Yes definitely Jesse.

Although in saying that I am sure Nick is like the rest of us and he will charge for his time and any Statement of Advice.

Cheers

Yours in Finance

NTRODUCTION

There’s been considerable parliamentary debate, media coverage and public discussion about debt during recent years. Much of the focus has been on government debt, and government debt levels have been well publicised. However, governments are not the only sector contributing to the Australian economy.

This article looks at how Australian households have accumulated debt over the past 25 years during a period of rising household income, rising property prices, and decreasing housing interest rates. Using national accounts data, a range of analytical measures have been used to provide a fuller picture of household debt in Australia.

MEASURES OF HOUSEHOLD DEBT

Average amount owed

Total household debt stood at $1.84 trillion at the end of 2013, equivalent to $79,000 for every person living in Australia at that time. This was higher than it had been at any time in the previous 25 years, even after making adjustments to remove the effect of general price inflation (thereby giving a ‘real’ comparison).

The rate of increase in real household debt per person has slowed since the onset of the Global Financial Crisis (GFC) in August 2007. After increasing at an average of 10% per year between mid 2001 and mid 2007, real household debt per person rose at the much slower average annual rate of 2% between mid 2007 and the end of 2013. This slowdown may, in part, reflect the tightening in mortgage lending standards after 2008.1

REAL(a) HOUSEHOLD DEBT PER PERSON
Real household debt per person
(a) All dollar values presented in this graph have been converted into December quarter 2013 dollars using the All Groups Consumer Price Index.
Source: Australian National Accounts: Financial Accounts, December Quarter 2013 (ABS cat. no. 5232.0); Australian Demographic Statistics, September Quarter 2013 (ABS cat. no. 3101.0); Unpublished projected resident population for 31 December 2013; Consumer Price Index, Australia, March Quarter 2014 (ABS cat. no. 6401.0)
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Debt compared with assets

Rising household debt has been only partly matched by the increase in the value of household assets. Over the past 25 years, household debt has increased nearly twice as fast as the value of household assets. Expressed as a percentage of the value of household assets, household debt increased from just under 11% at the end of September 1988 to nearly 21% at the end of 2011, before easing a little to below 20% at the end of 2013.

SIZE OF HOUSEHOLD DEBT COMPARED WITH ASSETS(a)
Size of household debt compared with assets
(a) Household debt to asset ratio (e.g. at the end of 2013, the value of households debt was equivalent to 19.6% of the value of households assets).
Source: Australian National Accounts: Financial Accounts, December Quarter 2013 (ABS cat. no. 5232.0)
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Debt compared with income

Income is an important consideration when deciding on a household’s capacity to make loan repayments in full and on time. Household debt increased more rapidly than household income from early in 1993 until the middle of 2007. Since mid 2007 (and the GFC), household debt has tended to rise in line with household income. At the end of 2013, the amount that households owed was nearly 1.8 times the amount of disposable income households received during 2013.

SIZE OF HOUSEHOLD DEBT COMPARED WITH ANNUAL INCOME(a)(b)
Size of household debt compared with annual income
(a) Gross disposable household income received during the previous year.
(b) Household debt to income ratio (e.g. at the end of 2013, the value of households debt was almost 1.8 times the amount of gross disposable income received by households during 2013).
Source: Australian National Accounts: Financial Accounts, December Quarter 2013 (ABS cat. no. 5232.0); Australian National Accounts: National Income, Expenditure and Product, December Quarter 2013 (ABS cat. no. 5206.0)

The size of Australia’s household debt compared with its income (household debt to income ratio) is not just high in historical terms, it is also high when compared with the household debt to income ratios of the G7 countries (i.e. Canada, France, Germany, Italy, Japan, UK and USA). For example, in 2012, Australia’s household debt level was equivalent to 1.73 times Australia’s 2012 gross disposable household income, whereas household debt in both Italy and Germany was less than a year’s worth of gross disposable household income (at 82% and 93% respectively).

SIZE OF HOUSEHOLD DEBT COMPARED WITH ANNUAL INCOME(a)
in Australia, Canada, France and Italy
in the UK, Japan, the USA and Germany
Size of household debt compared with annual income in Australia, Canada, France and Italy Size of household debt compared with annual income in the UK, Japan, the USA and Germany
(a) This household debt to income ratio is household debt at the end of the calendar year expressed as a percentage of gross disposable household income received during that calendar year.
Source: Australian National Accounts: Financial Accounts, December Quarter 2013 (ABS cat. no. 5232.0); Australian National Accounts: National Income, Expenditure and Product, December Quarter 2013 (ABS cat. no. 5206.0); OECD Economic Outlook, Volume 2013 Issue 2
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Interest compared with income

Loan repayments usually contain an interest component and an amount that reduces the loan principal. All other factors being equal, the higher the interest component the lesser the opportunity to reduce the loan principal and pay off the debt quickly. When interest payments represent a high proportion of disposable income it may be difficult to reduce debt at all.

For the December quarter 2013, the total amount of interest households paid on money they had borrowed was equal to 7% of the gross disposable income they received during the same quarter (household interest to income ratio). While this is currently higher than it has been during most of the past 50 years, it is clearly lower than what it had been at its highest point in 2008 (12%).

SIZE OF HOUSEHOLD INTEREST COMPARED WITH INCOME(a)(b)
Size of household interest compared with income
(a) Gross disposable household income.
(b) Household interest to income ratio (e.g. interest payments on loans represented 7.2% of gross disposable household income in December quarter 2013).
Source: Australian National Accounts: National Income, Expenditure and Product, December Quarter 2013 (ABS cat. no. 5206.0)
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SUSTAINABILITY OF DEBT LEVELS

We can consider the sustainability of current levels of household debt by looking at the likelihood of risks such as sharp increases in interest and unemployment rates, significant declines in household income and wealth, and substantial falls in asset values.

Interest rates

At the end of 2013, three-quarters of all household debt was borrowing for housing,2 and housing interest rates are currently relatively low. Between June 1989 and March 1990, large bank lenders charged interest at an average of 17% per annum on their standard variable owner-occupied housing loans. In April 2014, large bank lenders were charging an average of just under 6% per annum on these loans, and even cheaper housing finance was available from other lenders. For example, the average interest rate charged by large mortgage managers on their basic variable owner-occupied housing loans in April 2014 was 5% per annum. Some smaller lenders and online banks were offering housing loan interest rates below 5% per annum in early May 2014.

In its December 2013 Mid-Year Economic and Fiscal Outlook (MYEFO), the Australian Government expected sustained low interest rates during the remainder of 2013-14 and in 2014-15.3 More recently, in April 2014, the Reserve Bank of Australia (RBA) foreshadowed a period of stability in interest rates.4

SELECTED INDICATOR LENDING RATES
Selected indicator lending rates
Source: Reserve Bank of Australia, Statistical Table F05
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Unemployment rate

While the unemployment rate has been increasing over the past couple of years, it is currently well below levels associated with the recessions of the early 1980s and early 1990s. In April 2014, the RBA expected the unemployment rate to rise a little further in the near term.4 In December 2013, the Australian Government’s MYEFO expected the seasonally adjusted unemployment rate to drift up to 6.25% by the June quarter of 2015.3

UNEMPLOYMENT RATE (TREND SERIES)
Unemployment rate (trend series)
Source: Labour Force, Australia, March 2014 (ABS cat. no. 6202.0)
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Household income

The present period of economic growth since the last recession in the early 1990s has generally been accompanied by increasing household income. For insight into why this trend has occurred see the Australian Social Trends 2007 article ‘Purchasing power’.

Disposable household income per person continued to rise in real terms (i.e. faster than inflation) from the onset of the GFC in 2007 until mid 2012. Since then, it has decreased slightly. Looking ahead to 2014-15, in December 2013 the Australian Government’s MYEFO forecast subdued wage growth.3 Looking further ahead, in November 2013 both the Australian Treasury5 and the Productivity Commission6 forecast lower rates of income growth over the next decade.

REAL(a) ANNUAL HOUSEHOLD INCOME(b) PER PERSON
Real annual household income per person
(a) All dollar values presented in this graph have been converted into December quarter 2013 dollars using the All Groups Consumer Price Index.
(b) Gross disposable household income received during the previous year.
Source: Australian National Accounts: National Income, Expenditure and Product, December Quarter 2013 (ABS cat. no. 5206.0); Australian Demographic Statistics, September Quarter 2013 (ABS cat. no. 3101.0); Unpublished projected resident population for 31 December 2013; Consumer Price Index, Australia, March Quarter 2014 (ABS cat. no. 6401.0)
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Household wealth

Although real household wealth per person has not returned to late 2007 levels, it increased strongly during 2013, reaching $323,000 by year’s end. This was more than double what it had been at the end of 1990 ($141,000 in December 2013 dollars) and well above its post-GFC low of $281,000 (in December 2013 dollars) at the end of March 2009.

REAL(a) HOUSEHOLD WEALTH PER PERSON
Real household wealth per person
(a) All dollar values presented in this graph have been converted into December quarter 2013 dollars using the All Groups Consumer Price Index.
Source: Australian National Accounts: Financial Accounts, December Quarter 2013 (ABS cat. no. 5232.0); Australian Demographic Statistics, September Quarter 2013 (ABS cat. no. 3101.0); Unpublished projected resident population for 31 December 2013; Consumer Price Index, Australia, March Quarter 2014 (ABS cat. no. 6401.0)
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Property values

Over the past 25 years, residential land and dwellings have accounted for close to half the value of all households’ assets.2 In the December quarter of 2013, the average value of a residential dwelling in Australia was $539,400. In real terms, this was 7.7% higher than it had been in the September quarter of 2012 ($500,700 in December quarter 2013 dollars).

AVERAGE REAL(a) PRICE OF RESIDENTIAL DWELLINGS IN AUSTRALIA
Average real price of residential dwellings in Australia
(a) All dollar values presented in this graph have been converted into December quarter 2013 dollars using the All Groups Consumer Price Index.
Source: Residential Property Price Indexes: Eight Capital Cities, December Quarter 2013 (ABS cat. no. 6416.0); Consumer Price Index, Australia, March Quarter 2014 (ABS cat. no. 6401.0)
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HOW ARE HOUSEHOLDS MEETING THEIR DEBT REPAYMENTS?

How many are behind?

The share of banks’ domestic housing loan portfolios that were either impaired, or at least 90 days overdue but well secured, edged lower over the six months to December 2013, to 0.6%. This percentage has declined from its 21st century peak of 0.9% in mid 2011, aided by low interest rates and generally tighter mortgage lending standards in the period since 2008.1,7 The percentage of impaired housing loans has fallen slightly over recent quarters; the rise in housing prices appears to have helped banks deal with their troubled housing assets, with a number of banks reporting a reduction in mortgages-in-possession. The total number of court applications for property possession declined in 2013 in NSW, Vic., Qld and WA.1

The total number of non-business related personal bankruptcies, debt agreements and insolvency agreements was also lower across most of Australia in 2013. Non-performance rates on banks’ credit card and other personal lending, which are inherently riskier and less likely to be secured than housing loans, declined slightly over the second half of 2013 to around 2%, following an upward trend over the previous five years.1
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How many are ahead?

Products such as home equity loans, redraw facilities and offset accounts are more popular now than in the 1990s. These types of loan products make it easier for households to build mortgage buffers, enhancing their ability to cope with income shocks.8

Many households have used lower interest rates to continue paying down their mortgages more quickly than required. As a result, the aggregate mortgage buffer (i.e. balances in mortgage offset and redraw facilities) has risen to almost 15% of outstanding balances, which is equivalent to around 24 months of total scheduled repayments at current interest rates. This suggests that many households have considerable scope to continue to meet their debt obligations, even in the event of a spell of reduced income or unemployment.1

I think from memory the figure has now grown to $89,000 per living Australian.

And people thought i was strange when i used to pay down every dollar of my investment debt. ‘

Havent owed anyone a cent for the last 11 years.

Cheers

Yours in Finance

It is a just a remix of standard blended loan offering with a 1st & 2nd Mortgagee.

An traditional lender takes the first and an investor takes the 2nd at a higher rate.

We were offering the same product thru our Company First Home Owners Group Pty Ltd back in 2000.

Nothing knew but fills a few gaps in the market i guess in the current climate.

Cheers

Yours in Finance

Actually looked at a 6 pack of units there in 2013 but the Vendor wouldn’t budge on price.

They are still for sale today and I cannot see why you would want to invest in such a town as very little drivers in regards to growth or rent appreciation.

I think there are many more regional towns you could look at.

Cheers

Yours in Finance

Contribution limits are aged based:

Concessional contributions for someone aged 48 or under = $30,000

Non concessional contributions for this financial year are 180K or 540K over a 3 year period.

A family member or related party is unable to rent the property.

The ATO would rely largely on the Trustees / Members doing the right thing and complying with the legislation.
It is unlikely they would pop round and ask you if that’s what you mean.

Cheers

Yours in Finance

Yes have a number of clients who had past dealings with a variety of N Birch companies.

As Cory suggested do a search or two on PI.com and also the other popular forum and i think you find more than a few comments.

You can form your own opinion.

Cheers

Yours in Finance

I employ my own Property Manager and have done for some 14 years.

The lady concerned works solely for me on my portfolio and knows exactly what i require from her.

She also does all of our Property management & Vendor Finance statements.

For anyone building up their portfolio i would recommend you utilise the services of a property manager and certainly do not try and do it yourself unless the properties are in your back yard and you enjoy fielding phone calls late at night on a Sunday to discuss plumbing issues.

Cheers

Yours in Finance

Away from all of that good luck in getting finance at anything over around 50% lvr (if you were lucky).

Cheers

Yours in Finance

Hi Annie

Hate to say doesn’t sound like your peeps having been giving you proper advice if you have 6 IP’s and still lack cash flow.

3 Units on a single title can be done but limit lenders especially at the higher lvr’s.

Cheers

Yours in Finance