Brendan Barker

“Tide turning on interest rates”: CBA hikes fixed rates

28 May 2021 | Home Loans, Interest Rates, News

Australia’s biggest bank has hiked its three-year fixed rate for owner-occupiers in a further sign that “the tide is turning on interest rates”. So if you’ve been thinking about fixing your interest rate, it could be high time to do so.

Now, we’re not normally ones to write articles about the interest rate movements of particular products with particular lenders.

But we felt this one was significant given that the Commonwealth Bank (CBA) is the nation’s biggest home lender, with a market share of about 25%.

CBA has increased both its three- and four-year fixed rates for owner-occupiers paying principal and interest by 0.05%, as well as some interest-only loans by 0.10%.

“For anyone still on the fence about fixing their home loan rate, this is another example of the tide turning on interest rates,” Canstar research expert Mitch Watson says.

And we can’t say we weren’t warned.

In March, ANZ senior economist Felicity Emmett said fixed-mortgage rates had already reached their lowest point, or close to it, as lenders began lifting their four-year fixed rate products.

Furthermore, Canstar research shows 38% of lenders have increased at least one fixed rate over the past two months.

Why are fixed rates moving upwards if the RBA hasn’t lifted the cash rate?

The Reserve Bank of Australia (RBA) has repeatedly said the official cash rate isn’t likely to be increased until 2024 at the earliest.

But given that’s now within three years, the banks are beginning to adjust their three- to four-year fixed rates to head off those potential RBA rate hikes.

“The money market is already factoring in [RBA rate] rises,” explains AMP Capital chief economist Shane Oliver.

“That’s not having much of an impact on two-year rates yet. But as we go through the course of the year, the possibility of rate hikes will start to impact shorter rates as well.”

So what’s next?

Well, when CBA makes a move, it’s not uncommon for a number of other lenders to follow suit.

So if you’ve been umming and ahhing about fixing your rate, then it’s definitely worth getting in touch with us sooner rather than later.

We can run you through a number of different options, including fixing your interest rate for two, three, four or five years, or just fixing a part of your mortgage (but not all of it).

If you’d like to know more about this – or any of the other topics raised in this article – then get in touch today.

Want to switch home loans? Here are some top tips for refinancing

21 May 2021 | Interest Rates, News, Personal Finance, Refinancing

With interest rates at record low levels, we’ve seen a big increase in homeowners wanting to refinance this year. So this week we’ll look at some of ASIC’s top tips for refinancing, plus some of our own for good measure.

More and more mortgage holders are looking for a better deal on their home loan.

According to ABS data, the total number of home loan customers who switched providers last year increased by 27% – from 143,664 in 2019 to 182,016 in 2020.

And a further 200,000 Australian families are expected to switch lenders and save in 2021.

But there’s switching lenders the wrong way, and switching lenders the right way.

Fortunately, Laura Higgins, ASIC’s Senior Executive Leader Consumer Insights and Communication, recently shared some important tips with ABC radio, which we’ve compiled for you below.

1. See if your current lender can cut you a better deal

Here’s the thing about the big banks and home loans: customer loyalty is rarely rewarded.

In fact, the RBA found that for loans written four years ago, borrowers were charged an average of 40 basis points higher interest than new loans.

For a loan balance of $250,000, that could cost you an extra $1,000 in interest payments per year.

“Many times, new customers are offered a better deal than existing borrowers, so if you have a home loan that is a few years old you could potentially get a better deal that saves you thousands of dollars over time,” explains Ms Higgins.

“Even if you’re happy with your current lender, it’s worth checking you’re not paying for features or add-ons you’re not using.”

2. Don’t jump at the easy money: do the maths

There are a lot of incentives out there to entice you to switch mortgages quickly, such as cashback offers or very low-interest rates.

But Ms Higgins urges borrowers to closely compare these offers with the long term costs.

“For example, it’s worth doing the maths to ensure a cashback offer still puts you ahead over the long term when considered against other aspects of the loan, like interest rates and fees,” she explains.

“If you decide to switch lenders, you may end up with a longer-term loan.

It’s also important to consider whether lenders mortgage insurance or other costs, like discharge and loan arrangement fees, may be payable.

“These additional costs can outweigh the benefit of a lower interest rate,” she adds.

“A mortgage broker can also help you compare loans and decide whether to switch.”

Which is very true, if we do say so ourselves!

3. Consider switching to an offset account or redraw facility option

With interest rates so low, many borrowers are aiming to pay off their mortgage faster by making extra repayments.

“Interest rates may be low now, but probably won’t be this low forever. Making some extra repayments now can benefit customers in the long term,” says Ms Higgins.

But if you’re worried about tying up all your funds in your home loan, then you can consider switching to a mortgage redraw facility or offset account, which can allow you to make extra repayments but withdraw them if you need to.

“Either of these options might work for you depending on your goals,” Ms Higgins adds.

“Not all home loans can be linked to an offset account, and often those that can may have a fee charged or a slightly higher interest rate, so it’s worth making sure you’d be saving enough in there to warrant any extra costs.”

4. To fix the rate or not? Or both?

Last but not least, a refinancing tip that we think is worth considering in this climate of record-low interest rates (which probably won’t be around forever).

One of the most common ‘big decision’ questions we get asked when it comes to refinancing is: should I fix my home loan rate or not?

But did you know a third option exists?

Yep, you can fix the rate on some of your mortgage, but not all of it.

This allows you to lock in a low rate for a portion of your home loan, while also taking advantage of some of the flexibility that a variable rate can offer, such as the ability to make extensive additional payments.

If you’d like to know more about it – or any of the other refinancing tips in this article – then get in touch today.

We’d be more than happy to help you refinance your home loan, whether that be renegotiating with your current lender or exploring your options elsewhere.

Single parents and first home buyers get big budget boost

14 May 2021 | Government subsidies, News

Single parents saving for a property and first home buyers are the big winners from this year’s federal budget. Today we’ll break down the three schemes that will help them crack the property market sooner.

In recent months there have been signs that first home buyers are beginning to shy away from the property market, as investors return in big numbers to take advantage of optimistic property market price outlooks.

So this year’s federal budget focussed on giving first home buyers and single parents a big leg up into the property market through three key schemes, which we’ve broken down for you below.

1. Single parents to purchase a home with a 2% deposit

Single parents hunting for a home will only need to save a 2% deposit to crack into the property market if they secure a place in the federal government’s new Family Home Guarantee scheme.

The scheme allows eligible single parents with dependants to borrow with a deposit under 20% without having to fork out for lenders mortgage insurance (LMI), as the government will guarantee up to 18% of the loan.

An initial 10,000 places will be available under the scheme, which will start on 1 July 2021 and run for four years.

Here’s a quick example of how it works.

Mary is a single parent with two young sons, Johnny and James. Mary has found the perfect home for $460,000 but has struggled to save enough for the usual $92,000 deposit (20%) while paying rent.

However, with the Family Home Guarantee, and on the success of her application with a lender, Mary could move into her dream home sooner, with just a $9,200 deposit (2%).

2. Buying or building your first home with a 5% deposit

Those hoping to build their first home with just a 5% deposit could soon do so thanks to an extension of the First Home Loan Deposit Scheme (FHLDS) for new builds.

The federal government has announced another 10,000 spots in the scheme will be available for new builds from July 1.

Those 10,000 spots are in addition to 10,000 places already allocated for existing home purchases under the scheme, which also become available from July 1.

So that’s 20,000 spots in total across new and existing builds!

The FHLDS allows eligible first home buyers to break into the property market sooner, as you only need a 5% deposit to purchase a property without paying for LMI.

This can save you anywhere between $4,000 and $40,000, depending on the property price and the deposit amount you’ve saved.

You can find out more about the FHLDS and eligibility requirements by getting in touch with us, or on the NHFIC website.

3. Saving a deposit by salary sacrificing in your Super account

The First Home Super Saver scheme will allow you to put up to $50,000 in voluntary superannuation contributions towards a first home deposit from 1 July 2022. Previously only $30,000 could be released for the purposes of buying a first home.

The increase will fast-track homeownership for first home buyers and the government says it recognises that deposits required for home purchases have increased over the years due to house price growth.

Here’s a quick example of how the scheme works.

Sue is an occupational therapist who earns $80,000 per year and wants to buy a new home.

Using salary sacrifice, she directs $12,500 of pre-tax income into her superannuation account each year.

After concessional contributions tax, her balance increases by $10,625. After four years, Sue is able to withdraw $45,226 of contributions and the deemed earnings on those contributions.

Withdrawal tax is applied at a concessional rate of 4.5%, which is Sue’s marginal tax rate minus a 30% tax offset. Sue now has $43,191 she can put towards buying her first home.

Sue’s partner, Rob, makes the same income and also salary sacrifices $12,500 annually to his superannuation fund over the same four years.

Combined, Sue and Rob have $86,382 to put towards their first home, which is $20,838 more than if they were to save in a standard savings account.

Prepare to apply

While the two LMI-related schemes will be available from July 1, it’s important to get ready to apply for them now.

In recent years the 10,000 spots in the FHLDS have been snatched up within a few months, and we’ve had more than a few hopeful applicants reach out to us when it’s too late.

So to help avoid disappointment, get in touch with us today and we can help you get everything in order prior to the schemes kicking off in the new financial year.

Is it cheaper to buy or rent your next home? You might be surprised

7 May 2021 | News, Property

While it might feel like property prices are skyrocketing out of reach, the majority of Australian homes are actually cheaper to buy than rent over the next decade, according to a new report.

The latest REA Insights Buy or Rent 2021 Report reveals it is cheaper to buy than rent around 57% of dwellings across Australia, based on modest housing price growth of 3% per year over the next decade.

Now, the results differ by property type and from state to state, which we’ve broken down further below.

But across the nation, the report found that just over half of houses are cheaper to buy over the next 10 years, while the share of units that are cheaper to buy is almost 75%.

So why is it generally cheaper to buy than rent across the nation?

Well, record-low mortgage interest rates are the main driver of favourable buying conditions.

“Interest rates can currently be fixed below 2% per year and the Reserve Bank of Australia has committed to maintaining low-interest rates until at least 2024,” explains Realestate.com.au economist Paul Ryan.

“This certainty that mortgage costs are not going to increase rapidly provides comfort to buyers borrowing larger amounts.”

Given these low-interest expenses, Mr Ryan says that moderate property price growth (which means having an asset that’s growing in value) will likely offset the additional costs of owning a property, such as stamp duty, maintenance and council or strata rates.

State vs state breakdown

Below is REA Insight’s state-by-state breakdown of the percentage of suburbs where it is cheaper to buy than rent. Houses below have three bedrooms, units have two bedrooms:

NSW: 41.3% (of suburbs) for houses, 69.1% (of suburbs) for units

Victoria: 42.2% for houses, 67.6% for units

Queensland: 85.4% for houses, 98.4% for units

South Australia: 73.6% for houses, 98.4% for units

Western Australia: 69.7% for houses, 98.4% for units

Tasmania: 73.2% for houses, 100% for units

Northern Territory: 97.6% for houses, 100% for units

ACT: 65.7% for houses, 100% for units

So here’s the catch in the analysis

The REA Insights analysis assumes buyers already have access to a 20% deposit, which remains the biggest hurdle for many buyers – especially for first home buyers as prices continue to rise.

“Many would-be buyers can already afford loan repayments, but struggle to save a deposit while renting,” adds Mr Ryan.

“Continued price growth may cause additional concern for many in this position.”

How we can help you start buying, and stop renting

As mentioned just above, saving for a house deposit is the biggest hurdle for many of those dreaming of living in a home they can call their own.

But the good news is that there are several potential options to help you get a foot on the property ladder quicker.

One option is the First Home Loan Deposit Scheme, which allows eligible first home buyers with only a 5% deposit to purchase a property without paying for lenders mortgage insurance (LMI).

It’s due to accept applications for a further 10,000 hopeful homebuyers from July.

There’s also a range of first home buyer grants and stamp duty concessions around the country that you might be eligible to apply for.

For more information, give us a call today – we’d love to discuss with you your finance options to help you make the leap from renter to buyer.

Has the housing market’s latest record-breaking run peaked?

30 Apr 2021 | News, Property

Property prices climbed at a breathtaking pace in early 2021, which has been good news for homeowners and heartbreaking for house hunters. However, there are seven key signs that the pace of capital gains has peaked, says CoreLogic.

Now, it’s important to note that CoreLogic is not suggesting that housing values are about to dip.

Far from it.

Rather, CoreLogic believes the housing market is “moving through a peak rate of growth and the pace of capital gains will gradually taper over coming months”.

“Overall, we are expecting housing values to continue to rise throughout 2021 and most likely throughout 2022, just not at the unsustainable pace of growth that has been evident over recent months,” explains CoreLogic’s Head of Research Tim Lawless.

Below are the seven signs they’ve identified.

1. CoreLogic’s home value index indicates a slowdown

CoreLogic’s rolling four-week change in dwelling values shows Sydney’s rate of growth has dropped from 3.5% (in the four weeks leading up to 21 March) to 2.3% (in the four weeks to 21 April).

Meanwhile, Melbourne dropped from 2.5% to 1.5%, Brisbane from 2% to 1.8%, and Perth from 1.5% to 0.9%.

The only mainland state capital to record an increase was Adelaide, up 1.7% from 1.2%.

2. Auction clearance rates have dropped

Historically, there’s been a strong positive correlation between auction clearance rates and the pace of appreciation in housing values, says Mr Lawless.

Recently, however, there has been a slight softening in auction clearance results.

The weighted average clearance rate moved through a recent high of 83.1% in the last week of March, before dropping to 78.6% in the week ending 18 April.

3. Vendor activity has increased

There has been a considerable rise in new listings as vendors look to capitalise on the market’s strong selling conditions.

In the four weeks to 18 April as many as 26,470 capital city properties were added to the market, says CoreLogic.

“That’s the largest number of new listings for this time of the year since 2016 and 17% above the five-year average,” adds Mr Lawless.

4. Housing supply is on the rise

Thanks to HomeBuilder, there has been a significant lift in housing construction activity that will add to overall supply levels in the coming months.

Approvals for new dwelling construction are at record highs, points out CoreLogic, and dwelling commencements over the December quarter were almost 20% higher than a year earlier and 5.5% above the decade average.

5. Population growth has turned negative

Due to current tight border restrictions, it’s much harder to get into Australia than usual.

That’s led to a decline in population growth, which can also have an impact on housing demand (although it’s more likely to have a bigger impact on rental markets, as the majority of migrants rent before buying).

“Population growth, which is an important component of housing demand, has turned negative for the first time since 1916 due to closed borders and stalled overseas migration,” adds Mr Lawless.

6. Fewer government incentives and schemes available

You might have heard that applications for the HomeBuilder grant, which started off at $25,000 before being reduced to $15,000, have now closed.

On top of that, JobKeeper has also finished, and JobSeeker has been dialled back.

“Australia is moving into a new phase of the economic recovery where there is substantially less fiscal support which could result in a reduction of housing market activity,” says Mr Lawless.

7. Higher barriers for homebuyers looking to crack the market

Last but not least: the higher prices rise, the higher the entry barrier for home buyers.

And the higher the entry barrier, the fewer active house hunters there are, which means less demand to drive up prices.

“For those looking to enter the market, growth in housing values is substantially outpacing incomes, which means a growing deposit hurdle for first home buyers,” explains Mr Lawless.

Get in touch today for help overcoming these barriers

As you can see, there’s a case to be made that the rate of property price growth has peaked.

But Mr Lawless warns there are still a variety of factors that are likely to keep upward pressure on housing values for some time, including the record-low official cash rate, which the RBA says won’t lift “until 2024 at the earliest”.

So while prices are expected to continue to increase – and it might feel like you’re running on the spot – please know that potential solutions do exist for keen homebuyers.

For example, the federal government’s First Home Loan Deposit Scheme is due to accept another 10,000 applications in early July, allowing eligible first home buyers with only a 5% deposit to purchase a property without paying for lenders mortgage insurance (LMI).

For more information, give me a call – I would love to help you out.

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