MA514 Business Finance Report: Housing Price Analysis and Loan Options

This business finance report provides a detailed analysis of housing prices in Sydney, predicting future trends based on historical data from the ABS website. It assesses a client's income growth over a 10-year period, estimating an average growth rate of 4.8%. The report then determines the maximum loan amount the client can avail, considering net income, taxes, and living expenses, and evaluates the property value she can afford with and without insurance premiums. Furthermore, it calculates the time required to purchase a property with 20% and 5% upfront payments and examines the impact of a potential interest rate increase to 7% on mortgage payments. The report concludes by outlining the risks involved in the financial plan, particularly concerning income stability and potential interest rate hikes, while providing relevant references from sources like Westpac and Domain. Access this and other solved assignments on Desklib.

Running head: BUSINESS FINANCE
Business Finance
Name of the Student:
Name of the University:
Authors Note:

BUSINESS FINANCE
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Table of Contents
1. Conducting analysis on the housing price of Sydney and depicting the future prices:..........2
2. Detecting the growth in income of the client by understanding the income growth rate of
Sydney citizens:.........................................................................................................................3
3. Indicating the maximum loan that can be availed by the client, while identifying her net
income and tax:..........................................................................................................................4
4. Understanding the level of property, which she could buy with or without premium
payments:...................................................................................................................................5
5. Understanding when the property could be bought under 20% upfront payment and 5%
upfront payment:........................................................................................................................6
6. Depicting the impact on mortgage payment when interest rate increases to 7%:..................8
7. Depicting the risk involved in the plan drafted for the client:...............................................8
References:...............................................................................................................................10

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1. Conducting analysis on the housing price of Sydney and depicting the future prices:
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0 1 2 3 4 5 6 7 8 0 10 11 12 13 14 15 16 17 18 19 20
$-
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00
$1.02 $4.51
Sydney Housing price in Million
Figure 1: Graph of future 20-year housing prices in Sydney
(Source: As created by the author)
The changes in property price can be identified from the above figure, which helps in
understanding the level of expenses that will be incurred by the client to acquire the Austrian
dream. The property price has a relatively grown who are the historical period at the of
1.88%, which is derived from the change in prices of dwelling in Sydney. Therefore, it could
be estimated that within the period of 20 years the housing price in Sydney would eventually
increase from $1.02 million to $4.51 million. this relatively indicates the rising prices in
property, which is estimated to incur in future. The data is directly derived from ABS website
containing the prices of established house transfers in Sydney. This relatively helps in
understanding the level of Expenses it needs to be conducted by the client to acquire the
house in Australia.

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2. Detecting the growth in income of the client by understanding the income growth rate
of Sydney citizens:
Time Income Yearly Income Four Year Avg Income Growth
1994–95
$
642 $ 33,384
1995–96
$
626 $ 32,552
1996–97
$
648 $ 33,696
1997–98
$
664 $ 34,528 $ 33,540
1999–2000
$
692 $ 35,984 $ 34,190 1.9%
2000–01
$
709 $ 36,868 $ 35,269 3.2%
2002–03
$
726 $ 37,752 $ 36,283 2.9%
2003–04(a)
$
806 $ 41,912 $ 38,129 5.1%
2005–06(a)
$
870 $ 45,240 $ 40,443 6.1%
2007–08(a)
$
994 $ 51,688 $ 44,148 9.2%
2009–10(a)
$
981 $ 51,012 $ 47,463 7.5%
2011–12(a)
$
1,015 $ 52,780 $ 50,180 5.7%
2013–14(a)
$
1,046 $ 54,392 $ 52,468 4.6%
2015–16(a)
$
1,070 $ 55,640 $ 53,456 1.9%
Average Rate 4.8%

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0 1 2 3 4 5 6 7 8 9 10
$-
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$80,000
$127,805
Income growth in 10 years
Figure 2: Future income growth of the client in 10 years
(Source: As created by the author)
The growth in income of citizens in Sydney is a relatively depicted in the above table,
which is used for calculating the income growth rate in the City. This calculation relatively
uses for your average of the changing income to determine the growth rate in overall earnings
of salaried citizens. The calculation relatively indicates that or average growth rate of 4.8% in
income is a relatively detected, which will increase the client's income in future 10 years. The
graph relatively represents the overall income growth of the client in 10-year time, which
helps in understanding the level of saving that she would make to purchase the house
(Abs.gov.au, 2018). Hence, from the valuation it could be identified that the income growth
of the client will never literally increase from $ 80,000 per year to $ 127,805 per year in 10
years’ time.
3. Indicating the maximum loan that can be availed by the client, while identifying her
net income and tax:
Particulars Monthly Yearly

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Annual Salary $ 6,666.67 $ 80,000.00
Yearly expense
Amenities $ 1,500.00 $ 18,000.00
Rent $ 850.00 $ 10,200.00
Expense of living $ 2,350.00 $ 28,200.00
Tax $ 17,547.00
Savings $ 2,854.42 $ 34,253.00
Particulars Value
Interest rate 3.52%
Years 30
Max LVR 80%
Price of the property $ 420,000
Borrowed Amount $ 335,747
Deposit for loan $ 84,253
The total yearly savings is available cli protected at the levels of $ 34,253, After
deducting all the relevant expenses and Taxes. Moreover, the total savings of around $
84,253 is mainly detected for the client, which could be helpful in identifying the property
value that could be afforded at the current saving level (Westpac.com.au, 2018). With the
interest rate of 3.52% and the Max LVR of 80% for 30 years the client will be allowed to
purchase a property of $ 420,000.
4. Understanding the level of property, which she could buy with or without premium
payments:
Without Insurance Premium
Particulars Value
Property $ 420,000
Total Stamp Duty value $ 278
Total cost $ 420,278

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Deposit for loan $ 84,000
Savings $ 84,253
Extra amount $ 253
With Insurance Premium
Particulars Value
Property $800,000
Total Stamp Duty value $18,840
Current savings $84,253
After payment savings $65,413
Insurance premium $31,490
Total Bank deposit for loan $33,923
LVR 96%
Adequate calculations are relatively conducted for the client to determine whether she
could obtain the loan with or without insurance premium. This relatively indicates the ability
of the client to acquire a high value property or low value property. The loan acquired
without any kind of insurance premium would relatively force the borrower to pay 20% of
the overall property amount . However, using the insurance premium would allow the
borrower to accumulate high value property, where the LVR percentage could increase as
high as 96%. Both the calculations are relatively depicted in the above tables where without
the insurance premium she could only buy a property with a value of $ 420,000 and with the
insurance premium the property value will increase to $ 800,000.
5. Understanding when the property could be bought under 20% upfront payment and
5% upfront payment:
Year Property price Savings Target 20% upfront Stamp duty Difference

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0 $ 1,020,000 $ 84,253 $ 204,000 $ 34,420 $ (154,167)
1 $ 1,068,756 $ 120,541 $ 213,751 $ 36,543 $ (129,753)
2 $ 1,151,263 $ 158,977 $ 230,253 $ 40,136 $ (111,412)
3 $ 1,240,138 $ 199,451 $ 248,028 $ 44,007 $ (92,584)
4 $ 1,335,874 $ 242,118 $ 267,175 $ 48,176 $ (73,233)
5 $ 1,439,002 $ 287,100 $ 287,800 $ 52,667 $ (53,368)
6 $ 1,550,090 $ 334,525 $ 310,018 $ 57,505 $ (32,998)
7 $ 1,669,754 $ 384,527 $ 333,951 $ 62,716 $ (12,140)
8 $ 1,798,656 $ 437,248 $ 359,731 $ 68,330 $ 9,187
9 $ 1,937,509 $ 492,836 $ 387,502 $ 74,377 $ 30,957
10 $ 2,087,082 $ 551,446 $ 417,416 $ 80,890 $ 53,140
11 $ 2,248,201 $ 613,244 $ 449,640 $ 87,907 $ 75,697
12 $ 2,421,758 $ 678,400 $ 484,352 $ 95,465 $ 98,583
13 $ 2,608,713 $ 747,095 $ 521,743 $ 103,607 $ 121,745
14 $ 2,810,101 $ 819,518 $ 562,020 $ 112,377 $ 145,121
15 $ 3,027,036 $ 895,870 $ 605,407 $ 121,824 $ 168,638
Year Property price Savings
Target
5% upfront Insurance
premium
Stamp duty Amount
0 $ 1,020,000 $ 84,253 $ 51,000 $ 44,446 $ 34,420 $ (45,613)
1 $ 1,068,756 $ 120,541 $ 53,438 $ 46,571 $ 36,543 $ (16,011)
2 $ 1,151,263 $ 158,977 $ 57,563 $ 50,166 $ 40,136 $ 11,111
3 $ 1,240,138 $ 199,451 $ 62,007 $ 54,038 $ 44,007 $ 39,399
4 $ 1,335,874 $ 242,118 $ 66,794 $ 58,210 $ 48,176 $ 68,938
5 $ 1,439,002 $ 287,100 $ 71,950 $ 62,704 $ 52,667 $ 99,779

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6 $ 1,550,090 $ 334,525 $ 77,504 $ 67,544 $ 57,505 $ 131,971
7 $ 1,669,754 $ 384,527 $ 83,488 $ 72,759 $ 62,716 $ 165,564
The table relatively represents the overall income and expenses that is conducted by
the Client, which would eventually help in understanding the level of income that could
support the property purchase. from the evaluation it could be identified that with the upfront
payment of 20% the overall property will be bought within 8 years in future. However, the
use of upfront payment of 5% would eventually allow the client to purchase property within 4
years. hence it could be understood that with the 5% upfront payment the client could
effectively achieve the Austrian dream much faster (Stampduty.calculatorsaustralia.com.au,
2014).
6. Depicting the impact on mortgage payment when interest rate increases to 7%:
Year Interest rate Mortgage Payment Saved Savings
5 3.52% $68,555 $127,829 $59,274
6 3.52% $68,555 $118,166 $49,611
7 3.52% $68,555 $111,306 $42,751
8 7.00% $101,319 $107,394 $6,076
Property value $ 1,335,874
Loan amount $ 1,269,081
Months 360 Months
The impact of interest rate change from 3.52% to 7% after the purchase of property is
relatively defected in the above table, where the changes in interest payment would
effectively be supported by the client which we can see in year 8. Therefore, it could be
assumed that the client could effectively manage the increment in interest rates from the

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savings that is conducted throughout the years (Domain.com.au, 2018). Hence, there will be
no impact on the interest payment capability of the client if interest rates are increased in
future to 7 percent.
7. Depicting the risk involved in the plan drafted for the client:
The overall calculations conducted in the financial plan relatively indicate all the
measures that might incur in future and might allow the client to conduct the property
purchase. However, changes in circumstances could lead to a drastic turn where the financial
plan would not help the client in achieving her Austrian dream. Therefore, the financial plan
can be identified as unviable if the client is not able to accumulate the required level of
income from her job. this would result in problematic situation for the client which will
directly impact our ability to pay the mortgage. Moreover, the incremental interest rates in
Australia more than 8% will directly make the client defaulter, due to the low availability of
savings on her part. Hence, under these two circumstances the financial plan will not help the
client achiever Austrian dream.

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References:
Abs.gov.au. (2018). Ato.gov.au. Retrieved 26 May 2018, from
https://www.ato.gov.au/calculators-and-tools/simple-tax-calculator/
Domain.com.au. (2018). Domain.com.au. Retrieved 26 May 2018, from
https://www.domain.com.au/rent/sydney-nsw-2000/
Stampduty.calculatorsaustralia.com.au. (2014). Stamp Duty Calculator. Retrieved 26 May
2018, from https://stampduty.calculatorsaustralia.com.au/
Westpac.com.au. (2018). Westpac.com.au. Retrieved 26 May 2018, from
https://www.westpac.com.au/personal-banking/home-loans/calculator/stamp-duty-
calculator/