How can I best prepare myself for my first property purchase?

The best thing that we can do to prepare ourselves for a property purchase is to try and align ourselves with the banks’ lending criteria. The very first step should almost always be to save, consistently. However, here is a guide of a few steps to take:

1. Pay off any existing unsecured debts 
 Any ongoing credit cards, personal loans and/or payday loans should be gone. The less unsecured lending you have, the less will be used in servicing calculations (i.e. the bank will assess you to have more income available to pay their loan back)

2. Always pay your expenses on time
Anything like rent, bills and everything else like that – you should try to ensure that you always pay this consistently and on time. Banks might ask you for some bank statements to track your expenses, so it is important to be able to show this. One of the core lending principles is also ‘character’ – which means that the banks will try to judge your character by how true you are to your commitment of paying things on time (given that you’re trying to go for a loan).

3. Save genuinely, and be disciplined about it. You should also try to save up to 20% of your property value if you can.
If it means that you need to create rolling term deposits for every $5,000.00 that you save, you should do that. This is because the banks like to see genuine savings. Some brokers will tell you that banks don’t need to see this, but that’s typically only really true if you’re willing to put your parents on the hook (i.e. make them go guarantor, which I will talk about later). Regarding the 20% deposit value, this is just so that you can look like a save bet to the banks. The banks will typically be more lenient if you have more of a deposit. 

4. Try to stay employed by the same employer for 6 months or more.
This can be casual employment with some lenders, but it’s highly important to be employed for a continuous period of time, for as long as possible. Also, if you’re in an industry that has some sort of special working hours or conditions, you might be able to work with lending specialists (for example, you should go to the health division of your bank if you’re a doctor – this is because ordinary lending officers might not understand about the way your pay is structured).

5. Check what type of property you’re aiming for, but be careful.
Banks typically don’t allow properties with an area that’s less than 50 metres square to be used as security for their loans. This is in reference to internal areas, so balconies aren’t even counted in that most of the time. You also can’t really get away with it because the banks will value the property as part of the lending process.

That’s all for now folks, prepare these things and then I would say you should speak to a good, reputable mortgage broker.

How can I make a complaint about my financial services provider?

If you feel that you’ve been treated unfairly to do with some sort of financial matter, you shouldn’t always just take it. There are some steps that you can take to protect yourself.

As you’re signing up
You need to ensure that you read everything you sign and if you don’t understand – make sure you ask your banker. If you feel that your banker is not explaining everything properly, ask for someone else. Make sure you ask lots of questions and get whatever you can get in writing. Ask for email confirmation.

After you’ve signed up
Contact your bank in the way that’s easiest for you. If you’re calling your bank, make sure you note down the dates and times of your phone calls because if whoever’s on the other end hasn’t made a file note of your call, it will be difficult to find.

Making your complaint
You need to start by complaining to the financial institution directly first. They need to try and do everything in their power to resolve it. If you are unhappy with the resolution, you can then make a complaint to the Financial Ombudsman Service (FOS) or the Credit and Investments Ombudsman (CIO). You’ll need to find out which Ombudsman Service your financial institution is registered with. I’ve added those links to the Finance Favourites toolbar for easy access.

Before you make a complaint
You need to give your financial services provider a chance to rectify the situation. It could be that they are legally in the right (which is unpleasant but happens). They have 45 days to respond to you about your complaint. If they don’t respond or if you are unhappy with the resolution, you can then escalate to their respective dispute resolution service.

Note: If your dispute is to do with a credit facility (for example, such as a credit card, mortgage, personal loan), the provider only has 21 days to respond to you.

Pro Tip: Financial service providers typically want to avoid Ombudsman complaints because it costs them money regardless of the outcome. You can always drop the Ombudsman into conversation (calmly) if you’re not getting anywhere, so that they know you’re aware of the procedures and won’t just let it go. They will typically either take you more seriously if they weren’t before, or they’ll show you their true colours immediately (i.e. that they don’t care).

3 things you didn’t know about buying life insurance

1. Cheap insurance can be dangerous.

With insurance, as with everything else, you get what you pay for. Why should insurance be any different? Life insurance in particular is important because it is designed to protect your nearest and dearest. It is also designed to protect your greatest assets.

Unfortunately, insurance in Australia is regulated in a different way to superannuation, consumer lending and even basic banking. These financial sectors have got very specific acts governing them and less wiggle room. The insurance industry has a few grey areas and corporations, especially ones who offer the cheap direct insurance, are taking advantage of people everywhere.

Why? Well, quite simply put, the truth is that almost all cheap insurances have got pre-existing condition clauses. It’s so easy to get a quote because they’re not doing a real risk assessment on you, they’re merely categorising you into basic premium rate categories.

The complex and annoying process of underwriting is super annoying because it means you need to get blood tests and medical certifications. It also means that insurers know what they’re getting into risk-wise, can add exclusions but you can have peace of mind about being covered for everything in your policy.

The bottom line is that I’ve seen a direct insurer I worked for in the past decline a person’s disability claim for their stroke because they went to the doctors once for a headache twenty years before that.

2. Insurance is not something to just ‘set and forget’

 Here are some common stages of life that many people experience:

  • Finishing school
  • Graduating from higher or specialised education
  • Starting your first job
  • Getting married
  • Progressing in your career
  • Buying the family home
  • Investing in assets for income
  • Having children
  • Children growing up
  • Retirement
  • Medical issues and expenses

Obviously not everyone will have children or invest, but insurance needs to be adjusted according to your current personal circumstances. A risk advisor can help you work out how much you need to protect what’s important to you.

Many don’t even charge money for their services as Insurance companies pay them in commission. You can request to see their calculations, so you can rest assured that you don’t have an insurance gap.

You should get your insurance reviewed every time your circumstances change. A high quality risk advisor will check to see if anything’s changed. If you’ve had another child, gotten married or bought a house, it is definitely worth revisiting your advisor.

3. Your premiums don’t need to get much more expensive every year. 

That’s right, there’s a thing called a “level” premium, where the insurance company won’t increase your rates based on your age. Other premium increases will still keep coming through (for example, if all  policies get more expensive by 20% due to administration becoming 20% more expensive across the whole company), but your age won’t affect your premium.

Level premiums are especially cheap for younger people, and these policies get more expensive to start as you get older. This is because you’re perceived as less of a risk for the insurance company if you are younger. This can pay off when you’re older and have a level premium policy from when you’re younger.

As always, do your research and ensure that you’re speaking to a qualified professional. Make sure that whatever you get is suitable for your circumstances. Don’t be afraid of making some enquiries and speaking to multiple advisors until you find one that you trust.

Superannuation: super boring, yet super important.

Before I worked in wealth for one of the major super funds, I didn’t really understand the importance of super.

It was just that thing for which you had multiple accounts and you got a statement in the mail at the end of the year. Usually all it would show was that my balance was depleted.

Sometimes, my fund would give me my money back through account protection, where low-balance accounts (below $1,000.00) were protected from being eaten up by fees. This stopped being enforced by many super funds a couple of years ago.

So why the hell is super all that important anyway? Well really, the whole purpose of super is to try and have some funds available when you retire. This will then minimise the reliance on the aged pension pittance (note: these rates are fortnightly) and improve your living standard.

That’s why it is pretty difficult to get take your super out early unless you meet certain criteria. You can’t easily take it out because you’re in some temporary trouble. Please see the criteria link to see if you’re in trouble and would like to see if you qualify.

Rolling your super over into one fund

Unlike bank accounts and such, it actually matters if your super is in many places. The fees can be quite hefty and you don’t want to lose your money. Although you cannot access it today, this is still your money and you’ll want to access as much money as you can when you meet a condition of release.

The important thing will be to ensure that you pick a super fund and investment options which are in line with your risk profile and investment needs. Although there are general guidelines, if this all confuses you, I would recommend seeing a fee-for-service financial planner. Just make sure that you pay all of your adviser service fees upfront as a lump sum only.

Many banks and super funds have a free financial advising service over the phone that can help you figure out your risk profile for free if you’re an existing customer. Just be clear with them if you only want to find out your risk profile.

This will help you pick which investment within your fund to put your money into. You should also check up on the fees of each of your funds if you have many and pick based on that and performance. Again, if this sounds too annoying or complicated, please just see a financial planner/adviser.

Remember that most funds will allow you to roll your account over just by having your TFN. It’s not as much effort as before.

“But I’m young, and I don’t care” 

The answer is… I’m young too, and for now – you don’t care. You will care later though. Remember that you employer pays 9.5% worth of your salary into your super and they wouldn’t do that if they didn’t have to. They have to because the government has realised that it is unsustainable for the whole population to rely on the pension. Plus, do you really want to be in dire straits after working your whole life? The pension is not easy to live on if you’re a foodie like me; or if you want a comfortable life in your retirement.

I’ll do a more technical post later about super contribution caps and the such, but here’s a fantastic government resource about super from the ATO. I’ll also post the links to “Finance Favourites” on the side.

Note: I will do a separate post about insurance, including insurances within super (just to make it even more confusing).