Category: Mortgage Broking
All of the major banks have now increased their standard variable home loan rates. This comes on top of a recent increase to all investment loans held by each of the banks.
The most recent increase is a direct result of APRA (Australian Prudential Regulatory Authority) changes which requires banks to hold more deposits, as a percentage of its lending, and hence the cost of funds. These changes have been initiated to strengthen the banking sector, to “weather proof” the domestic economy from future adverse effects as a result of global economic downturn. Remember, that even though the Australian economy and Stock Market was hit hard during and after the 2008 Global Financial Crises, it was our strong banking sector that shielded us from much of the pain the rest of the world endured.
The increase to all investment loans was also in relation to APRA changes. APRA have instructed all Australian banks that they are not permitted to increase their Investment Mortgages Portfolio by more than 10% in this 12 month period. This was initiated to cool the property markets in big market places such as Sydney and Melbourne, as APRA saw that it was the investor market who were pushing up property prices in these areas. Many banks were on target to increase their portfolios by more 30%. So in response the banks have increased their investment loan mortgage rates and “toughened” their credit policies on investment loan applications to stem the flow of investment loans to their clients.
It’s not all doom and gloom however. We at Your Corner believe that there is a good probability that the reserve bank will decrease the cash rate in the November meeting, in an effort to combat the above issues.
For those of you that have seen your mortgage interest rate increased by your bank (who are regulated by APRA) can contact us at Your Corner, as we have many lenders who are regulated by ASIC rather than APRA, which means they have not had to increase their mortgage rates. Some clients have already been set up to save over $200 000 on future interest repayments on their loans.
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Government grants and concessions for first home buyers
There are a number of government grants and concessions offered to Australian home buyers, and they’re well worth checking out. For first home buyers, the main financial assistance available is the First Home Owner Grant (FHOG). Introduced in July 2000 to help offset the effect of the GST on home ownership, it’s a national scheme funded by the states and territories and administered under their own legislation.
For reasons of space we won’t go into all the variations to the FHOG, and the other grants and concessions that home buyers can receive throughout the nation – they do vary from state to state and territory, but to illustrate generally what is available, let’s look at what applies in NSW. (To find out the specifics of the grants and concessions available no matter where you live in Australia, talk to your broker, or visit the government website www.firsthome.gov.au)
First Home Owner Grant (New Homes) scheme
In NSW, eligible first home owners who are buying a new home or building a home can receive a $15,000 grant under the First Home Owner Grant (New Homes) scheme. (This grant will reduce to $10,000 on 1 January 2016).
For the purposes of his grant, the definition of a ‘new’ home includes one that has never been lived in nor sold before, however it can be a home that has been ‘substantially renovated’.
As for other eligibility provisions for the $15,000 grant, they include:
- The value of the property must not exceed the First Home Owner Grant Cap of $750,000 for contracts dated on or after 1 July 2014.
- You or your spouse (including de facto spouse) have never owned any Australian residential property. However, you may still be eligible if you or your spouse have owned residential property in Australia after 1 July 2000 but have not lived in that property for a continuous period of six months or more.
First Home – New Home scheme
In NSW, this scheme provides eligible purchasers with exemptions from transfer duty on new homes valued up to $550,000 and concessions for new homes valued between $550,000 and $650,000.
Eligible purchasers buying a vacant block of residential land to build their home on will pay no duty on vacant land valued up to $350,000 and will receive concessions for vacant land valued between $350,000 and $450,000.
Eligibility provisions include:
- You and your partner have not previously owned any Australian residential property
- At least one purchaser must occupy the home within 12 months and needs to live in the home for a continuous period of at least six months.
As noted above, not all the details of these schemes, including their eligibility provisions, are listed here so if you think you are in line for a first home grant or concession you need to investigate further – and given the significant benefits you could receive, it’s an exercise well worth undertaking.
Loans on offer
Basic variable rate home loans – These are basic loans that may offer a lower interest rate than standard loans, however they can lack some of the features of standard loans. For example, they may not offer a ‘mortgage offset facility’, a feature which can enable you to lower your overall home loan interest costs if you also have a separate savings account. That said, basic home loans represent good value for money due to their generally lower interest rates. Interest rates are variable, which means they can fluctuate up or down according to market movements.
Standard (or ‘full featured’) variable rate loans – These are popular amongst borrowers and are the preferred home loan for many. They offer a range of features, such as the ability to make additional repayments which helps reduce your overall interest costs, and also to redraw those additional repayments if you need that money later. Interest rates are variable and move according to the market.
Standard fixed rate loan – These are home loans where the interest rate is fixed (it doesn’t change), for periods ranging from one to five years. They suit home buyers who want certainty in knowing what their mortgage repayments will be during the period in which their home loan is fixed. They also enable home buyers to lock in a low interest rate they like, especially if they think interest rates are likely to rise in the future. These days, you can generally make extra repayments into fixed rate loans at no cost, but check the conditions of the loan with your broker.
Split rate loans – These are loans with two parts: one at a variable interest rate and the other at a fixed interest rate. For example, 55% of the loan may be at a variable rate, the other 45% at a fixed rate. The ratio of fixed to variable within the loan is largely up to the borrower. These split loans suit borrowers who don’t want a variable or fixed rate loan only.
Line of credit loans – With these loans you have a credit limit you can draw up to against, secured by a mortgage over your property. You can draw money up to the credit limit whenever you need it, and there are generally no set minimum repayment amounts. These loans provide great flexibility, however interest rates (variable) are generally higher than standard loans. They also require discipline in how much you draw down, and how much, and when, you repay.
‘Low doc’ (low documentation) loans – These loans require less formal documentation from borrowers about their income to provide to lenders, however they are usually the highest interest rate home loans on offer. These loans are particularly suited to self-employed people who have difficulty providing documentary evidence of their income.
Home loan features
If you take out a variable interest rate loan the interest rate can move up or down at any time, as determined by the lender. Normally, variable interest rates move in concert with changes to the official interest (cash) rate set by the Reserve Bank of Australia.
Fixed rate loans are just what they sound like – the interest rate is fixed (it doesn’t change) for a specified term, usually from one to five years. Fixed rate loans provide certainty to home buyers who want to know exactly what their repayments will be for a set period. They also appeal to borrowers who want protection from potentially rising interest rates. When a fixed rate loan expires it usually reverts to a variable rate loan.
Split home loans have one part at a variable rate, the other part at a fixed rate. Within limits, the borrower can specify what proportion of each they want, for example, 60% variable and 40% fixed.
Principal and interest (P&I)
These are the most common types of home loans, where part of your regular repayment goes towards paying interest, and another part goes towards paying down the ‘principle’ (the amount you borrowed). In a P&I loan’s early years most of your regular repayments go towards paying the interest owed. P&I loans suit home buyers who intend to live in their property for the longer term.
Here, your regular repayments only go towards paying interest on the loan, with no payments going towards reducing the principle owed. This makes interest-only loan regular repayments less than P&I repayments, which can suit investors who want to minimise their expenses or who, in the not too distant future, intend to sell the property.
Advertised vs comparison rates
When you take out a home loan there are likely to be fees attached, which can include any combination of establishment fee, monthly fees, annual package fee, valuation fee and so on. The advertised interest rate does not take these fees into account. However, the comparison rate does, so you get a truer idea of what the loan really costs. Do note though, the comparison rate of a loan varies depending on its size and term, so treat the published comparison rate only as a guide.
Loans with this feature allow you to make extra repayments whenever you like. Making extra repayments makes lots of sense – they will enable you to pay your loan off faster and reduce interest costs.
If you need ready interest-free cash, a redraw facility enables you to draw back from your home loan any extra repayments you have put into it. Note that some loans charge a fee to redraw.
This enables you to save on home loan interest costs. With an offset facility, if you have a savings account (let’s say with $20,000 in it), and you have a $350,000 home loan, the value of the savings account is offset against (deducted from) your home loan balance – and you pay interest on that reduced home loan amount. So, in this example, with an offset facility you would pay home loan interest on $330, 000, not $350,000 ($350,000 – $20,000 = $330,000). The long term interest savings through an offset facility can be very substantial.
The benefits of getting a conditional pre-approved home loan
When we go to buy something, we normally work to a budget or an upper limit – and we have that amount in mind before we set out. The principle’s the same when we go searching for a home to buy – we have an upper price limit, and beyond that there’s no point in seriously looking.
But how can we be sure what our price limit realistically is? There are many factors to consider including what we earn, what savings and investments we have and what are debts are. The key question is, how much can we borrow and afford to repay? This is where getting a conditional pre-approved loan is so useful.
Getting conditional loan approval (also known as ‘approval in principle’) means that a financial institution agrees to lend you a certain amount of money, so long as your purchase, in this case a home, meets the conditions of the loan. This means you can look for a home with certainty, knowing that a bank or credit union will lend you up to say, $300,000 or $500,000 or whatever the pre-agreed limit is. It also means that when you find a place you like that ticks the right boxes, you can put an offer in on it without delay, before someone else does.
In addition, having this facility at hand is particularly useful at auctions, where you can bid confidentially up to a certain amount, knowing that financing is available. Conversely, bidding at auction without a pre-approved loan can be very problematic, as it’s harder to know at what price you should stop bidding – you may stop too early, or worse still, you may find yourself the buyer of a home you subsequently can’t get adequate financing for.
The documentation you need to produce to receive a conditional pre-approved home loan is much the same as what you’ll need to present for an unconditional (full) loan approval, the big difference being you present it to your broker or lender before you go home hunting, not after you have found a home to buy. The documentation you will need to get your conditional loan approval normally includes:
- Evidence of your income
- Tax returns
- Bank statements
- Credit card statements
- Superannuation statements
- List of main assets
- Current debts including personal loans
This list is general and not exhaustive – Your Broker can advise you on exactly what documentation you’ll need. The fact is though, arranging a conditional pre-approved home loan is not difficult and it make so much sense. It’s so much better looking for a home when you know exactly how much you’ve got to spend, and that the money’s available when you need it.
Going home hunting? Thinking of buying at auction? Not sure how much you will be able to borrow when you find a property you like – and what you can afford to repay? These are issues that can be made much easier by getting a conditional pre-approved home loan. They allow you to buy and bid on property up to a certain price in confidence, knowing that, so long as you meet the conditions of the approval, the money’s there when you need it.
Why not make an appointment with Your Broker today to apply for a conditional pre-approved loan? Most likely, you’ll be very pleased you did.
The RBA has left the official cash rate on hold at 2 percent for the fourth consecutive month; this decision was in line with market pricing and economists predictions.
Despite weary flat growth and a sharp fall in Australia’s terms of trade, the RBA is still reluctant to cut rate further. The weaker Aussie Dollar is preferred and accompanied by the low-cost investment credit available to investors fueling property investment.
Sydney and Melbourne house prices are at all time highs with some of the highest auction clearance rates seen in the last decade. The RBA is concerned that lowering the cash rate would further ignite these markets driving prices higher while affordability to owner occupied and the first home buyer would suffer.
Not a great start to September trading with the ASX S&P 200 dropped 2.12% today closing at 5,096.40, adding further pain to August nearly 9% decline.
Household debt plummets ; 2 capital cities top as Fastest Growing Housing Market
Household debt in Australia continues to rise to $1.63 trillion according to the Australian Debt Clock. Bankwest Curtin Economic Centre’s study revealed that Australian households have three times as much debt on average than they did 25 years ago concluding that people were living beyond their means.
Results also showed that over the past 25 years, the average mortgage debt as a proportion of property value has almost tripled rising from 10 to 28 percent since 1990. Meanwhile, two capital cities Melbourne and Sydney displayed a strong capital growth in the housing market.
Research firm CoreLogic says that in July, Melbourne (4.9%) and Sydney (3.3%) showed a higher growth over the month and over the quarter, compared to other capital cities. Melbourne and Sydney were then followed by Brisbrane with a growth rate of 0.5% in July.
However, based on a year-on-year growth, Sydney is still on the top spot by 18.4% YOY, compared to Melbourne (11.5%). This impressive growth is largely due to the increasing number of investors. They comprise 60% of all home buyers in Sydney and 50% on a national level. Investors continue to expand real estate markets in both Sydney and Melbourne but the effect of this could reduce in coming months.
Tim Lawless, CoreLogic RP Data’s head of research explained that house prices have been growing faster than the unit prices. They saw that detached housing surpassed units for capital gain, with house value up to 11.6% compared with 7.2% increase in unit values over the past years.
‘[This] is likely to be supply-related, with the underlying land component driving detached housing values higher at a time when new apartment supply has seen a substantial boost from new construction.’
Purchasing a house could give the owners exclusive rights that are not available when acquiring a unit. Buying a house on land allows the owner to redesign and demolish the house if he pleases. However, buying an apartment would only grant owners the right to use the apartment, requiring them to follow some corporate rules.
On the other hand, home values in other cities are not getting better compared to Sydney and Melbourne. For instance, home value in Adelaide fell by 0.9%, Perth by 0.70%, and Darwin that experienced the worst losses by 3% in the same period.
In spite the rise of home prices in capital cities, the status of rent aren’t going up. For example, in Sydney, rents have only gone up to 2.5%.
This becomes problematic because investors have to top up from their income until tax time, given the condition that the property is expensive and the investors can’t get a lot of rent from it. The more price growth overpowers the growth of rent, the higher the top up amount for the new investors who will enter to the market. It will come to a point that this top up amount would be unaffordable making it very unattractive even to wealthy people.
In terms of its clearance rate, the Australian property market continues to show a good performance. As of August 15, Domain Group reported an increase of 79% in its auction clearance rates. The high percentage rate shows a high turnover of the properties in Australia.
Based on the results, Sylvanian Waters, NSW is the fastest growing suburb in Australia in the house auction results with a median price of $1,950,000. While in the unit auction results, Rozelle, NSW is the fastest growing suburb with a median price of $1,165,000. Both of the suburbs belong to Sydney. In terms of office markets, Sydney remains to be at the top with 123m sq ft, which is equivalent to 39% of the metropolitan office space with the major cities. Although Melbourne and Sydney have relatively similar sized central business districts, the suburban office space is far greater in Sydney. Over the past 18 years, Australian office markets have been attracting more investments. The reason for strong investments can be linked to the stable legislative environment and the transparent market structure.
In summary, household debt continues to rise but there’s a significant improvement in the housing condition prominent in two capital cities. Housing prices is growing faster than unit prices due to opportunities of new construction. Status of rent is not looking good which might be a potential problem in the future. Clearance rate continues to reflect a good performance in the Australian property market. Office markets are also attracting a lot of international investments.
2.1: Understanding the costs of buying a home
There’s more to buying a home than the purchase price and usually it’s a smart move to allow for these additional expenses as part of your savings plan.
These costs may include lenders’ fees, lenders mortgage insurance (LMI), pest and building reports, conveyancing fees, moving charges and the biggest impost of all, stamp duty. Note that these costs will vary deposing on your state or territory, and will depend on the type, location and value of a property.
Lenders fees may include home loan application fees. This fee covers the costs of preparing and registering a mortgage. Expect to pay up to $800 for an application fee, although some lenders will waiver it.
When you apply for a home loan, a lender will want a valuation report of your home. This will be conducted by a qualified valuer, who will provide an opinion to the lender about the property’s value. It’s like an insurance policy for the lender to ensure they’re not giving you a home loan that is more than the value of the property. The fees for a valuation report are usually included in the home loan application fee.
If you don’t have a deposit that is 20% or more of the value of the deposit then you’ll be charged lenders mortgage insurance (LMI). The LMI premium is payable at settlement by the lender, but is usually passed on to the borrower. The cost of LMI varies according to the size of your deposit and from lender to lender.
Conveyancing is the term used to describe the transfer of a property from the vendor (seller) to the buyer. A conveyancer will prepare, clarify and lodge legal documents such as the contract of sale and memorandum of transfer for a buyer. They will also research the property and its certificate of title , as well as checking for easements, type of title and any other information that needs addressing.
A conveyancer will also take the lead in helping you navigate the settlement process. This includes advising you when the property is settled and then contacting your lender to organise the final payment. To find out about the conveyancing services offered by Your Corner, call us on 1300 688 988.
Building and pest inspections
A pre-purchase building inspection will cost between $250 and $450 for the services of a licensed building inspector, who will uncover any potentially costly structural and safety issues associated with your property.
A pest inspection will identify whether insects such as borers, termites and white ants have been damaged the property. A pest report will also give a rough idea of the extent (in dollars) of the damage. Expect to pay a few hundred dollars for a pre-purchase pest inspection.
Stamp duty – the government’s cut of the action
Stamp duty is a tax levied by state governments on the purchase of a property or block of land. It can add many thousands of dollars to the cost of home ownership, and it’s for this reason that first home buyers would do well to budget for it.
Moving is an unavoidable expense that cost anywhere from $500 to hire a truck for a DIY move, to a few thousand dollars if you use professionals. If you decide to use a removalist visit the website of the Australian Furniture Removalist Association (AFRA) to find one near you.
You may also have to find some money to connect the electricity, gas and phone/internet too – allow $1,000 for utility connections.
For more information about the costs of buying a home, contact Your Corner on 1300 688 988
Section Buying your first home
1.3: How much can you afford to borrow?
Every new home buyer’s financial circumstances will be different and how much you can borrow will depend on your income, expenses, assets, debts and credit history. Lenders will also take into account how many dependents you have when weighing up your application for a home loan.
Your income helps a lender determine how much you can borrow and your capacity to make the mortgage repayments.
Determining how much you can afford is pretty easy these days thanks to the glut of online calculators available. The Federal Government’s Money Smart website offers one of the best home loan calculators, which is available here.
To ensure you can comfortably afford the home you want, a lender will consider all your financial commitments, including monthly bills, living expenses such as medical costs, school fees, food, transport, as well as debts like credit cards or personal loans.
Your financial commitments will impact your borrowing capacity. Therefore paying off as much of those pesky credit cards and personal loans as possible will help when the lender reviews your home loan application. .
For most first time buyers, your only asset will be your deposit. However a lender will also take into account other assets such as shares, a term deposits, an inheritance and even gifts from family members.
Ultimately the aim is to save as much as possible – as a larger deposit will mean a smaller mortgage and lower interest repayments. It could also help you avoid paying lenders mortgage insurance (LMI). This is a charged imposed by the lender if you don’t have a deposit that is equivalent to at least 20% of the value of the property.
Having a decent deposit and getting your debts under control debt will improve your credit history, while also demonstrating your ability to manage the mortgage repayments. Moreover a sound credit history will demonstrate that you’re a good financial bet and help your loan application.
To check your credit history, you need a copy of your credit report. This will show whether you have any black marks on your history such as some unpaid bills or other loan applications. You can get a free copy of your credit report at www.yourcreditfile.com. Alternatively, we can organise a credit report for you.
For more tips on improving your credit history, contact Your Corner on 1300 688 988