, you may need to get some of this paid off as quickly as possible, speak to your broker about this for advice on what to do. 

Take a look at your credit report. You are eligible for one free credit report per year from Equifax or you can reach out to national credit reporting agencies like Dun & Bradstreet, Experian or Get Credit Score. Your credit report will list any previous credit cards or loans, including defaults and bankruptcies.

3. Understand interest rates

The RBA currently has interest rates at a record low. However, they are not likely to stay that way forever, and it is important to factor that into your potential finance as well. Interest rates on home loans are around 3.5-4% but historically they are alot closer to the 6-7% range. Banks will automatically assess your home loan with a higher interest rate and if you cannot afford the repayments at this higher rate, they are more likely to deny your loan application. By watching your spending and increasing your savings, you will be in a better position to cope financially if and when the rates do rise. 

There may be a newer, tighter lending regime to navigate but that does not mean your dreams of owning a property are over. On the plus side, you can feel confident that any home loan you apply for will not be approved beyond your means, meaning you have a much lower chance of struggling up Mortgage Mountain. Get educated and make smart money decisions and you will be well on your way to securing that all important 'yes' from the bank. 

Insurance

Many Australians, especially those who own businesses, discover they don't have the cover they need in the worst possible circumstances. 

Insurance is one of those subjects that many people glaze over. So, just to test how knowledgeable you are about this important but unsexy topic, see how many of the following you can answer. 

Questions:

1. What type of insurance can provide cover if a natural disaster results in my business having to shut down for a period of time?

2. What type of insurance can provide cover if a client takes legal action against me? In what industries is it mandatory to have this insurance?

3. What type of insurance can provide a payout cover costs relating to everything from a broken window to a tax audit to a light-fingered employee?

4. What type of insurance is legally required if you employ staff? What is the penalty for failing to take out this insurance?

Answers:

1. Business interruption insurance. 

2. Professional liability insurance (also called professional indemnity insurance). Those working in the medical, accounting, law and financial services industries. 

3. Business insurance. 

4. Workers' compensation insurance. It varies from state to state but you'll typically be at risk of jail time in an employee has been injured (or worse). NSW imposes a 'double avoided penalty' equivalent to double the amount you should have paid in workers' compensation premiums. 

One in ten businesses have no cover

If you failed to get all (or any) of the answers right, you can take solace in being a typical Aussie. Survey after survey has shown that Australians don't have a good grasp on what insurance policies might be relevant to them. Unsurprisingly, Australia is one of the most underinsured nations in the developed world (underinsurance is when an individual or business has no or inadequate insurance to cover their legal liabilities, or the cost of loss or damage to their assets). 

The Insurance Council of Australia's 2015 report on non-insurance in the SME sector showed a non-insurance rate of 12.8 per cent. Paul Nielsen, director and chair of the Council of Small Business Australia (COSBOA), says many SMEs are in denial. "Business owners tend to think it won't happen to them. Because of this, some of the SMEs view insurance as dead money," he says. 

Remember, you get what you pay for

There are two underinsurance traps - not having any insurance at all and not having sufficient insurance. The perils of the first are self-evident. Many business owners only find out about the downside of the second after they try and make a claim. 

"SMEs are often trying to save money and look to minimise the cost of insurance premiums," says Steadfast's John Clark. "The rise in online insurance options and price-comparison websites makes it easy to identify the cheapest policy. But the lower the premium, the narrower the cover usually. Taking the cheap option could mean that your policy isn't there for you when you need it most." Clark points out that even business owners prepared to pay for appropriate cover can end up in trouble if they don't review their insurance regularly. "You need to keep your insurance broker up to date with important changes to your business, such as hiring new employees or taking on major new clients," he says. 

Clark also points out that even if your business doesn't change must over time, it's likely the space it operates in does. For example, five years ago ransomware attacks and data breaches weren't something that SMEs had to worry about too much. However, in recent years the number of ransomware attacks has exploded with around half of them are now directed to small or medium-sized businesses. In February, the Federal Government introduced the Notifiable Data Breach (NDB) scheme. This requires businesses (of any size) to notify individuals affected by data breaches likely to result in serious harm. Failing to comply with the NDB scheme can attract fines up to $2.1 million. Complying with it could result in your clients making legal claims against you. 

How a broker can help

The good news is that it's possible to arrange the appropriate cover for your business without devoting countless hours to learning about the finer points of insurance. You can outsource the tasks. They can tailor a competitively priced policy to protect against the major risks your business faces. 

 

Source: Omnisure 

This article provides infrmation rather than financal product or other advice. The content has been prepared without taking into account your objectives, financial situations or needs. You should consider the appropriateness of the information, taking these matters into account, before you act on any information. You shoudl review the product disclosure statement of any product that the information relates to before aquiring the product. Information is current as at the date written as specificed within them but is subject to change. 

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Contact Details

Zippy Finance 

PO Box 3078
North Turramurra
NSW 2074

T 1300 855 022 

Louisa Sanghera is a credit representative (437236) of BLSSA Pty Ltd ACN 117 651 760.  Australian Credit Licence 391237. ABN 85 168 278 975.

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