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Lending and Property Update – March 2022

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Housing finance in January hit a new high in January up 0.6% at $33.7 billion, excluding refinancing.

This lending increase was mainly led by investors, up 6.1% in the month, despite government incentives from schemes such as the First Home Deposit Scheme releasing more places in the market.

The Omicron wave has also failed to deter the business credit sector with it seeing similar growth during the month. Likely contributors to this were government incentives such as the instant asset write-off and the loss carry-back which are still available until 2023.

Growth in the housing market is starting to lose momentum with growth down to 0.6% in February – the slowest monthly growth rate since March 2020. The overall picture is bullish with annual growth at 20.5% to February, however the peak is likely behind us. Supply in the market remains relatively low, however recent weeks seem to show an increase which will likely lead to a further relaxation of growth.

Dwelling prices in Sydney went backwards for the first time since September 2020. The highest reductions were in the luxury end of the market which does typically see more fluctuation that other segments. Melbourne has traditionally followed Sydney, however prices there remained flat. These bigger cities have been outperformed by their smaller, more affordable cousins where the median dwelling price is continuing to hang at record highs.

When to leave your lender

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When it comes to your home loan, making sure you’re getting the most competitive deal is important. Even a small difference in your interest rate can mean thousands of dollars over the long run.

That’s why it’s imperative to ask us to regularly review your mortgage and ensure it’s right for you.

Here are some signs it may be time to shop around for a new lender.

Your home loan is getting old

The days of staying with the same lender for 30 years are long gone.

In fact, if you’ve had your home loan for more than two years, chances are you could be paying more than you need to.

The home loan market is highly competitive and new products are being released all the time.

You may also benefit from loan features such as offset accounts (whereby any money you deposit is offset against your loan balance, saving you money on interest) or a redraw facility.

A redraw facility allows you to make extra repayments on your mortgage and save on interest, but you can still access and withdraw those extra funds at any time.

The honeymoon period is long gone

When you first take out a home loan, lenders may offer you a sweetheart deal to reel you in.

It’s not uncommon for them to waive fees or discount interest rates to new customers. This kind of loan arrangement is frequently referred to as a ‘honeymoon period’ or ‘honeymoon loan’.

But once the honeymoon is over, the loan may revert to a more expensive or less convenient loan than you would like. If that’s the case, it’s time to look at new options.

You’re not happy with the service

If you’re always chasing your lender about rates or ways to save, it may also be time to move on.

Similarly, if you’re sick of talking to a voice recording and crave real human interaction, there may be other lenders who place greater importance on customer service.

There’s no shortage of lenders out there and you may find that some are better able to give you the support you need.

Your needs are not being met

Life changes and when it does, it’s important to ensure your mortgage still meets your needs and goals.

Maybe you’ve had a job change or promotion. Perhaps you’ve had a baby or your living arrangements have changed.

When these things happen, it’s a good idea to make sure your mortgage is still right for your needs.

Ready to shop around?

The easiest way to ensure your mortgage is right for you is to talk to us.

We operate under a statutory obligation (best interests duty) to act in your best interest when providing any credit assistance. Banks, however, are not required to operate under the same obligation.

We’ll assess which mortgage may be right for you, based on the cost of a product (the interest rate, fees, charges and repayment size, for example), and other considerations (such as loan features) which may be of value.

For a home loan health check, get in touch today.

Property Market Update – February 2022

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The property market is up and running; gaining momentum after the summer holidays.

January is typically the quietest month for property sales, but activity across Australia was about 15% higher than January last year, and almost 40% higher than the previous five-year average.

Although property prices have continued to rise, albeit at a slower pace, there has been speculation that property prices could come down in 2023 in line with potential interest rate hikes.

If you’re thinking about a property purchase, it’s a good time to touch base with us about pre-approval, so that you’re ready to buy when the time is right.

Interest rate news

At its first meeting for the year, the Reserve Bank of Australia (RBA) decided to keep the cash rate on hold at the historically low level of 0.10 per cent.

RBA Governor Philip Lowe said inflation had picked up quicker than the RBA had expected but remained lower than in many other countries.

“The headline CPI inflation rate is 3.5 per cent and is being affected by higher petrol prices, higher prices for newly constructed homes and the disruptions to global supply chains,” he said.

“As the Board has stated previously, it will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range. While inflation has picked up, it is too early to conclude that it is sustainably within the target band.”

Bottom line: now is the time to take advantage of the low interest rates.

Home value movements

National housing values rose by 1.1% in January, with five of the eight capital cities recording a modest increase in the monthly rate of growth.

CoreLogic’s Research Director Tim Lawless said housing stock was thinly traded during January and it would be important to monitor the trend as transactional activity picked up.

“As the volume of home sales moves out of seasonal lows, we should get a firmer reading on how 2022 is shaping up,” he said.

“The early indication is that housing markets are starting 2022 with a similar trend to what we saw through late last year. Values are still broadly rising, but nowhere near as fast as they were in early 2021.”

“A softening in growth conditions has been influenced by less government stimulus, worsening affordability, rising fixed term mortgage rates and, more recently, a slight tightening in credit conditions, and a surge in new listings through the final quarter of last year.”

Meanwhile, auction activity is continuing to ramp up across the combined capital cities.

Some of the smaller capitals are leading the way, with Brisbane, Adelaide and Canberra recording auction volumesmore than double those of this time last year.

All dwellings Auctions Clearance rate Private sale Monthly home value change
VIC 236 78% 917 ▲ 0.23%
NSW 232 76% 1126 ▲ 0.62%
ACT 48 92% 42 ▲ 1.67%
QLD 153 78% 1087 ▲ 2.34%
WA 3 100% 509 ▲ 0.64%
NT 1 100% 15 ▲ 0.46%
TAS 0 0% 136 ▲ 1.19%
SA 105 90% 268 ▲ 2.18%
* Monthly Home Values figures as of 31 January, 2022
* Australian auction results, clearance rates and recent sales for the week ending 30 January, 2022.
* The clearance rate is preliminary and current as of 11:41 am AEDT, 31 January, 2022.

Looking to buy your first home, next home or an investment property? Get pre-approved on your finance so that you’re ready to snap up a bargain when you find one.

 

Additional sources
CoreLogic RP Data Daily Home Value Index: Monthly Values

Lending & Property Update – February 2022

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As we launch into a new calendar year, markets worldwide have slumped against inflation fears, and Australia has not been immune.

Many economists previously held the viewpoint that a rate-rise in 2022 was unlikely, however recent developments seem to have everyone doing an about-face. February’s Reserve Bank of Australia (RBA) meeting has flagged a number of economic pressures that likely mean a rate hike is only a matter of time.

Fixed interest rates are yet to react to the RBA Governor’s February commentary, however over the past few months, rates have been creeping up regardless. During and post-lockdown, fixed rates for owner occupier properties we averaging below the 2% mark, however now rates this low are rare. Many fixed rates seem to be comparable to current variable rates, however there are still a few bargains around.

Credit growth in December has remained strong with a 0.8% increase leading to an overall growth of 7.2% for the year – the highest in 13 years. In particular, post -lockdown business credit grew by 1.1%, which was after a 1.6% increase in November. Demand here is expected to stay strong, considering the many government incentives available.

The record run in the property market is continuing, however the pace seems to have slowed a little. The three-month growth rate in dwelling prices has slowed slightly to 3.4%, however strong demand continues. During the first round of lockdowns, regional markets seemed to outperform their city peers, which is trend that is continuing into 2022.  Brisbane and Adelaide markets are now the outperformers amongst the capital cities. Overall, the forecast for 2022 is that dwelling prices will continue to new highs, however the much-anticipated rate rise will most likely put the brakes on as all home owners’ repayments start to creep upwards.

Recent changes to how lenders have to assess borrowing capacity

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Recent changes to how lenders have to assess borrowing capacity for home loans will make it harder for some to borrow what they want.

We’ve broken down what the changes are and what they could mean for you.

What’s changed?
On 6 October 2021, the Australian Prudential Regulation Authority (APRA) announced that lenders need to assess borrowers’ ability to meet their loan repayment at an interest rate that is at least 3.0 percentage points above the loan product rate, compared to the 2.5 percentage points it is now.

This comes into effect from today, 1 November 2021.

Why has it changed?

The change was in response to concern about soaring property prices, continuing record low interest rates that can only go north eventually, and an increasing number of Australians borrowing more, in reaction to the first two factors.

What does it mean for you?

Have pre-approval
If you already have pre-approval for a loan, it could mean you will need that reassessed. It could possibly mean that you will need to apply for a smaller loan.

Investors
The amount you can borrow (in some cases) will be assessed based on all your debt so this could impact future borrowing capacity.

What should you do?

Get in touch today. We can help:

  • assess your pre-approval
  • discuss the impact of the changes on your ability to borrow for investment
  • discuss property plans and how we can work together to help you get there.

Reach out if you have any questions.

Property Update – August 2021

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Australian housing values increased a further 1.6% In July, according to CoreLogic’s national home value index.

The latest rise takes housing values 14.1% higher over the first seven months of the year and 16.1% higher over the past twelve months.

CoreLogic’s Research Director, Tim Lawless, described the market as strong, but losing steam. “The 16.1% lift in national housing values over the past year is the fastest pace of annual growth since February 2004, however the monthly growth rate has been trending lower since March this year when the national index rose 2.8%.”

Mr Lawless attributes the lower rate of growth in housing values to several factors. “With dwelling values rising more in a month than incomes are rising in a year, housing is moving out of reach for many members of the community. Along with declining home affordability, much of the earlier COVID related fiscal support (particularly fiscal support related to housing) has expired. It is however, encouraging to see additional measures being rolled out for households and businesses as the latest COVID outbreak worsens.

“On the flipside, demand is being stocked by record low mortgage rates and the prospect that interest rates will remain low for an extended period of time. Dwelling sales are tracking approximately 40% above the five-year average while active listings remain about -26% below the five-year average. The mismatch between demand and advertised supply remains a key factor placing upwards pressure on housing prices,” Mr Lawless said.

Although the pace of growth has slowed, housing values continue to rise at a rate that is well above average across most areas of the country.

Overall, Australia’s housing market remains in a strong position, however signs of a slowing rate of appreciation have become more evident.

The pace of capital gain has been tapering since April this year which can be attributed to growing housing affordability challenges along with less fiscal support.  It is likely recent COVID outbreaks and associated lockdowns have contributed to some of the loss of momentum as well, particularly from a transactional perspective in Sydney which is enduring an extended period of restrictions.

Previous ‘circuit-breaker’ lockdowns have generally seen housing values remain resilient to falls, but the number of home sales and listings activity has been more substantially disrupted in the most recent lockdowns.  Once restrictions are lifted, it’s likely pent-up demand will flow through to an increase in activity.  However, it is reasonable to assume the uncertainty associated with the duration and severity of Sydney’s lockdown could see a greater level of disruption relative to previous shorter periods of restrictions.

Although the rate of growth has eased, housing values are continuing to rise substantially faster than average.  Over the past 10 years, the average pace of monthly dwelling value appreciation has been recorded at just 0.4%.

It’s likely the rate of growth will continue to taper through the second half of 2021 as affordability constraints become more pressing and housing supply gradually lifts.

Source: CoreLogic

Lending Update – August 2021

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Lending to those who run their own business has always been a far more involved process than for those earning Pay As You Go (PAYG) Income.

The documentation required by banks generally has to span two years of income, which can be up to 18 months old at the time of assessment. COVID-19 has only increased this documentation burden as further documentation is now required to complete a more recent assessment on the sustainability of income generated from a business.

It would appear that these policies, which were originally enacted temporarily, have now been made permanent as a way to ensure a client was not impacted by a more recent downturn in their income. The differential from lender to lender as to what is required seems to be drifting even further apart. The value in a client approaching their own bank directly is diminishing as many lenders may not be able to support a business owner though a home loan application.

Business lending products can span from credit cards, through to commercial bill facilities. Then there are the additional products that support many businesses such as merchant terminal facilities and business bank accounts. All of these products are potential opportunities to improve a client’s financial situation. As they are not governed by responsible lending these products seem to be the ones that contain the most area for improvement too. To provide a truly comprehensive financial review, all areas of lending need to be reviewed. When was the last time you had your business lending reviewed?

Accountants and Financial Advisers – can you derive value from work you don’t do?

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Jason Cook, Director, Integrate Finance, Woolloongabba, Brisbane Qld.

I’ve been in and around professional services for well over a decade now; and, over this time, I’ve come to realise that whilst Financial Advisers and Accountants offer a defined set of services, it is possible to derive value from work you don’t do.

My personal experience is that my clients enjoy when I make them money; save them money; and, educate them on how to do the same next year, and into the future. Early on, as I started digging through financials and statements for clients, I quicky noticed opportunities arise frequently for instant savings just by structuring debt differently, refinancing to a better deal; or indeed, just asking for a better deal. Once I started making this a habit, I was seeing clients making savings regularly of between $3,500 per annum (p.a.) to $5,500 p.a; and, at the extreme, we get the occasional $15,000+ saving p.a. Many of the clients were saving more on this process than they were paying me in annual fees, and they thanked me for it; often.

The process was easy; all I did was pay some attention to their debt position and pricing (which I was obligated to do as part of the financial planning process), have a basic understanding on what current best pricing was, and refer to a competent Finance Broker that I trusted in this space. It was, after all, what a competent Financial Adviser and/or Accountant would, or should do, to improve the client position. Clients love to save money as much as they do to make it — it was an easy value-add, and I’ve not stopped doing this since.

Integrate Finance was set up with this value-add in mind. We deal only with professional services providers and offer a ‘ring fence’ around your clients so that all finance-related matters are shared with the primary Accountant/Adviser, and referred back through this channel as return opportunities present themselves. It’s a cost-free value-add, with you at the centre of the relationship. The kicker is, you’ll no longer come across situations where your client has borrowed money in the wrong entity or borrowed where they shouldn’t have, as you’ll now be kept ‘in the loop’.

A homeowner’s guide to refinancing

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With a home loan it’s easy to just ‘set and forget’. But it’s sensible to review your home loan every two to three years or so. We’re living in a world of rapid change, where interest rates can go up and down, new lenders emerge, and more competitive products become available so keeping the same home loan for 30 years could cost you more money than you need to spend!

Here, we provide the process to refinancing your home loan, breaking it down into simple layperson’s terms. But before we get into that, let us clear up a few common questions about refinancing.

WHY should you consider refinancing?

Generally speaking, there are four main reasons to consider refinancing.

  1. Your loan may be less competitive, and you could potentially get a lower interest rate.
  2. Different home loan features and benefits could work better for you.
  3. Your financial situation may have changed.
  4. You want to access some of the equity you’ve built up in your current home.

WHEN should you consider refinancing?

We’re currently experiencing a low interest rate period, so there are many competitive home loan products available. Generally speaking, it’s a good idea to review your home loan every two to three years.

WHO should you use to refinance?

You should always talk to a mortgage broker because our opinion is not biased towards any particular lender or product. (Unlike a bank which will push whatever loans they have to sell at the time.) And we won’t suggest that you refinance if it isn’t the right move for you.

WHAT is the process to refinance?

We’ve explained the when, who and what of refinancing, but what’s the actual process involved? Here’s a simple step-by-step guide.

Step 1: Speak to us

Before we begin exploring your loan options, it’s important for us to have a sound understanding of where you’re at financially and what you’d like to achieve. We’ll start by reviewing your current home loan and compare it with others in the market. We’ll be here to help you decide if it’s the right time to refinance your home loan and what features will work best for you.

Step 2: Choose your mortgage and apply

You may opt to stay with your current lender by negotiating for a better rate or changing to an alternative product; or refinance by switching to another lender offering a better rate or loan features to suit your current circumstances. We’re here to help you find the right home loan to fit your personal goals and objectives. Then we’ll submit your application.

Step 3: Get your valuation

Your new home loan provider will require a valuation on your property as part of the application process. Keep in mind that their valuation might be more conservative than the market value you estimate.

Step 4: Get approved

Within a few days of submitting your application, it’s likely your inbox will light up with that delightful email confirming you’ve been approved for your new home loan. Yay!

Step 5: Your old mortgage will be closed

Your broker will arrange for you to complete a ‘discharge authority’ form. Your current lender will then provide a payout figure. Your new lender will fund your loan to pay out your current loan provider. If you’re refinancing to consolidate other debts, for example, credit cards or personal loans, these will be finalised with the proceeds of your new loan at the same time.

Step 6: You start afresh!

Once you have your new home loan in place, you will begin making repayments. If you need any help managing your new home loan, we are always here to lend a hand.

We hope you’ll find this guide to refinancing handy, and we would love to help you decide whether refinancing is the right step for you. Whether you are looking to refinance for a better interest rate, to access equity, consolidate debt or for a property investment to build wealth for your future, we can help you to achieve your goals. Please get in touch today!

How to compare home loans and features

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Which home loan is right for you? How can you tell when there’s so many different lenders, loan types and features to choose from? How can you compare loans properly when you’re not sure what you should be comparing?

Finding the right home loan for your situation is a process that can be confusing, particularly for first timers. Here’s a basic guide for making home loan comparisons, and the features you may need with your home loan.

Interest rates and comparison rates

Interest rates are one of the factors which determine the cost of your mortgage and how much your repayments will be. Even a small difference in interest rates can make a significant impact on the amount of interest you’ll have to pay over the term of the loan. However, the loan with the lowest interest rate may not necessarily be the cheapest, as there could be additional fees to factor in. This is where the comparison rate comes in.

The comparison rate is an indication of the true cost of a loan, once the interest rate and fees are included. It’s usually expressed as a percentage, which makes it easier for you to compare the real cost of different loan products. When choosing a home loan, it’s important to look at both the comparison rate and the features that come with the loan.

Loan Types

Principal and Interest

This type of home loan requires you to make repayments that cover both the principal (or the amount you borrowed) and the interest at the same time. People buying their own home usually use a principal and interest loan, as you pay down your loan with every repayment until you eventually own the property.

Interest-only

An interest-only loan allows you to only pay the interest you owe on the loan for a fixed period – usually from one-to five years – so the monthly repayment is lower than it would be under a principal and interest loan. At the end of the fixed period, the loan usually reverts to a principal and interest loan, but it is possible to refinance to another interest-only period. People buying an investment property often start off with an interest-only loan because the interest (and therefore the entire repayment) is tax deductible for them. However, they are not considered ideal if you are buying your own home to live in as you will likely end up paying more in interest over the term of the loan and your repayments don’t pay off the original loan amount.

Variable Home Loan

With a variable rate home loan, the amount of interest you pay may go up or down in response to changes in interest rates. This can be a good thing if interest rates go down, as the interest you pay will be less and your repayments will decrease. Another positive is that you can often make extra repayments on a variable home loan, which may help you to pay off your home loan sooner and save some interest over the term of the loan.

Fixed Home Loan

A fixed rate home loan lets you lock in your interest rate for a period (usually 1 to 5 years). The benefit is that you know exactly how much your repayments will be during that time, which can be beneficial if you’re on a tight budget or a fixed income. You’ll also escape any interest rate rises that may happen during the fixed period.

However, if interest rates fall, you won’t be cracking open the bubbly because your home loan interest rate will stay the same and so will your repayments. There may also be restrictions on making additional repayments with a fixed rate home loan.

Split Home Loan

One option that appeals to some homeowners is to fix the interest rate on a portion of their loan and keep the rest variable. This offers the certainty of knowing what your repayments will be on the fixed part of the loan, while you can make extra repayments and enjoy any interest rate drops on the variable part of the loan. It’s a way to get the best of both worlds!

Loan Features

Offset Account

An offset account is a transaction account that’s attached to your home loan. It can save you money on the interest on your home loan and help you pay off your loan sooner because the money in your transaction account is offset daily against your loan balance, and you only pay interest on the difference. For example, if you owe $300,000 on your home loan and there’s $50,000 in your offset account, you’ll only pay interest on $250,000.

Redraw Facility

A redraw facility allows you to make extra repayments on your home loan and then take out the extra repayments you’ve made later if you need to use the money for a different purpose.

What’s right for you?

The right home loan choice is different for everyone. It all depends on your personal financial circumstances and goals. We’re here to help you decide what is right for you and will make recommendations based on what you tell us about your situation and what you want to achieve. Then we’ll compare the choices from the different lenders and offer you a selection of cost-effective options.

Don’t wait to find out what’s right for you. Call us today for a chat about your plans.

Get your budget under control

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Getting your budget under control and your finances in order is essential to anyone looking to apply for a home loan, but it’s particularly important for first home buyers about to take the first step on the property ladder. Now that the new financial year has arrived, why not take stock of your financial situation and plan your budget for the year ahead at the same time? Here’s a few tips to get financially fit for a home loan application for the new financial year.

Reassess your budget and get serious about your savings

When you apply for a home loan, particularly as a first home buyer, it is important to have a thorough understanding of your financial situation and good savings habits. Lenders will want to see an established history of regular savings before they will give you their best rate on a home loan and for this reason, you should take a realistic look at your spending habits and create yourself a budget to ensure your savings will grow at a steady rate.

Work out how much deposit you’ll need and set yourself a savings target

If you set yourself a savings target, you may find it much easier to stick to your budget. To set your target, first you’ll need to work out how much you need for your deposit. The amount of deposit you will need will depend on the cost of the property you want to buy, but if you have an idea of the kind of property you want to purchase you’ll be able to set a goal. It’s recommended that you have a deposit of at least 5% of the purchase price, however if you can possibly save 20% of the purchase price you’ll avoid paying Lenders Mortgage Insurance.

Make an accurate assessment of any debts and ongoing expenses

Lenders assess your creditworthiness on the amount of money you already owe, your ability to repay your debts and your capacity to take on more debt. Paying down any credit card debts or personal loans prior to applying for your home loan will improve your borrowing capacity and give you the best chance of loan approval when you apply.

Even if you don’t have any debt on your credit cards, lenders take into consideration the credit limit on your credit cards and count this as potential debt. So if you have several credit cards, it may be a good idea to cancel some of them now if you are planning on applying for a home loan in the next financial year.

If you have a lot of debts, think about consolidating them

If you take stock of your debts and realise you won’t be able to pay them all off anytime soon, it’s a good idea to look at ways to reduce your interest liability. Credit cards, store cards, short-term personal loans and cash advances all carry high interest rates and this can make them quite difficult to pay down. Getting your finances in order may mean it’s time to consolidate your debts.

Consolidating your debts means rolling all your debts into one, usually using a loan that has a lower interest rate. If you have quite a few expensive debts it may be possible to roll these into your home loan if you have one, or perhaps a personal loan that carries a lower interest rate overall. This may save you a great deal of money on interest payments, which is money you could use to pay off your debts faster. It could also allow you to spread your repayments over time, making them more affordable. If you want to be eligible to apply for a home loan in the next financial year, consolidating your debts sooner rather than later may be a good idea.

The new financial year is a great time to get your finances in order and you never know, you may get a tax refund that could really give a boost to your savings efforts for a deposit for your home! Remember, we’re here to help you get your finances under control so you can save your deposit and get into your new home sooner. If you’re planning on applying for a home loan in the next financial year, don’t hesitate to give us a call today.