Buy Now Pay Later – the hidden danger potentially stopping you from owning your own home

The Buy Now Pay Later sector is winning-over consumers with the promise of instant gratification, but the mortgage industry is warning that with every sugar-high comes the risk of a corresponding low.

‘Buy Now Pay Later’ providers such as AfterPay and Zip Pay have experienced massive growth in popularity, with the number of users jumping from 400,000 to approximately 2 million between 2015 and 2018.

Driven by a simple proposition whereby the Buy Now Pay Later provider pays the merchant on behalf of the customer, allowing the customer to obtain the goods or receive a service immediately while subsequently paying off the debt generally through instalments, Buy Now Pay Later presents a tempting offering.

But as the sector’s breakneck growth continues, Venrock is warning users, to be mindful of overdoing it as this could risk effecting their chances of securing a home loan further down the track.

This service is the layby of our day but in reverse. It’s your forward credit for an item. In theory, it makes sense. You get the item or service and pay it off over instalments, so you’re actually putting forward your liability. This might be ok for someone that manages their money well, if they pay off the item on time and use their mortgage offset account correctly. This way they’re delaying expenses and offsetting more of their savings against their home loan.

Utilising this payment method may potentially send the wrong message to a bank. If a lender sees a ‘buy now pay later’ provider frequently on a client’s bank statements, that can trigger more questions about their spending behaviours and ultimately may mean they choose to decline the application.

If you are concerned about your level of expenditure or your ability to secure a home loan, a conversation with one of our friendly brokers could set you on the right path.

It’s important to appropriately manage your expenses well in advance of applying for a home loan, that way you can show the bank that you can save and afford to service a mortgage when the time comes.

Financial Focus: Understanding Living Expenses

Applying for a new mortgage or looking to purchase a new car is an exciting time, however with the need for comprehensive credit reporting and tightening lending practices, it is imperative that consumers understand how their spending habits can impact on their capacity to access finance.

With more and more expenses being paid electronically, the banks have greater transparency on what exactly people are spending their money on and how much they are spending. Banks use this information to determine what surplus you have left to pay for the proposed finance. Additionally, the expenses that may be a luxury or a one off can also paint a picture on the desirability of you gaining an approval.

With all of this you need to be very mindful on what you are spending and ensure repayments are met on time. So when seeking a mortgage or car finance, work with a Venrock Finance broker who will gain an understanding of your discretionary spending and living expenses. As each bank has different policies our role is to navigate through the policies and find the bank that will say yes to your particular scenario, as while one bank may say no, the other lender may have a policy that includes a realistic understanding of your living expenses.

To discuss your requirements further please contact one of our friendly brokers today.

Financial Focus: Offset versus Redraw

As Finance Brokers a common question that we are regularly asked is “What is the difference between an offset and redraw facilities?” While both are common home loan features, they can cause some confusion to the client when considering the best type of features for their prospective home loan. And with more and more lenders offering either an offset account or a redraw facility consumers need to gain a better understanding of these features.

An offset account is a transaction account which is linked to your home loan and which has normal transaction account functionality. The benefit is that the money in your account is offset daily against your home loan balance, and this will reduce the mortgage interest charged accordingly.  While a redraw facility is a feature which enables borrowers to contribute extra payments onto their mortgage and then allows them to access to their banked additional funds. So while you are saving you are also reducing the interest you pay on your home loan.

In many ways, redraw and offset facilities are quite similar. The main difference is that the money sitting in an offset account remains at call and easily accessible, whereas the money in a redraw facility, while accessible, isn’t available for same day, at call withdrawal.

While diligent savers will benefit from either kind of loan feature, it’s important to note that redraw facilities and mortgage offset accounts are better suited for different kinds of mortgage holders. You have to decide for yourself if you want to do one of two things:

  1. Reduce the interest on your loan while maintaining day-to-day access of your cash. A mortgage offset account offsets the interest owing on your account, but enables you to have day-to-day access to the cash. A mortgage offset account can be used in a transactional way, so is ideally suited for home owners who want to minimise the interest owing on their repayments, without necessarily paying extra off their principal. Many lenders are now offering multiple offset accounts which enables you to separate your savings such as to long term bills, holidays, education or however you like to separate your money for budgeting purposes.
  2.  Pay off the loan itself (known as the principal). By paying the money directly into the loan, a redraw facility allows you to make payments towards paying off the principal, rather than simply reducing interest in the short-term interest. This is better suited for those who have a focus on paying off their mortgage earlier. Though the amount you can redraw will be assessed each year to ensure that you still pay off your home loan within the loan term.

In summary offset accounts are like everyday transaction accounts, giving you easy access to your money, while redraw facilities let you access extra repayments that you have made on your home loan. Both facilities can help reduce the amount of interest you pay on your home loan, however it is important to consider how you wish to manage your finances.

To Fix or Not?

A well-known industry comparison website “Canstar” has suggested that borrowers should consider switching their arrangements to fixed rate options, as the market has in all probability, reached record lows. (This recommendation was issued in late July 2018).

This recommendation also co -incides with a time when several banks have started offering fixed rate mortgages which are cheaper than their standard variable rate loans. Both Macquarie and Aussie Home Loans have recently dropped their fixed mortgage rates by 10 basis points, while increasing their variable rates by 5-10 basis points.

Whilst this option has various pro and cons, and is definitely not for everybody, Venrock believes all borrowers should undertake a review to see if this option suits the borrowers circumstances.

If a fixed rate option is something that you would like to consider, talk to one of our brokers for a free review or a Mortgage Health Check.

The Third Industrial Revolution

I have just read a fascinating article which theorises that the world is just entering it’s third “Industrial Revolution”.

The article was a series of extracts from an interview conducted with a well-known political and economic theorist, Jeremy Rivkin, who has a pedigree and sphere of experience which is imposing to say the least.

Amongst other things his CV contains years of experience as an adviser and consultant to Angela Merkel’s German Government, the European Union, the Chinese Government and various other European business leadership Groups.

In the interim, he continues his primary career, as an International lecturer in Executive Education.

In summary he has analysed the prevailing conditions which lead to the world’s previous well documented Industrial Revolutions, which were the British lead Industrial Revolution of the 18th and 19th Centuries, and the USA lead Industrial Revolution of the early part of the 20th Century.

He summarises that there needed to be three consistent situations, all of which were in sync, for each Industrial Revolution to commence.

These were chronological massive changes in communication systems, energy systems, and changes in respective information/human mobility.

In England these co incided with the development of steam energy, which helped power and develop the printing and manufacturing industry, and the telegram for communication, and then the evolution of the train industry for human and product mobility.

In the USA last century, the key changes were the evolution of oil and petroleum for energy, the development of the telephone, and then radio and TV, for communication, and as a consequence of the new energy source from oil, mobility changed rapidly with the development of cars, trucks, and buses.

He theorised that we have similar changes to the world as we have known it, in these three categories, happening right now.

As he sees it, traditional energy sources as we have known them, such as coal, are dead and buried, and are being replaced by sustainable energy sources such as solar, wind and water.

He then theorises that communication systems are going through their biggest generational change in the world’s history due to the internet, including, email, iPhone technology, and social media outlets such as Facebook and Twitter.

And then, the final link in the chain is information mobility, which has been revolutionised by outlets such as Wikipedia and Google.

I don’t think there could be any arguments that the entire world has never been more connected with immediate information access for the vast majority of us on this planet.

So, if his thoughts are correct, what does it mean for all of us?

The facts are overwhelming that the last two Industrial Revolutions completely changed the world as it then was.

What changes in our day to day lives, and business lives, can we expect FROM THIS Industrial Revolution, which he theorises, has just commenced in terms of its’ evolution?

Firstly, it is undoubted, that across the world, we have seen a slowing in productivity over the past 15-20 years. As the world has changed, issues like climate change have seen an increase in unemployment. If you don’t believe this, consider the case of the US car industry.

He argues that the key to international growth is the building of infrastructure, which is a long term strategy, but this creates a political conflict, as politicians are interested in short term policy, which will get them re-elected in 4 years’ time.

For companies and businesses, he argues that the change has already started, and will continue to gather pace in its implementation.

The old business world was as he sees it, sellers selling something to a buyer.

The old world was all about analysing a business market.

The old world was based on consumerism.

The new world will be service providers providing their service to users.

Think about revelations like Uber, and Air B + B.

The new world will be about networks, not markets..

And the new world will be about sustainability of service.

So…what to do?

I don’t think there can be any doubt, that we are living in an era of the fastest ‘Business’ environmental changes in the history of the world.

So, business people need to consider the fate of dinosaurs, which couldn’t adapt to a changing environment and became extinct, in the process. The time to have flexibility of thought, an ability to embrace and implement new technology, is now. Everybody needs to work out what parts of the new world of communications, of energy and mobility can be implemented into your own businesses.

Who knows…In the process some exciting new opportunities may arise.

It is a whole new world. A world which is being revolutionised – by energy, by mobility and communications.

Survive now, evolve, and thrive later or would you rather be a Dinosaur?

That’s my thoughts

Muzza from Warnbro….

The Beauty of Youth

Our business has been hosting a 16 year old local student for the most part of this year, every Friday, on a ‘work experience’ arrangement.

‘A‘ as we will call him, is on a soccer scholarship at one of the districts’ very good quality private schools, and he plays both junior and senior soccer for one of the WA National Premier League Clubs.

‘A’ has won our hearts with his positive and friendly manner, and his willingness to be part of our team, and keenness to learn. He has strong ambitions in life, one of which is to see if he can become a professional soccer player at some level.

Given the positive feedback our office has received from our involvement with ‘A’, we decided to expand this program and run a two day Workshop, which we entitled “An Introduction to the Finance Industry”, and invite some other local young people to attend.

The class of 2017, as we have now called them attended our office for two days in mid-June, and successfully undertook, and contributed to the workshop.

Some of the topics covered included a summary of the legislative controls which the finance world must comply with, various alternative finance products, some financial analysis and calculation modelling, and some actual live case studies of business finance issues.

It was a rewarding and fulfilling two days for me, and our staff, and we also believe from the feedback we have since received, that it was really worthwhile for the participants as well.

These students may or may not ever work in the finance sector, but whatever happens into the future, I am sure that some of the knowledge they acquired during the workshop will be of benefit to them whatever they finally do.

Let me tell you about the other two participants, who were’ J’, another 16-year-old local boy, who is in year 10 at a good local school, and ‘S’, who is a 19-year-old local girl studying Commerce/Law, in second year, at Curtin University.

Both ‘J ‘, and ‘S’, just like ‘A’, are all studying hard, playing sport, are ambitious, well spoken, confident, well read, knowledgeable, prepared to do part time work, work experience or whatever is going to give them more practical life experience, and consequently, all make solid contributions to their family and home life.

All three of these students are fantastic examples of the quality of young people coming through society today.

We hear so much negativity about today’s youth on a daily basis, in the media, and I regularly hear more senior generations lament that they don’t know where the world is heading.

What I would encourage all of us to do is to reach out to today’s youth, talk to them, listen to their opinions, thoughts, and particularly, their concerns.

I think that many of us ‘oldies’ may be surprised at the quality of people coming through this generation…, if we take the time to get to know them.

We all know that future generations are going to face some major issues, which even today, are causing them grave concerns.

I refer to global issues like poverty, climate change, terrorism, world peace, social media domination, mental health, localised issues (e.g. employment and possible home ownership), and more generalised issues like the changing workplace due to technology. These are massive challenges that young people are going to have to deal with as their lives unfold.

Sadly, as I see it, when they look towards our world’s political and social leaders for inspiration, they are left flat and disappointed, as solving problems seems to take second place behind ‘ leaders’  self needs and self-preservation.

I am hopeful that this generation coming through into leadership roles in the next decade or so will do a better job of problem solving that our current leaders are today.

So, my advice to all of us, is to embrace the beauty of today’s youth – acknowledge their intellect, respect their opinions, give them a regular good ‘listening to ‘, and see how much positivity together we can create.

We all need more positivity in our lives, and I believe that todays’ younger generations can provide that spark of hope for us all.

I think many of us would be surprised at the outcomes, if society could just embrace some positivity regarding this.

That’s my thoughts,

Muzza from Warnbro

The Fear Factor

The documentary Bowling for Columbine was a satirical, and even sarcastic look at the USA’s gun laws and the country’s fascination with being able to lawfully carry a weapon.

But the hidden theme in this classic piece of television journalism, was its veiled conclusion that there is a daily fear factor in most people’s lives in the 21st century, which is unheralded in our history.

This fear is driven daily by all forms of media and is now becoming even more accentuated by what it seems is almost the entire western world’s fascination with all formats of social media.

In the blink of eye, all of us can find on the internet an entire video library of death and destruction, fear and loathing, hate and bigotry, racism and radicalism, sickness and abject poverty, depression and social disorder, extremism and terrorism, and every other type of activity which is known to make mankind feel less secure and less safe in their own environment.

And just in case we dared to try and be happy one day, that nights news bulletins, and the next days’ newspapers, will try and bring us all back to the previous levels of insecurity with the bad news stories of the day.

This stuff is the stuff which sells newspapers, and gets news programs ratings. Its good stuff for media moguls. Its bad news for humanity’s state of mind.

And it is the thing which the world of terrorism thrives upon. We all seem to accept that on any given day, somebody will die on our roads in Australia.  Many of us don’t even blink an eye, even when we pass a serious accident scene. Most of us certainly don’t even bother reading newspaper articles about serious car crashes – we just accept that they are an inevitability.

But when one of these car crashes is a deliberate action of a terrorist, it takes our breath away, and dominates our thought processes for days.  It seems that the reason for this is more than likely the ‘fear factor’ that this could happen to anybody in the world, if you happen to be in the wrong place at the wrong time.

The same logic goes for the recent US elections, where Trump targeted and got the ‘fear’ vote, by targeting terrorism, as one of his major policies – it was a telling aspect of his election.

Yet the actual statistics are that, including the 4000 approximate deaths from the 9/11 terrorist attack in New York, deaths in the USA from gunshot wounds, from 2001 until 2017, outnumber deaths from terrorism, by the ratio of 1117 to 1. In other words, the average US citizen is in excess of a thousand times more likely to die from an indiscriminate gunshot wound in the USA, inflicted by a fellow countryman, than they are to die from a terrorist act.

But are people in the US sacred of guns? Yes, maybe a little, but nothing in comparison to how scared they are of Terrorism!!!!!

The illogicity of this is staggering, but probably no more illogical than the average Aussie’s ambivalence to road trauma and death.

Or dare I say to deaths in Australia from domestic violence. Here in WA, a big part of the population are terrified of dying from a shark attack, but as detailed above, the chances of a woman dying in Australia from domestic violence is several hundred times more likely than dying from a shark attack.

The oxford dictionary defines fear as “an unpleasant feeling or emotion caused by the awareness or thought that danger is present or imminent”.

So is the wrong sort of fear being propagated by the media and in the process creating unrealistically insecurity – absolutely!

That’s my opinion.

Muzza from Perth