Is now a good time to lock in a fixed rate?

, , ,

With interest rates at record low levels, today we’ll look at a question that many are asking: should I lock in a fixed rate home loan?

You may have recently received a call directly from your bank, or seen more ads than usual across the internet spruiking super low fixed-rate mortgages.

Here’s why: lenders are scrambling over one another to lock-in customers right now.

And their weapon of choice? Fixed-rate home loans.

With so many families doing it tough right now, locking in a low fixed interest rate can be an appealing option to reduce your monthly repayments and obtain peace of mind.

And while it may very well be a good route for your family, like most things in life, it’s important to weigh up the pros and cons before you leap.

Consideration 1: The bank is not offering it out of the goodness of their heart

Let’s get the obvious one out of the way: banks are not promoting fixed-rate home loans right now as an act of goodwill.

They’re there to sell a product. And they often use this product in particular when they’re trying to stop clients from walking away. Not only are you locking in a rate, but the lender is locking you in, too.

Consideration 2: Loss of flexibility

We all know the big benefit of locking in a fixed rate: you get a guaranteed low rate for however many years you lock it in for.

But it also comes with a downside, which is: if things improve and you want to pay your loan off quicker, switch products, or switch lenders, you don’t have the flexibility to do so.

Indeed, breaking a fixed home loan can be expensive, often costing anywhere between thousands and tens of thousands of dollars.

Consideration 3: How low can they go?

The Reserve Bank of Australia (RBA) cut the cash rate to a record low of 0.25% in March – the second rate cut that month.

Now, most experts believe this is as low as the RBA will go – and even RBA governor Philip Lowe has made it clear that he regards 0.25%, rather than zero, as the “effective lower bound” for official interest rates.

But that doesn’t mean the banks can’t drop their interest rates lower independent of official RBA rate cuts.

As mentioned above, competition in this space has been heating up recently and lenders are all eager for a bigger slice of the pie.

When you might want to lock the rate in

All that said, there are times when locking in an interest rate may be the best option for you and your family.

The big one is if your circumstances have recently changed and you’re seeking some stability.

This includes if you’re starting a family and you’re going from two incomes to one. Or if you or your partner’s income has been affected by COVID-19 and you’re wanting to lower your monthly repayments instead of seeking hardship options.

Another key factor is if you can’t sleep at night because you’re worrying that rates will go up. That said, it’s worth noting that the RBA recently stated: “the cash rate would remain at a very low level for an extended period”.

Still on the fence? Give us a call

Like many things in life, when it comes to home loans, there’s no one-size-fits-all solution.

While locking in a fixed rate home loan may help you secure a lower interest rate during this time of instability, it also comes with a few drawbacks.

So if you’d like to find out if locking in a fixed rate is a good fit for you, give us a call. We’re happy to run through all your options with you – not just the one product!

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

The big questions we’re receiving from first home buyers

,

It’s fair to say it’s an unusual time to be a first home buyer. But there are still opportunities out there for those whose jobs haven’t been affected by COVID-19. 

Here are five key talking points we’ve been regularly discussing with first home buyers in the current market.

1. Is the First Home Loan Deposit Scheme (FHLDS) still available?

Many first home buyers have been saving their home loan deposit over the last 5-10 years, trying to reach that magic 20% figure where you don’t have to pay Lenders Mortgage Insurance (LMI).

But a new path recently opened up for first home buyers: the FHLDS.

Places in the scheme, which started on January 1, are still available and can allow eligible first home buyers to purchase a property with a deposit of just 5% without having to pay LMI.

If you’d like to take advantage of the scheme, give us a call and we can help you through the process.

2. Has it become tougher for first home buyers to get a loan in recent months?

This will depend on your individual situation and how much coronavirus has impacted your household’s bottom line.

Interestingly, though, the latest Australian Bureau of Statistics data doesn’t suggest it was any tougher for first home buyers to get a loan in February than the previous few months.

Indeed, over the month, home loans for owner-occupier first-home buyers increased by 0.4%.

That said, COVID-19 didn’t really start impacting the Australian economy until March, so we’ll keep monitoring the data for you in coming months.

3. I heard QBE is no longer insuring borrowers from distressed sectors?

One of Australia’s largest insurance groups, QBE, has temporarily suspended offering LMI to specific groups of new mortgage borrowers, such as those working in hospitality, tourism, gyms and beauty salons.

The good news is that Australia’s other major LMI provider, Genworth, told the AFR it has no plans to change its existing position on LMI, stating that it trusted lenders to “apply responsible lending standards and assess applications on their merits”.

Also, if you’re taking out your first home loan through the FHLDS, remember that the whole point of the scheme is that you don’t have to pay LMI – so that’s another reason to consider applying.

4. Are lenders requiring evidence that my income will be stable?

In the current COVID-19 climate, it’s safe to say that lenders will be scrutinising your income and will require sound evidence that your income will be stable.

This shouldn’t create too big a headache for those employed in essential services, such as a Coles permanent employee, a pharmacist, or an IT professional in a government department, for example.

But others in less coronavirus-proof industries may find it more difficult to prove their income is stable.

For example, some lenders are no longer accepting bonus income for borrowers outside essential services, unless their employer can write a letter to say that the bonus will continue to be paid out at the current level.

Your best bet is to give us a call – we can run through your situation and help you identify any areas that may be an issue in advance.

5. I heard valuations are coming in lower than the contract price?

There’s no shortage of recent stories out there of valuations coming in lower than the contract price, and the gap is proving difficult for some off-the-plan buyers to make up.

So if you’re a first home buyer and you’re worried about a lower valuation then please get in touch. We can run through the options that may be available to you to make up the shortfall, including going through the FHLDS (mentioned above).

Give us a call

Buying your first home can be a bit overwhelming at the best of times, let alone during a period of uncertainty and rapid change. Rest assured though that we’re on top of it.

So if you’d like us to help you explore your options and secure a competitive home loan then please get in touch – we’re ready to jump into action and make it happen for you.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

First home buyer numbers spike to 10 year high

,

First home buyers are throwing themselves into the property market in numbers not seen since 2009.

The number of owner-occupier first home buyer loan commitments reached its highest point in ten years in January, with newcomers taking out 9,945 loans (seasonally adjusted), according to ABS data.

That’s a 3.2% rise on the previous month and a 20% increase on January 2019 (7921 loans).

A recent upwards trend in the home loan market was also reported in figures released by The Australian Prudential Regulation Authority (APRA).

The APRA data showed a 12.4% increase in the value of new housing loans settled by authorised deposit-taking institutions (aka lenders) in the December 2019 quarter.

What’s fuelling the spike in first home buyers?

Two things, mainly.

The first is the federal government’s First Home Loan Deposit Scheme.

The scheme, which started on January 1, can allow first home buyers to purchase a property with a deposit of 5% without having to pay Lenders Mortgage Insurance (LMI).

As of late February, it was reported that the majority of the 5,000 places available through 25 non-major lenders for this current financial year were still available to be reserved by potential first home buyers. So if you’d like to find out more get in touch!

The other main contributing factor to the growth spurt in first home buyer numbers is low rates.

Earlier this month the Reserve Bank of Australia (RBA) cut the official cash rate by 25 basis points to a new record low of 0.50%.

This came after three cash rate cuts in 2019, with the latest as recent as October.

And interestingly, RBA Governor Philip Lowe has hinted more rate cuts could be on the way in coming months, saying the RBA will continue to closely assess the implications of the coronavirus

Get in touch

For those thinking of entering the property market for the first time there’s a lot of recent changes to consider – including the record-low RBA cash rate and the federal government’s First Home Loan Deposit Scheme.

So if you’re thinking about purchasing your first home soon, get in touch today, we’d love to help you through the process.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

How long does it take to find and secure your dream home?

, ,

It takes most first home buyers longer than a full working week to house hunt and apply for finance for their ‘dream’ property, according to new research.

The 2020 St George Home Buying Survey found that it takes first-home buyers an average of 44 hours to research properties, hone in on one they like, and begin the home-buying process – including applying for a mortgage.

Why does it take that long?

Eight in ten people surveyed said they found the application process for a home loan time consuming and inconvenient.

What are they finding difficult about it? Well, more than half said they were ‘pained’ by the overall amount of information they need to process.

The other main hurdles facing home buyers included:

– Understanding what was involved (73% of people surveyed)
– Learning about the housing market (71%)
– Working out their financials (64%).

How we can help cut down that time

We go through this on a daily basis so we can help make the process a whole lot less time consuming, confusing and inconvenient for you.

We can help you understand what’s involved and help you work out your financial hurdles.

Don’t forget government assistance

On a related note, it’s worth noting that the federal government’s First Home Loan Deposit Scheme, which started on January 1, still has most of its 5,000 non-major lender scheme places available.

The scheme can allow first home buyers to purchase a property with a deposit of 5% without having to pay Lenders Mortgage Insurance (LMI).

To find out more, get in touch. We’re more than happy to run you through the scheme and how it may help you crack into the property market sooner.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Smaller lenders taking applications for home loan deposit scheme

,

Non-major lenders have started offering another 5,000 slots for the First Home Loan Deposit Scheme, which allows first home buyers to purchase a property with a deposit of 5% without having to pay Lenders Mortgage Insurance (LMI).

The scheme, which is overseen by the National Housing Finance and Investment Corporation (NHFIC), kicked-off on 1 January but only 5,000 spots were initially available through two major banks – NAB and CBA.

NHFIC CEO Nathan Dal Bon says the additional 25 lenders are located around the country and will provide first home buyers with a range of choices.

“More places are now available to help first home buyers purchase a modest home sooner,” Mr Dal Bon adds.

The 25 other lenders

The NHFIC says the 25 non-major participating lenders below are supporting the scheme by committing to not charging eligible customers higher interest rates than equivalent customers outside of the scheme.

Australian Military Bank

Auswide Bank

Bank Australia

Bank First

Bank of us

Bendigo Bank

Beyond Bank Australia

Community First Credit Union

CUA

Defence Bank

Gateway Bank

G&C Mutual Bank

Indigenous Business Australia

Mortgageport

MyState Bank

People’s Choice Credit Union

Police Bank (including the Border Bank and Bank of Heritage Isle)

P&N Bank

QBANK

Queensland Country Credit Union

Regional Australia Bank

Sydney Mutual Bank and Endeavour Mutual Bank (divisions of Australian Mutual Bank Ltd)

Teachers Mutual Bank Limited (including Firefighters Mutual Bank, Health Professionals Bank, Teachers Mutual Bank and UniBank)

The Mutual Bank

WAW Credit Union

Details on eligibility can be found on the scheme’s website here. You can also check out the property price caps here.

Want to find out more?

If you want to apply for this new scheme then it’s best to give us a call sooner rather than later, as the major banks have already registered more than 3,000 potential first home buyers for the 10,000 spots up for grabs this financial year.

We’d be more than happy to run you through the scheme in more detail and, if you’re eligible, help you apply through a participating lender.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.