Loan limits: the IMF’s solution to rising house prices

The International Monetary Fund has a suggestion for the Reserve Bank to counter the rising house prices without having to raise rates – set up lending limits for home loans.

With banks now having the ability to play around with economic tools that allow them to offer varying loan types, IMF managing director Christine Lagarde has stated that that ”The Australian Central Bank, under the strong leadership of its governor, will able to deal with it.”

Banks have yet to comment on the situation, as loan limits will eventually require the Big 4 banks to increase their capital, as the chances of a taxpayer funded bailout are reduced and will require the banks to raise more money – significantly reducing their profitability.

Read more about this on the Yahoo Finance website.

Fixed Rate Loans at record levels

The Reserve Bank has pegged the interest rates at a historic low of 2.5%, and home owners are taking advantage of this by locking in their mortgage loans. Fixed rate loans have surged to 33% of total home loans, its highest level in more than 5 years.

There has been a drastic increase of borrowers considering fixed rate options, from 16.35% in January 2013, to 33.06% in December of the same year – around the same time the RBA met and kept the interest rates at its current low rate.

Fixed rate loans are a great option to pay your mortgage, making the repayment process stress free, as you have a clear figure on your monthly dues. Borrowers are also encouraged to weigh in on the long term benefits of this repayment scheme, as any extra repayments with fixed rate loans normally come at a fee, as compared to variable rate loans where any extra repayments are free. Consult a financial planner to verify what the perfect repayment scheme is for you.

Read more about this on the Herald Sun Website.

Clear laws needed to protect SMSF investors

Super group Superannuation Australia urged the Australian Securities and Investments Commission (ASIC) to clarify the existing SMSF laws to avoid misinformation among its members.

These calls were brought about the concern regarding SMSF financial advice, as this requires licensing. When the SMSF is set up, it needs a financial planner and accountant, as well as a mortgage adviser for credit related advice. The disconnect happens around this time as property spruikers are not clearly identified as to what category they belong, and most are free to provide financial advice.

This is a very crucial issue, as the rules are currently weak when it comes to clients’ best interest. This has to be addressed as soon as possible as this would defeat the purpose of SMSF investments for financial security.

Read more about this on The Adviser website.

As an SMSF trustee, are you getting all the advice you can get?

The Australian Securities and Investments Commission recently received feedback from The Australian Institute of Superannuation Trustees (AIST) and Industry Super Australia (ISA). According to the consultation paper “Advice on self-managed superannuation funds: Specific disclosure requirements and SMSF costs.” there is an alarming number of SMSF advice received by trustees, with most of them biting more than they can chew.

People with small accounts are investing in SMSF even if there is a huge disparity between cost and income. Another problem raised is the lack of diversity, as most investments are in real estate. An exit strategy should also be in place for trustee protection.

With the demand and popularity of property investments, spruikers are taking advantage of misinformed individuals without taking into account their current financial status. Investors are highly encouraged to get advice from legitimate and licensed financial advisers.

Read more about this on the Financial Standard website.

Accountants and Advisers to work hand in hand

More and more accountants are forming close ties with SMSF advisers. Accountant preference to refer their clients to SMSF advisers have been steadily increasing, currently at 28% according to OneVue Investment Trends.

Merging current accounting and advisory practices are vital as this encourages a seamless process from SMSF advice to auditing, creating a work environment conducive to customer retention.

Read more about this on the Financial Standard website.

Australian Taxation Office flags 75,000 non-compliant SMSFs

The ATO revealed that as much as 75,000 SMSF trustees are non compliant to regulations. This amounts to $50 billion in assets, leading organizations in the industry to call for tighter measures.

The ATO reminds investors in SMSFs that trustees should be responsible in complying with regulations, as SMSFs are do it yourself funds. The ATO is only contravening at a rate of 2% for non compliant SMSFs in a year.

Certain measures are in place to empower trustees regarding proper SMSFs operations, such as the Future of Financial Advice (FoFA) and Super Stream yet there is no data that shows any improvements in SMSF compliance. Appropriate financial advice is needed for trustees as there are already calls for penalties for violators if this continues.

Read more about this on the Financial Standard website.

SMSF role in residential property highly exaggerated

SMSF investment in residential property has been a growing concern. Although a less volatile form of investment than market shares, it has been called out as there is a high demand for property in recent years, and SMSFs have been used for this investment type.

The SPAA (SMSF Professionals’ Association of Australia) called these claims as overstated; citing SMSF asset shares in residential property is just a small percentage of the entire sector. As of June this year, residential property shares are at $17 billion, dwarfed by the commercial sector at $58 billion out of a total of $495 billion SMSF asset shares. Commercial property has also been on the rise in this sector as more self employed people consider purchasing their business premise under their SMSFs as this assures a steady income flow – depending on the business performance, and taxation is lesser when the business is setup as an asset. Residential property makes up only 3.4% of this sector.

You can read more about this on the SMSF Essentials website.

Beware of property sharks

Alan Kohler from the Australian points out the biggest problem about SMSFs is not that finances are self managed, but because people are getting advice from property sharks. As of last week, the residential sector has an $18 billion share from the $500 billion total SMSFs, according to the Reserve Bank.

Commissions from these shares are often enticing to these so called “consultants”, the more reason for people to be mindful of their financial strategies. Investors should be proactive and responsible in making sure that they only get legitimate financial advice from licensed financial planners.

Read more about this on the Australian website.

SMSFs will be the strongest Superannuation sector by 2017

Deloitte, an Auditing and Financial Consultation firm has forecasted SMSFs to overtake the Retail sector for Post Retirement Superannuation by 2017. Since those that were born from 1943 – 1960 are moving into post – retirement, the SMSFs for this generation group will increase dramatically in shares, as this generation group comprises 47% of super assets as of 2008.

Property investments have been the method of choice for majority of SMSFs, as it gives the investor control in managing their funds and decision making. With proper financial planning and consultation, the SMSFs sector is projected to reach the $800 billion mark by 2017.

Read more about this on the Financial Standard website.