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Welcome to the Entourage Report for 2020/21

This year we reflect on one of the toughest years globally ever. We have clearly seen the resilience of the Australian people and particularly the Entourage community. We saw the first recession declared in 30 years. Which lasted exactly three months. We saw interest rates hit their lowest on record both the cash rate administered by the RBA at 0.10 per cent and fixed rates on offer by Australia’s lenders sitting below 2 per cent. Hit play on the video to the left to watch Damien Roylance’s welcome update.

View and download a pdf copy of the Entourage Report here.

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Finance Update

In a year like no other, Entourage went from strength to strength reporting a record year of over $300M in settlements.

With interest rates at record lows, we were able to help lots of households make the most of the savings to be had. This financial year we helped our existing clients save over $500K annualised by repricing their existing loans with their current lender.

Entourage Finance settled loans across 24 different lenders, with Macquarie, ANZ and Bank of Melbourne being most popular with our clients this year.

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Reasons for borrowing

Looking at Entourage settlement data, 63% of clients were buying new property either as upgraders or first homebuyers. A further 35% of all of our lending for last financial year was made up of people refinancing existing loans. This was to take advantage of dropping interest rates, consolidate debt and save money.

We also saw women taking a step up in the market. Of Entourage buyers who were purchasing alone, 65% were women. Our proportion of pre-approvals was also higher among single women than men, with women making up 60% of solo pre-approvals. 

As the Federal budget announces more support for single parents buying property and another 10,000 places open for the First Home Buyer Scheme we expect to see this segment of buyers continue to increase in the coming year.

Fixed Rates graph

Fixed Interest Rates

20/21 financial year was the year we saw fixed interest rates become popular once more. 27% of Entourage clients have chosen to fix either all or part of their loan.

But why were fixed rates so popular? The reason is primarily because they dropped so low and with the future so uncertain, many people have taken a defensive strategy with respect to their lending. In some instances, four-year fixed rates dropped well below 2% per annum – historically the lowest fixed interest rate home loans that have ever been available in Australia.

This was thanks to the pandemic. The Reserve Bank of Australia (RBA) made available to Authorised Deposit Taking Institutions (ADI’s) a huge funding facility at a rate of 0.10 per cent per annum for three years. This meant the lenders in Australia had access to exceptionally cheap funding for the next three years, resulting in their being able to drop interest rates on both short and long fixed term products.

The gap between fixed and variable rate products also changed. The discount to fix in a home loan interest rate rather than hold it at a variable rate is around 0.5 per cent.

The RBA went on to drop the cash rate to a record low of 0.10 per cent and have stated they plan on leaving it there for three years. This also impacts the rate the banks pay on the funds they access to lend to borrowers, keeping downward pressure on rates for the foreseeable future. 

Other influences on buyer behaviour

There were a number of other factors impacting buyer behaviour this year including cash back offers, turnaround times and grants and incentives.

Financial Wellness

Cash back offers

Another area motivating borrowers to refinance was cash backs. All of the major banks and a lot of their subsidiaries were offering between $2K-$4K to borrowers who refinanced a new loan with them. This saw a lot of clients flocking to these lenders chasing lower interest rates and cash incentives, CBA alone grew their loan book by $13 Billion in just six months. 

Outstanding mortgage debt in Australia currently sits at $1.9 Trillion (Source: CoreLogic, Housing Market Update, April 2021). In February 2021, the majors published their half yearly results and it comes as no surprise that lending at the big four banks accounts for over 80% of Australian mortgage debt (Source: Statista, Sep 2020).

Of the Entourage loans settled through 20/21 only 36% of these were with the major banks, with smaller lenders such as Macquarie and Bank of Melbourne taking sizeable shares of our settlements.

Refinancing

Turnaround times

Turnaround times are currently the worst on record with some loans taking months to process and average processing times across all lenders sitting at 23-27 days, some stretching as far out at 47 days for a standard home loan. The banks have all received a bumper few months in loan applications and are scrambling to process them. In fact, CBA have hired 400 new staff in an effort to keep up with borrower demand.

Many lenders have instead decided to leverage their tech as back up. They are issuing system pre-approvals – this means pre-approvals based on some limited data being entered into the system which a computer program then approves, or declines based on the inputs. This means a credit team don’t make an assessment and a human being doesn’t review your actual details unless you apply for formal approval. Therefore, the pre-approval is not what is considered fully assessed. What are the implications here? Read on.

Debt Management

Grants and incentives

2020 was the year of the government grant, particularly for first home buyers.  Stamp duty discounts were made available for all Victorians buying or building property valued at less than $1M. First home buyers received additional discounts on top of the waiver they receive up to $600K. The incentive runs until 30 June 2021.

HomeBuilder was another scheme introduced providing a one-off payment of $25K for new builds, off-the-plan purchases and substantial renovations. This program closed on 14 April 2021. The First Home Loan Deposit Scheme has been running for a couple of years now and on 8 May 2021 another 10,000 places were opened up. This allows first home buyers to purchase with as little as a 5% deposit.

There are more schemes and incentives open to first home buyers. Read about them all here.

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Property Update

The Australian residential real estate market is now estimated to be valued at $8 Trillion representing 52.9% of household wealth. This is underpinned by $1.9 Trillion of outstanding mortgage debt. The commercial market is more modest at $958 Billion.

Click play on the video to the right to see Antoinette’s Property Update.

What else happened in the property market?

Aside from the market being completely shut down for many weeks throughout the end of 2020 – dwelling values, population migration and methods of sale are all novel areas we witnessed grow, change and impact buyers.

First Home Buyer

Dwelling values

We can’t talk about property this year without addressing the elephant in the room: the increase in dwelling values. In the first quarter of 2021, home values rose 5.8% across the nation. As mentioned above, national housing values are up 10.2% since the COVID low in September 2020. In Q1 of 2021, Melbourne median property prices grew at a rate of over $614 per day or $20K per month.

At the beginning of 2021 the trouble many buyers were facing was that there simply wasn’t enough stock on the market – supply was far outstripped by demand. Since then, as the year has progressed, many more sellers are taking advantage of favourable market conditions and supply has increased. However, it seems no one has told buyers this and there is still very high competition in the market, with properties selling for very high figures – far outstripping the asking price and suburb medians.

Corporate Wellness

The great migration

In 2020 Damien predicted we’d begin to see a migration happen as people embraced lifestyle over being near a CBD. And he’s been spot on. Net migration out of NSW and Victoria have been matched by an influx in QLD. Coincidence? Possibly, but it doesn’t detract from the fact that places like Byron Bay near the QLD border and Sunshine Beach in Noosa have seen outrageous house price growth. Byron Bay prices increased more than 40% with a suburb median of $1.83M and Sunshine Beach grew by 33% across 2020.

Buying a one-bedroom apartment in Noosa can now set you back as much as $2M.

This all adds up to indicate Australians are embracing the sea- and tree-change lifestyle after an unpleasant year being locked down, coupled with the increased ability to work from anywhere.

Vendor Advocates

Methods of sale

Prior to COVID there were three primary methods of sale: private sale, auction and off-market negotiation. Our business was split fairly evenly between private sale and auction, with a growing portion of off-market transactions occurring. In 2021, we are seeing a growing number of bold pre-auction offers with buyers wanting to circumvent the process and get in before the property garners too much competition during the marketing period.

Has the pandemic given confidence to buyers that there’s no need to wait until auction? Or is it simply the competition for property is so high at the moment buyers are doing anything they can to give themselves an advantage? Once this peak in the market eases it’ll be interesting to see whether sales settle down or if we’ll continue to see buyers taking a more proactive approach to getting the home they want.

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Top Suburbs

Melbourne’s top growth suburbs for the Mar-21 quarter hold few surprises. Toorak saw bumper growth with an increase of 26.8% growth this quarter. There are a huge number of new suburbs nudging the $1M median house price so expect to see some big gains across the board throughout Melbourne as the year progresses.

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Legal Update

From a legal perspective there were range of different legislative triggers pulled throughout this year ranging from amendments to stamp duty payable, a newly proposed land tax and some pretty sweeping changes for investment property holders who have Renters.

Stamp duty waiver change

As the Victorian Stamp Duty waiver comes to a close at the end of June there are some important points to remember if you don’t sign a contract before the deadline ends.

Amending contract dates (i.e. back dating contracts to get the discount) is not on!
The SRO considers this to be fraud (it is fraud – let’s call a spade a spade) and the SRO is able to issue and enforce fines of up to $99K each for the purchaser, vendors and their representatives if fraud is proven.

Buyers must ensure that they are signing their contract within the eligible time frames and must not attempt to amend or re-sign a contract fraudulently.

Another implication is if you have a finance pre-approval in place which includes the stamp duty discount. On a purchase of $800K, you’re looking at a discount of $10.7K if you aren’t a first home buyer. Without the discount you would be required to cover this shortfall of $10.7K and it can’t be capitalised onto your loan.

If you are currently pre-approved and concerned that you won’t be able to purchase by the 30 June 2021 deadline, it’s important you speak to your finance broker and legal representative now. Ask your broker to review your pre-approval and funding position. This is to ensure you have enough funds to cover costs meaning you won’t be faced with a shortfall when settlement day arrives.

Residential Tenancy law changes

This financial year we saw a change to legislation around residential tenancy laws resulting in 130 reforms that came into place. This bought with it changes to certain definitions and terminology used, along with an increase in the responsibilities of Rental Providers (previously called Landlords) and the rights of Renters (previously Tenants). Here are some of the more impactful changes introduced.

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Evictions

Evictions without a valid reason or no-grounds are no longer allowed. To evict a Renter, Rental Providers must provide documented evidence when they issue the notice to vacate such as sale, change of use, demolition or the Rental Provider moving back in.

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Rental bids

Property Managers and Rental Providers can no longer invite prospective Renters to offer rental bids. The property can only be advertised or offered at a fixed price.

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Fee free rental payments

Rental payments need to be available to be paid fee free (i.e. they can’t only accept payment via credit card where a processing fee may apply) and they must permit payments via Centrepay if requested. Renters must also be advised upfront if there are any fees associated with the payment method selected.

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Return of bonds

Renters can now apply directly to the Residential Tenancies Bond Authority to have their bond released and rental providers will have 14 days to dispute the claim.

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Annual rental increase

Rental providers can only increase rent once every 12 months rather than every six months.

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Pets

Renters can keep pets at their rental property with the rental provider’s consent. The provider cannot unreasonably refuse the request to keep a pet and if there is reasonable grounds then they must apply to VCAT for an order.

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Minimum rental standards

New minimum rental standards are in place relating to amenity, safety, and privacy. If the standards are not met the renter can terminate (before they move in) or request an urgent repair any time to cover these standards.

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Urgent repairs

Urgent repairs have been expanded to include more repairs and replacements, the amount able to be reimbursed has increased to $2,500 and the Rental Provider must reimburse the Renter within seven days of being given written notice of the urgent repair taking place.

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Changes without permission

Renters are allowed to make certain changes to the property without permission or they need a good reason to deny the request including wall hooks/screws for pictures, shelves/brackets, replace curtains (but have to keep the originals), shower heads, fly screens on doors/windows, installing a vegetable garden, painting of the premises. There are a lot of rules and requirements on this particular point, so it definitely pays to get some legal advice on when permission can be withheld or the works by the renter should be covered by additional bond to cover the cost of undoing the works.

Suffice to say, there have been a lot of changes introduced and a lot of them in favour of the Renter. If you are a Rental Provider and want to understand where you stand and how your responsibilities have changed you can speak with Entourage Legal who can provide detailed guidance.

Entourage Report 2021

Wealth Update

Financial planners have seen much change to their industry over recent years, this has included an overhaul to commission structures, compliance around giving advice and undertaking to ensure greater personalisation at every step along the way. Some of these changes have meant the cost of accessing financial advice has increased for consumers. Just what is financial advice worth? We explore this idea below.

Superannuation and savings balance both changed throughout the year of COVID, with savings balances for lots of households going up, credit card debt going down. Unfortunately some people emptied their superannuation accounts with some long term impacts to their retirement savings – what the end result looks like we wait and see.

Superannuation table

How does your super stack up?

To the left we’ve compiled a table with average balances for men and women across a range of different ages. This is compared against the average minimum balance suggested by Super Guru by the AFSA. How healthy is your balance looking?

Draining super savings

According to APRA 3.5 million Australians took over $36 Billion out of their super accounts during 2020/21. The idea was to ease financial stress and access their own money rather than having to borrow to stay afloat during the pandemic. However, lots of people drew money out for other reasons including buying a house, investing in the share market or having a punt on the crypto-currency market.

If you’ve accessed money from your super, make sure you speak to your Entourage Wealth adviser first to discuss what happens from here and what you can do to ensure your future investments and retirement plan aren’t impacted.

Entourage

Financial advice affordability

The big topic faced by financial planners this year focused on affordability. Reforms to the way financial planners are paid and increasing costs for compliance and licencing are increasing the overheads for many financial planning businesses. The result? An increase in the costs to consumers to secure good quality financial advice.

In a recent survey 84% of financial advice clients advised the value of financial advice outweighed the costs, 93% said a financial planner advised helped them make the most of their situation and 91% said their financial planner helped them avoid pitfalls.

Financial Wellness

Just how much is financial advice really worth?

It’s our belief that any money you invest in engaging a financial planner (or any professional for that matter) should easily be covered by the financial growth you’ll see as a result. Whether that be through savings on insurance premiums and super fees or growth to your overall wealth position by increasing your assets or reducing your liabilities. Going without good quality advice could cost you most than investing those dollars if you are trying to do it all yourself, buying direct shares or investing in volatile cryptocurrencies.

Debt Management

Savings on hold

Research shows that for many families, hitting your 30’s can see your savings stall. It’s an expensive time of life: buying property, having kids, paying for school, upgrading the family car and all of those one-off things that continually crop up.

COVID was a mixed blessing for lots of young families with ‘accidental savings’ occurring when all of those little life costs disappeared. Investing wisely or paying off “bad debt” can have positive long-term implications. Make sure you put those accidental savings to good use.