How 1-in-10 first home buyers cracked the market 4 years sooner

,

Almost 33,000 Australians bought their first home four years sooner thanks to two federal government schemes that give first home buyers a leg up into the property market. Could you, or someone you know, be eligible?

We love a feel-good news story around here.

And hearing that so many first home buyers got a leg up into the property market much sooner than they ever dreamed makes us feel pretty warm and fuzzy.

This week the federal government released figures on the popular First Home Loan Deposit Scheme (FHLDS) and New Home Guarantee (NHG) initiatives.

The data showed that the two initiatives supported 1-in-10 first-time homeowners during the 2020-21 financial year.

And on average, the schemes allowed those first home buyers to bring forward their home purchases by four (FHLDS) to 4.5 years (NHG).

Hold up, what are these first home buyer schemes?

The FHLDS allows eligible first home buyers with only a 5% deposit (rather than the typical 20% deposit) to purchase a property without forking out for lenders mortgage insurance (LMI).

This is because the federal government guarantees (to a participating lender) up to 15% of the value of the property purchased.

Not paying LMI can save buyers anywhere between $4,000 and $35,000, depending on the property price and deposit amount.

The NHG scheme is very similar but is only for new builds – such as house and land purchases or a land purchase with a contract to build.

Another key difference is that the NHG property price caps are higher (see here) to account for the extra expenses associated with building a new home.

So who’s using the schemes?

Mostly younger buyers!

According to the latest stats, 58% of all buyers under the schemes are aged under 30-years-old.

NSW (11,000 residents) and Queensland (9,000 residents) make up nearly two-thirds of the scheme’s recipients.

And it turns out that most first home buyers who secured a spot in one of the schemes used a mortgage broker (56%).

But for the NHG scheme specifically, brokers originated the vast majority of government guarantees (72%).

How to secure a spot

We’ve got good news. And a bit of not-so-good news.

The good news is that for the NHG, only 2,443 of the 10,000 spots had been secured as of October 6 – so there’s still the opportunity for eager first home buyers wanting a new build.

The not-so-good news is that spots in the FHLDS are almost full for the latest round released on July 1.

Figures show that 7,784 of the 10,000 spots have already been secured, and word is that participating lenders have waiting lists for many of the remaining spots.

That said, if you’re a single parent there’s a third, similar scheme called the Family Home Guarantee (FHG), which allows eligible single parents with dependants to build or purchase a home with a deposit of just 2% without paying LMI.

Only 1,023 of 10,000 spots have been secured in the FHG, for which you don’t need to be a first home buyer.

Last but not least, it’s worth noting that the FHLDS is an annual scheme with new spots expected to be available from July 2022 – and previously the federal government made a surprise announcement to release 10,000 additional spots in January.

So if any of the above schemes are of interest to you, get in touch with us today and we can run you through everything you need to know about them so that you’re ready to apply when the time comes.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or 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.

Bar raised for borrowers: tougher home loan serviceability tests

, , , , , , , ,

Some borrowers will soon find it harder to get a mortgage after the banking regulator announced tougher serviceability tests for home loans. So who will they impact most?

The Australian Prudential Regulation Authority (APRA) will increase the minimum interest rate buffer it expects banks to use when assessing the serviceability of home loan applications from 2.5% to 3% from the end of October.

This means that banks will have to test whether new borrowers would still be able to afford their mortgage repayments if home loan interest rates rose to be 3% above their current rate.

APRA estimates the 50 basis points increase in the buffer will reduce maximum borrowing capacity for the typical borrower by around 5%.

“The buffer provides an important contingency for rises in interest rates over the life of the loan, as well as for any unforeseen changes in a borrower’s income or expenses,” APRA Chair Wayne Byres wrote in a letter to the banks.

Why is APRA increasing the buffer?

This move doesn’t come out of the blue. Federal treasurer Josh Frydenberg flagged tougher lending standards a week prior following a meeting with the Council of Financial Regulators.

And it’s due to a combination of factors.

Firstly, interest rates are at record-low levels, and secondly, the cost of the typical Australian home has increased more than 18% over the past year – the fastest annual pace of growth since the late 1980s.

That combination has made financial regulators a little worried that some homebuyers are starting to stretch themselves too thin and borrow more debt than they can safely afford.

Mr Byres adds that 22% of loans approved in the June quarter were more than six times the borrowers’ annual income. That’s up from 16% a year prior.

As such, APRA did consider limiting high debt-to-income borrowing but believed it would be more operationally complex to deploy consistently.

“And it may lead to higher interest rates for some borrowers as lenders effectively seek to ration credit to this cohort,” APRA adds, but it doesn’t rule out limiting high debt-to-income borrowing in the future.

Which borrowers are most likely to be impacted?

The increase in the interest rate buffer will apply to all new borrowers.

However, the impact is likely to be greater for investors than owner-occupiers, according to APRA.

“This is because, on average, investors tend to borrow at higher levels of leverage and may have other existing debts (to which the buffer would also be applied),” APRA adds.

“On the other hand, first home buyers tend to be under-represented as a share of borrowers borrowing a high multiple of their income as they tend to be more constrained by the size of their deposit.”

What could this mean for your home loan borrowing hopes?

If you’re worried about how this latest announcement from APRA could impact your upcoming application for a home loan, then get in touch today.

We can apply APRA’s new loan serviceability tests to your personal circumstances to help you determine your borrowing capacity and focus your house hunting.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or 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.

Is a home loan lending crackdown on the horizon?

, , , ,

The federal treasurer has given the strongest indication yet that a home loan crackdown is coming, stating that “carefully targeted and timely adjustments” may be necessary to avoid troubled waters. So what could a potential lending crackdown look like?

Lending standards and fast-rising property prices have been hot topics of late.

Interest rates are at record-low levels, and the typical Australian home has seen its value increase more than 18% over the past year – the fastest annual pace of growth since the late 1980s.

It’s a recipe that’s making financial regulators a touch worried that some homebuyers are starting to stretch themselves too thin and borrow more debt than they can safely afford.

So federal treasurer Josh Frydenberg recently met with the Council of Financial Regulators – which includes APRA, ASIC, the Australian Treasury and the RBA – to discuss the state of the housing market.

“We must be mindful of the balance between credit and income growth to prevent the build-up of future risks in the financial system,” Mr Frydenberg said in a statement.

“Carefully targeted and timely adjustments are sometimes necessary. There are a range of tools available to APRA to deliver this outcome.”

What could this possible crackdown look like?

Here’s an interesting stat for you: almost 22% of Australians have a mortgage debt that’s more than six times higher than their annual income, according to the latest data from APRA.

That’s up from 16% just one year ago.

The fact APRA mentions that particular stat gives us a pretty good clue as to what one possible lending crackdown measure could be.

“Most analysts expect that this time, APRA will target debt-to-income ratios, probably by limiting the proportion of loans that can be made above six times an applicant’s household income,” explains the ABC.

It’s also worth noting that Mr Frydenberg and APRA are not the only ones to publicly indicate that change could be on the horizon – the RBA expressed similar concerns about the increase in housing prices and housing debt just days ago, too.

“Even though the banks have strong balance sheets and lending standards are being maintained, there is a risk that in this environment, households will become increasingly indebted,” RBA assistant governor Michele Bullock wrote.

“A high level of debt could pose risks to the economy in the event of a shock to household incomes or a sharp decline in housing prices. Whether or not there is need to consider macro-prudential tools to address these risks is something we are continually assessing.”

Want to know how a potential lending crackdown might affect you?

It’s worth reiterating that we still have very limited information available about what financial regulators have in mind for any potential lending crackdowns.

What we can do, however, is help you assess your potential debt-to-income ratio on any property purchase you currently have in mind. And we can also help you determine your borrowing capacity in the current lending landscape.

So if you’d like to find out more, get in touch today. We’d be more than happy to run you through it all in more detail according to your personal circumstances.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or 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.

Nine in 10 FHBs trust brokers to help them buy their first property

,

Remember that classic TV ad: ‘nine out of 10 dentists recommend using [toothpaste brand]?’ Well, it turns out we’ve earned a similar level of trust when it comes to helping first home buyers sink their teeth into the property market. 

That’s because nine out of 10 first home buyers (FHBs) recently said they trust a mortgage broker to help them buy their first property.

And, unlike dentists, we’re actually allowed to show our faces!

So why do so many first home buyers trust mortgage brokers?

The Genworth First Home Buyer Report 2021 surveyed 2,077 prospective FHBs, and 1,008 recent FHBs – and we’re pretty chuffed with the results.

Here’s what one respondent said:

“Go and see a professional broker in-person early on in the process. That way they know your situation and are able to best guide you through and help you out,” the 32-year-old recent FHB from WA said.

And he wasn’t alone.

Almost nine in 10 FHBs believe mortgage brokers help cut through the complexity in the home buying process.

The report also found a similar proportion of FHBs believe mortgage brokers provide reliable, trusted advice and information.

And finally, close to 90% of respondents said mortgage brokers provide valuable support during the home buying process.

So in a nutshell:

Trusted = tick.
Jargon busters = tick.
Reliable advice and information = tick.
Valuable support = tick.

How we could help you buy your first home

You might have noticed the property market has picked-up over the past 12 months, to say the least.

It’s left a lot of prospective first home buyers frustrated that the suburbs they were once focusing on have moved out of their price range.

While this may be the case for a lot of people, it’s not always the case.

There are a number of federal government schemes available to FHBs, including the First Home Loan Deposit Scheme – which can allow you to buy your first home with a deposit of just 5% without paying for Lenders Mortgage Insurance.

There’s also a range of state and territory government schemes designed to give FHBs a leg up into the property market, including first home buyer grants and stamp duty concessions.

For more information, give us a call today – we’d love to discuss your situation and help you make the leap from renter to first home buyer, and get you smiling as proudly as your dentist does!

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or 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.

New super laws: a timely reminder to check your life insurance policy

, , , , ,

What measures do you have in place to help protect your family home or business? If life insurance through your superannuation account is one of them, then it’s a good time to give it a quick review – especially if you work in a high-risk environment.

We’ve all switched off mentally during those sombre daytime life insurance ads on TV.

But stay with us, because there’s a good reason we’re writing this article today: new superannuation laws have passed parliament and will come into effect on November 1.

And if you have a super account, there’s a better than even chance you have a life insurance policy attached to it that could be impacted – especially if you work in a hazardous or high-risk industry such as construction, truck driving and mining.

What are the new laws?

So, the federal government recently passed the Your Future Your Super legislation.

The measure, which will tie workers to a single super fund from November 1, has been praised for its potential to put an end to people having numerous super accounts that are eaten away by multiple sets of fees.

But concerns have also been raised that workers in hazardous industries, such as construction, truck driving and mining, will be left without suitable life insurance and/or total and permanent disability insurance due to policy exclusions for high-risk occupations.

Now, some super funds that were created for specific industries automatically sign their members up for insurance tailored to their specific professions.

But others don’t.

“Quite often, members only discover they have been paying for a product that is effectively useless when they become disabled and make a claim,” Maurice Blackburn principal Hayriye Uluca explained to Sydney Morning Herald (SMH).

This means if you originally signed up to a fund that is tied to an insurer that uses occupation exclusions, you might end up paying for insurance that’s essentially worthless if you start work in a high-risk industry.

What to do?

The Federal Treasury says it’ll be conducting a review into it all.

But you can quickly and easily conduct your own review to see if you’re properly covered by suitable insurance.

Here’s a straightforward MoneySmart guide on consolidating your super through MyGov. And here’s another guide on things to be mindful of when choosing a super fund.

“The best thing to do is talk to your fund, ask them specifically. Tell them the type of work you do, your occupation and what it involves, and ask them if their policy covers it,” SuperConsumers director Xavier O’Halloran told SMH.

And while you’re at it, don’t forget to review the amount you’re insured for to determine whether your cover is enough to help you – or your loved ones – make loan repayments and protect important assets like your business or family home if need be.

If you’re not sure if your insurance cover is sufficient, call us today and we can put you in touch with a financial planner who can review your situation and provide feedback on your coverage.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or 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.