There’s no doubt about it, Australia is in the grip of a property crisis. As a finance broker with over 20 years’ experience, Paul McKinley has watched the property market evolve, noting how critical it is to stay informed about the best finance options available.
Whether you’re looking to achieve the dream of owning your first home, refinancing an existing mortgage, exploring investment opportunities, or funding the purchase of a commercial property through a self-managed super fund (SMSF), there are plenty of finance options that optometrists can consider.
TAKING ADVANTAGE OF 90% LENDS, NO LMI
One of the standout opportunities for optometrists in the current market is the availability of 90% lends without the requirement for lenders’ mortgage insurance (LMI) (some banks are even doing a 95% lend with LMI waiver*). This is because several (though not all) banks include optometrists in their ‘medico’ category; a classification typically reserved for medical professionals such as doctors and dentists. This inclusion means that optometrists can benefit from significant financial advantages, such as reduced deposit requirements and the elimination of LMI, which translates into substantial savings.
LMI can often be a prohibitive cost for homebuyers who do not have a 20% deposit. For a typical home purchase, it can add thousands to the upfront costs, making it a significant barrier for many. However, some of the ‘Big Four’ banks, as well as some second and third tier lenders, have tailored packages that waive LMI for optometrists borrowing up to 90% of the property’s value. This means that optometrists can secure a home loan with just a 10% deposit, making it easier to enter the property market sooner.
DEPOSITS AND GOVERNMENT ASSISTANCE
In addition to the advantages of medicospecific lending packages, optometrists can also leverage various government schemes designed to assist first-time homebuyers. The First Home Owner Grant (FHOG) and the Home Guarantee Scheme are two such programs that can provide significant financial support.
FIRST HOME OWNER GRANT
The FHOG is a one-off grant available to first-time homebuyers who are purchasing or building a new home. The amount of the grant and the eligibility criteria vary between states and territories, but generally, it can provide a substantial boost to the deposit. For example, in New South Wales, eligible first-time homebuyers can receive a grant of AU$10,000, while in Victoria, the grant can be up to $20,000 in regional areas.*
HOME GUARANTEE SCHEME
The Home Guarantee Scheme, administered by Housing Australia on behalf of the Australian Government, includes the First Home Loan Deposit Scheme (FHLDS), the New Home Guarantee, and the Family Home Guarantee. These schemes are designed to help eligible buyers purchase a home with a deposit as low as 5% without paying LMI. The government acts as a guarantor for the remaining 15% of the deposit, reducing the risk for lenders and making home ownership more accessible.
Optometrists, with their stable and highincome potential, are well-positioned to benefit from these schemes. However, it’s essential to understand the eligibility criteria and apply early, as these schemes have a limited number of places each financial year and have income cap limits.
REBATES AND INCENTIVES FOR SWITCHING
In the competitive mortgage market, many banks are offering rebates and incentives to entice new customers to switch their home loans. These can include cash bonuses, fee waivers, and even discounted interest rates. However, while these offers can be attractive, it’s crucial to ensure that the benefits outweigh the costs associated with switching lenders. Your broker can assist with understanding these differences, as it can be a little overwhelming.
Understanding the Costs
Switching home loans can involve several fees, including discharge fees from the current lender, application fees for the new loan, and potential break costs if you have a fixed-rate loan. Therefore, it’s essential to calculate the total cost of switching and compare it with the financial benefits offered by the new lender.
Evaluating the Financial Benefits
Cash back offers can range from $1,000 to $5,000 or more, depending on the lender and the loan amount. In addition, some lenders may offer reduced interest rates or waive annual fees for the first few years. When evaluating these offers, consider the long-term savings from a lower interest rate in addition to the immediate rebate. Use mortgage calculators and brokers to compare the total cost of the loan over its term to ensure you are making a financially sound decision.
REFINANCING OPPORTUNITIES AND EQUITY LEVERAGE
The post-COVID-19 property market has seen a significant increase in property values across Australia. As a result, many homeowners now have more equity in their homes than before the pandemic. This increased equity presents an excellent opportunity for refinancing and accessing better loan terms.
Refinancing can offer several benefits, including lower interest rates, reduced monthly repayments, and access to additional funds for renovations, investments, or other purposes. With loan-to-value ratios (LVRs) often below 70%, homeowners can negotiate very favourable rates, with some starting with the number five (at the time of writing).
FIVE STEPS TO REFINANCING
- Assess your current loan: Review the terms of your existing mortgage, including the interest rate, fees, and remaining balance. Determine if there are any break costs if you are on a fixed-rate loan. Your broker can assist quickly with this.
- Evaluate your financial situation: Ensure your credit score is in good shape and gather documentation such as income statements, tax returns, and details of any existing debts.
- Compare lenders: Research different lenders and their refinancing offers. Look for competitive interest rates, low fees, and any incentives or rebates. Again, a good broker will have access to 50+ lenders and can quickly do this analysis for you (at no cost to you).
- Apply for the new loan: Once you’ve chosen a lender, submit your application (or have your broker do so) along with the required documentation. The lender will assess your application and conduct a valuation of your property.
- Settle the loan: If approved, the new lender will pay out your existing loan, and you’ll start making repayments on the new loan terms.
LEVERAGING EQUITY FOR INVESTMENT
Increased home equity can also provide greater borrowing power for those looking to invest in property. By leveraging this unrealised equity, eye health professionals can access funds to purchase investment properties, diversifying their portfolio and potentially increasing their wealth.
INVESTMENT PROPERTY CONSIDERATIONS
Rental income: Consider the potential rental income from the investment property and whether it will cover the mortgage repayments and other associated costs.
Capital growth: Look for properties in areas with strong potential for capital growth, ensuring a good return on investment over time.
Tax implications: Be aware of the tax implications of owning an investment property, including negative gearing and capital gains tax.
PURCHASING COMMERCIAL PROPERTY
For optometrists running their own practice, purchasing commercial property can be a sound, strategic financial move. Owning your practice premises not only provides stability and control over your workspace but can also be a valuable asset in the long term.
Some specific benefits of purchasing include:
Control over your premises: Owning means you can make modifications and improvements without needing landlord approval.
Equity building: As with residential property, commercial property can appreciate over time, building equity that can be leveraged for future investments or business expansion.
Potential tax benefits: There can be tax advantages to owning commercial property, including deductions for mortgage interest, depreciation, and property-related expenses. Capital gains tax exemption, or reduction, could also apply if the property has been used in your business and held long enough (15-year exemption, small business retirement exemption, 50% discount, and 50% active asset reduction).
FINANCING THROUGH SELFMANAGED SUPER
One option for purchasing commercial property is through a self-managed super fund (SMSF). This can be particularly appealing for optometrists looking to invest in their practice premises while leveraging their superannuation savings.
Advantages of purchasing through an SMSF include being able to directly control your superannuation investments; tax efficiency, with rental income and capital gains potentially taxed at concessional rates; and asset growth – using your SMSF to purchase commercial property can help grow your retirement savings through property value appreciation.
As always, there are considerations that you must explore before opting to establish an SMSF. SMSFs are subject to strict regulations, and it’s crucial to ensure compliance with all legal requirements. As well, setting up and managing an SMSF can involve significant costs, including administrative fees, legal advice, and ongoing management expenses, as well as an annual audit.
CONCLUSION
Navigating the property crisis in Australia requires careful planning and an understanding of the various finance options available. For optometrists, the unique benefits offered through medico-specific lending packages, government assistance schemes, and refinancing opportunities, provide a pathway to home ownership, investment, and business growth. By leveraging these options, optometrists can make informed decisions that align with their financial goals and professional aspirations.
Whether you’re looking to buy your first home, refinance your existing mortgage, invest in property, or purchase commercial premises for your practice, there are tailored solutions available to help you achieve your objectives. Engaging with a financial expert who understands the specific needs of optometrists can further enhance your ability to navigate the complexities of the property market and secure the best possible outcomes.
As someone who has been in the industry for over two decades, I’ve seen firsthand the positive impact that strategic financial planning can have. Optometrists are in a unique position to leverage their professional standing and income potential to secure favourable lending terms and maximise their investment returns. By staying informed and proactive, you can turn the challenges of the current property market into opportunities for growth and financial stability.
If you need guidance and feedback, or have specific questions about your finance options, don’t hesitate to reach out. Optometry Finance Australia can help develop a strategy that meets your needs and helps you achieve your property and investment goals.
*Terms and conditions apply.
Paul McKinley CA BBus is the Managing Director of Optometry Finance Australia.
