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First home loan deposit scheme reaches capacity (for now)

First home loan deposit scheme reaches capacity (for now)

The 10,000 guarantees available via the new First Home Loan Deposit Scheme have been filled or reserved, but for those who missed out there’s a second chance coming soon in July.

There have been 5,500 guarantees issued under the federal government scheme, while another 4500 borrowers have guarantees reserved in the coming months.

The scheme, which was launched on January 1, can allow first home buyers with only a 5% deposit to be eligible to purchase a property without paying for lenders mortgage insurance (LMI).

This guarantee gives first home buyers a leg up into the property market, as it can save you as much as $10,000 in LMI insurance.

Get ready for round 2!

Now, even though the scheme kicked off at the beginning of this calendar year, the next phase is set to begin when the new financial year ticks over on July 1.

And you’ll want to be organised when July rolls around.

Let us explain why.

The 10,000 spots in the scheme are broken up into two lots of 5,000 – one half for two major lenders (CBA and NAB), and one half for 25 non-major lenders.

If you’re interested in applying through one of the two major lenders, it’s important to note that they go pretty quick.

In fact, 3000 of these 5000 spots were reserved in the first 10 days of the scheme being launched back in January.

With that in mind, if you’re interested in applying for the scheme through a major lender you’ll want to get in touch with us now so we can start getting organised.

Are you eligible?

In order to be eligible, first home buyers can’t have earned more than $125,000 in the previous financial year, or $200,000 for couples (and both buyers need to be first home buyers).

There are also property price caps for different cities and regions across the country, which you can find out more about here.

Also, even though you may have a 5% deposit saved for a house, you still need to obtain finance approval from a participating lender.

And that’s where we can help.

We’re more than happy to run through the scheme in more detail and, if you’re eligible, help you apply for finance with one of the scheme’s participating lenders before places fill up again.

Goodbye stamp duty?

Goodbye stamp duty?

The dreaded and controversial stamp duty tax could soon be a thing of the past, with calls for it to be abolished gaining momentum.

The Property Council of Australia is the latest body to add their voice to the chorus this month after both the NSW and Victorian state governments ramped up calls for stamp duty reform.

Axing the controversial tax is a key measure being proposed in the Property Council’s Seven Point Plan for Economic Recovery, released this week, to help kickstart economic recovery across the nation.

“Stamp duty is a terrible tax,” the Property Council’s chief executive Ken Morrison recently explained to the AFR, “every economic analysis puts it at the top of their list of worst taxes. For every $1 raised it does about 80c of harm.”

What is stamp duty and how much does it cost?

Stamp duty is a government tax on certain transactions, including when you buy a motor vehicle, an insurance policy, or for the purposes of this article: a piece of real estate.

In a nutshell, state treasurers and many economists want reform in this space because stamp duty is volatile – it rises during property booms and shrinks during downturns.

Now, how much it costs will depend on where you live, and the value of the property you’re buying.

Most states have stamp duty exemptions or concessions in place for first home buyers, but that doesn’t help out those looking to expand their property portfolio.

The tax also acts as a barrier to older Australians who want to downsize and unlock their wealth.

So how much does stamp duty usually cost? Well, as luck would have it, Domain just released a summary of the stamp duty costs for median-priced homes in each capital city:

Sydney: $49,586 (house) or $28,942 (unit)
Melbourne: $50,171 (house) or $28,328 (unit)
Hobart: $18,847 (house) or $15,351 (unit)
Adelaide: $23,663 (house) or $12,522 (unit)
Perth: $19,063 (house) or $10,679 (unit)
Canberra: $23,914 (house) or $9396 (unit)
Brisbane: $12,165 (house) or $4342 (unit)
Darwin: $4,868 (house) or $0 (unit)

Those figures are for non-first-home buyers who are purchasing established properties.

So what would replace stamp duty?

The NSW government is considering a broad-based property tax (aka land tax).

Victorian Treasurer Tim Pallas meanwhile, says a review of the state’s revenue base after the COVID-19 pandemic is needed, but he’s not sure that switching from stamp duty to land tax is the way to go.

“It’s a bit like a Mills & Boon novel: it might be satisfying and uplifting to read, but getting to that point without causing major trauma to the community is a very serious consideration,” he said.

Another option being floated by the Property Council is to replace stamp duty revenue by broadening the GST base.

What to do in the meantime?

As mentioned earlier in the article, most states and territories already have certain exemptions and concessions that apply when it comes to stamp duty, particularly for first home buyers.

Generally, it depends on the price of the property you have purchased, or if it was off-the-plan, as to whether you’ll be eligible.

And obviously, the less stamp duty you pay, the more of your hard-earned-money you can put towards your home loan deposit.

So if you’d like a hand figuring it all out please get in touch – we’re happy to help you crunch the numbers.

Cash rate to remain at record-low level until 2023: experts

Cash rate to remain at record-low level until 2023: experts

Here’s a bit of welcome news for mortgage holders: Australia’s record-low cash rate is likely to remain in place until 2023, according to leading economic and property experts.

In March, the Reserve Bank of Australia (RBA) called an emergency meeting, cutting the cash rate for a second time that month and taking it to a record-low of 0.25%.

It capped off an action-packed 12 months, with a total of five rate cuts since May 2019.

But for avid followers of the RBA’s cash rate, “the next few years are likely to be pretty boring”, says AMP Capital chief economist Shane Oliver.

The outlook

CoreLogic, the nation’s largest provider of property information and analytics, predicts the cash rate will stay at 0.25% until 2023.

“The RBA has previously been clear that the cash rate won’t move higher until inflation is well within the 2-3% target range and labour market indicators are trending towards full employment, implying an unemployment rate around the 4.5% mark,” says CoreLogic.

However, the RBA has recently indicated unemployment is likely to peak around 10% in June and inflation could turn negative over the coming months.

“Arguably, it’s safe to assume neither of these indicators [inflation or unemployment] will be in a position to trigger an increase in the cash rate target for at least the next couple of years,” CoreLogic adds.

Westpac Chief Economist Bill Evans agrees with that timeframe, as does AMP’s Mr Oliver.

“We expect that the overnight cash rate is unlikely to be lifted before December 2023,” says Mr Evans.

What does this mean for your home loan?

Put simply: the current cash rate means extremely low mortgage rates, and tough competition amongst lenders.

“Average variable mortgage rates for owner-occupiers are below 3% while investor variable mortgage rates are in the low 3% range,” CoreLogic says.

“Fixed-term mortgage rates are even lower. Such a low cost of debt is a key factor that should help to support housing demand as the economy emerges from the COVID-19 hibernation.”

So what’s your next step?

Well, with all the above in mind, now’s a great time to consider your refinancing options.

And CoreLogic says it’s already seeing more and more homeowners do just that.

“We continue to see refinancing … at elevated levels relative to the same time last year as mortgagors seek out the most competitive interest rates available,” it says.

So, if you too would like to explore your refinancing options, then please get in touch – we’re ready to jump into action and make it happen for you.

Wait, the bank can do that!?

Wait, the bank can do that!?

Every now and then a bank does something that bucks the trend and takes customers by surprise. Today we’ll look at two cases that recently made national headlines and how you can reduce your chances of getting caught out.

While the below two examples may not relate to your home loan specifically, they do serve as important lessons nonetheless.

Why? Because there’s every chance banks will make other changes to loan products in the months ahead as COVID-19 continues to put pressure on the economy.

MEa culpa

The first example we’ll discuss today is ME Bank’s decision to reduce limits on its customers’ redraw accounts without giving any prior warning.

The move came as a complete shock to customers, with many publicly expressing their anger at no longer having access to thousands of dollars needed to help them get through difficulties they were facing due to COVID-19.

While ME Bank says it stands by the decision, it admits it messed up and didn’t do the right thing by its customers in terms of communicating the move.

“The job we did to explain a complex product, what we were doing and why we were doing it, was simply not good enough,” ME Bank said in a statement.

“Please accept our most heartfelt apology.”

The financial regulator APRA has since gotten in touch with ME Bank to request a “please explain”, as have the trustees and chief executives of major super funds that are ME Bank’s shareholders.

So, what’s the take-out?

Well, redraw accounts certainly have their benefits.

But like most products, they can come with certain terms and conditions that can catch you out, such as the example highlighted above.

So when you’re deciding on a home loan product for you and your family, we can inform you of any catches buried deep within the T&Cs that you should be mindful of.

CBA automatically reduces monthly repayments

The other big move made by a lender this month is Commonwealth Bank automatically reducing repayments for 730,000 of its customers to the minimum required under each loan contract.

The bank recently sent an email advising its customers of the change, saying customers must opt-out if they wanted to continue to make repayments above the minimum amount.

This goes against the grain of what usually happens, which is where the onus is on the customer to contact the bank and ask for their monthly payments to be reduced when interest rates fall.

Now, on the face of it, it kinda looks like good news, right?

After all, CBA says the move will release an average of $400 a month for customers and inject up to $3.6 billion cash into the economy over a 12-month period.

But as ANZ CEO Shayne Elliott pointed out in November, he strongly believes in notautomatically reducing the repayment amount because it allows customers to repay their debt sooner, and pay less interest over the life of the loan.

“It’s the responsible thing to do, as a bank. It’s in [customers’] best interest in the long term to repay their debt,” he says.

Put yourself first

CBA and ME Bank justified their moves by saying they were implemented to “help” and “protect” customers.

But the best way to truly help and protect yourself is by being proactive and informed – not relying on the banks to roll out one-size-fits-all policies they say are in your best interests.

For families doing it tough right now, CBA’s decision to automatically reduce payments will come as a welcome relief.

But if you were meeting your monthly repayments fine until now and would like them to stay as they were, then it’s important to let CBA know so you don’t pay more interest on your loan over the long run.

If you’d like a hand reviewing your loan and exploring your options in light of COVID-19, please don’t hesitate to get in touch – we’re always here to help when you need us.

Bank loyalty can cost existing borrowers: ACCC report

Bank loyalty can cost existing borrowers: ACCC report

Loyalty is an admirable trait when it comes to our friends, family and loved ones. But if you’re extending that virtue to the banks, then there’s a good chance it’s costing you thousands of dollars.

That’s the takeout from the ACCC’s latest Home Loan Price Inquiry interim report.

It shows that although interest rates charged by the big four banks on home loans fell during 2019, existing customers were stung by higher interest rates compared to newer customers, in no small part due to a lack of price transparency.

Price comparison confusion

The report found that the big banks’ home loan pricing practices make it pretty darn difficult for borrowers to compare different mortgage products.

That’s because the headline rates you see when you do your initial research don’t accurately reflect the price most big four bank customers actually pay for their home loans.

Indeed, the ACCC found there’s little difference in the headline variable rates of the big four banks, which on face value quickly deters borrowers from switching it up and refinancing to a lower rate.

But in reality, close to 90% of big four banks home loan customers receive discounts off the headline variable rate. And many of those receive non-transparent discretionary discounts.

So how big are the discounts?

We’re talking pretty big differences here, especially compared to advertised rates.

For example, a borrower with an average-sized principal and interest mortgage of $386,000 could save about $5000 on interest payments in the first year if they went from having no discount to receiving the big four banks’ average discount of 128 basis points.

The report also found the big four bank customers whose principal and interest loans were greater than five years old were paying an average 40 basis points more than those with similar new loans.

That means for a loan of around $200,000 (the average size of a loan more than five years old), a borrower who refinances could save around $850 in interest in the first year.

So what’s the next step?

That’s easy: you owe the bank nothing – in terms of loyalty – so it’s time to see what your options are.

And we can help because we know what rates lenders are really offering – despite what their “headline” rates say.

So if you’re keen to find ways to save interest on your home loan, please get in touch. We’re happy to walk you through your refinancing options any time.