5 surprising reasons for home loan heartbreak

Whether it’s your love life or your home loan application, no one likes getting rejected. There are many reasons why it could happen, and some can come as a big shock. So today we’ve outlined five surprising reasons to help you avoid home loan heartbreak.

There are few words would-be home buyers dread more than: “your home loan application has been rejected”.

It can feel like a real kick in the guts. And some of the reasons can be surprising.

A rejected loan application can hold up your home-buying plans and could have a negative effect on your credit score. So it can be important to avoid this scenario.

Below we’ve outlined five reasons your next application could be rejected – so you can start heading them off now.

1. Spending too much or too little

Most people know that spending too much is a major red flag for lenders. So limiting your unnecessary expenses is important.

But drastically slashing costs and living a very meagre existence can also be a concern.

Lenders can see this as unrealistic and unsustainable, and they can remedy it during assessment by applying the household expenditure measure (HEM) instead.

HEM is a standardised benchmark used to estimate annual living expenses. And if your standard, reasonable budget is on the super savvy frugal side, there’s a chance HEM may be higher.

2. Credit cards

Having multiple credit cards and performing several balance transfers can affect your application.

Every time you apply for credit an inquiry is logged on your credit history. And lenders will likely take notice.

Even your “just in case” credit card can have an impact. You may need to prove you have the means to pay off the limit within three years, even if the balance is $0.

3. By now pay later services

‘Tis the season for shopping. And buy now pay later (BNPL) schemes will be rolling out the red carpet.

But it might be worth resisting the temptation.

The Australian Prudential Regulation Authority (APRA) amended its framework this year to include BNPL debts in the reporting of debt-to-income (DTI) ratios.

Lenders will likely include BNPL debt in your DTI ratio to see your total debt in relation to your income. And a high DTI can result in limited borrowing capacity or even rejection.

4. Credit history

Your credit history is a finicky thing.

Even a few late payments can cause your credit score to drop. So it’s important to make sure your bills are paid on time.

Also, applying for too many credit cards or other loans can impact your credit score, and therefore your home loan application.

And with increasing news of scams, data breaches, and identity theft … it’s a good idea to check your credit history health.

You can request a free credit report once a year from one of three national credit reporting bodies which are listed on this government website.

5. Your type of income

Your type of income could make or break your application.

Lenders typically favour traditionally employed applicants with a steady and reliable income.

Many lenders consider self-employment carries a greater risk for less consistent income, and some can reject applications on these grounds.

So if you’re self-employed, when applying for a home loan it’s important to target lenders who are more open to lending to small business owners (we can give you the down-low on this).

Also, word on the street is that tax debt is increasingly becoming an issue for self-employed applicants. So if you have a large tax debt, it might be worth getting on top of that if you can.

Get in touch

If you’re not the kind of person who likes being rejected, well, the good news is that we’re not the rejecting type.

We’d love to have a chat about your home-buying dreams to see if we can match you with the right loan and lender for you.

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.

Buying could be cheaper than renting for a third of properties

For many Australians, rate hikes and inflation have made the dream of property ownership feel ever more distant. But a recent analysis shows that meeting mortgage repayments could actually be cheaper than renting for more than a third of Australian properties.

Look, we get it. Often the biggest obstacle in the way of home ownership is saving up for a deposit.

But once you’ve got that sorted – which we’ll help you tackle below – a recent CoreLogic analysis found servicing a mortgage was more affordable than average rent prices in 518 Australian suburbs. In fact, in some areas there were savings of over $900 a month.

Not to mention that with rental prices surging by about 10% across Australia over the past year and vacancy rates at a record low 1.1%, home ownership has possibly never looked more appealing!

So we’ve got some tips to help you switch from renter to homeowner in a timely (and confident) way.

Take advantage of the buyer’s market

Buying now or in the near future could mean less competition for properties, price drops and sellers willing to negotiate.

And recent rate hikes mean that, even during the spring selling season, we’re seeing fewer buyers. In fact data shows the median number of days that properties sit on the market is now 35, compared to 20 days last year.

And in response, property prices are falling. September data showed a 1.4% drop.

So by shopping around in the right areas and putting your negotiator hat on, you may get a price that could make buying cheaper than renting.

And most importantly, buying property and making mortgage repayments can create equity for you … instead of your landlord.

Get in on government schemes

There’s no denying that saving a big enough deposit to buy can be a bit of a slog.

But what if there was a way to sidestep the standard 20% deposit? And possibly avoid stamp duty too?

There are a number of government schemes you may be eligible for that can fast-track house buying by an average of 4 to 4.5 years.

The federal government offers low deposit, no LMI loans for eligible first home buyers, single parents and regional first home buyers.

Also, all state governments (except South Australia) have first home buyer stamp duty concessions for those eligible.

And you can stack these schemes together for more bang for your buck.

But you’ll have to move quickly on the no LMI schemes – they’re allocated on a first-come, first-served basis every financial year.

Give us a bell

Keen to make the leap from renter to home owner? If so, you’ll be busy researching the market and learning the art of the deal – so why not get a helping hand with your finances?

We can help find the right loan for you and provide you with helpful guidance that could increase your chances of mortgage application success.

And while we’re at it, we can assist you in applying for any money-saving government incentives you may be eligible for.

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.

Hold your horses: RBA hikes cash rate again to 2.85%

Whoa, Nelly! The Reserve Bank of Australia (RBA) has lifted the official cash rate again, this time by another 25 basis points to 2.85%. How much will this rate rise increase your monthly mortgage repayments, and when are the hikes expected to stop?

Dubbed the “rate that stops the nation”, today’s Melbourne Cup RBA board meeting did not see board members rein in the rate rises.

Back in May the official cash rate was just 0.10%. Today it was increased for the seventh straight month to 2.85%.

RBA Governor Philip Lowe said in a statement that the RBA board expected to increase interest rates further over the period ahead.

“The size and timing of future interest rate increases will continue to be determined by the incoming data and the Board’s assessment of the outlook for inflation and the labour market,” said Governor Lowe.

“The board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that.”

How much extra will your mortgage be each month?

Unless you’re on a fixed-rate mortgage, the banks will likely follow the RBA’s lead and increase the interest rate on your variable home loan soon.

Let’s say you’re an owner-occupier with a 25-year loan of $500,000 paying principal and interest.

This month’s 25 basis point increase means your monthly repayments could increase by almost $75 a month. That’s an extra $760 on your mortgage compared to May 1.

If you have a $750,000 loan, repayments will likely increase by about $110 a month, up $1140 from May 1.

Meanwhile, a $1 million loan will increase almost $150 a month, up almost $1,530 from May 1.

So how many rate hikes have we got left?

The good news is that most economists believe we’re through the bulk of the rate rises, and they could stop as early as next month.

Here’s what economists from the big four banks are predicting:

CommBank – one rate rise to go, peaking at 3.10% in December 2022.
NAB – three rate rises to go, peaking at 3.60% in March 2023.
Westpac – three rate rises to go, peaking at 3.85% in March 2023.
ANZ – three rate rises to go, peaking at 3.85% in May 2023.

Worried about your mortgage? Get in touch

If you’re starting to feel the pinch and are worried about what interest rate rises might mean for your monthly budget, feel free to contact us today.

Some options we can help you explore include refinancing (which could include increasing the length of your loan to decrease monthly repayments), debt consolidation, or building up a bit of a buffer in an offset account ahead of more rate hikes.

So if you’re concerned about how you might meet your repayments in the months ahead, give us a call today. We’d love to sit down with you and help you work out a plan moving forward.

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.

With property prices dropping, is now the time to refinance?

You may have heard that property values are on the decline. But what does this mean if you’re planning to refinance? We’ll discuss how falling housing prices may affect your refinancing application and what you can do about it.

With the rising cost of living and climbing interest rates, you may be looking to refinance your mortgage.

Depending on your circumstances, it can be a great way to get a better interest rate on your loan.

Not to mention that if you need access to funds for an investment property or renovation, refinancing can allow you to cash out equity in your home to use for other purposes.

But, according to CoreLogic, 79.5% of house and unit market values are on the decline across Australia. And this can affect refinancing outcomes.

We’ll walk you through just what the effects of a property value drop can mean for refinancers and how you can take action now to get ahead of the curve.

Refinancing and your property’s value

Rising rates have contributed to declining property values in some areas around the country.

For example, Sydney property prices have declined 10% since they peaked in February this year, according to the latest CoreLogic data, and many economists believe they’ll fall even further.

And as a homeowner, a drop in property value can affect your equity.

That’s because equity is the difference between your property’s (market) value and your mortgage balance. And it’s a number that lenders pay attention to when assessing refinancing applications.

Refinancing before your equity drops may see your refinancing application have a greater chance of success.

You see, most lenders will typically require you to have 20% equity in your home to refinance, which essentially serves as a deposit.

And according to this graph here, if you’ve bought a house in Sydney (for example) since June 2021, due to the recent property price declines you soon may no longer have 20% equity in your home.

If you don’t have 20% equity, you could still refinance by paying lenders mortgage insurance – but that would likely defeat the purpose of refinancing in the first place.

And if you fall into negative equity – where your home’s value drops below your mortgage balance – then refinancing most likely won’t be on the cards at all and you’ll be stuck with your current lender.

So, if you’re interested in refinancing your loan to get a better rate, sooner may be better than later … depending on how your property value is fairing.

Refinancing to cash-out equity

If you’re keen to unlock some equity – you’re not alone!

According to NAB research, seven in 10 mortgage holders recently cashed out equity while property prices were high and used the money to renovate, invest in property or shares, or boost their superannuation

So how does cashing out equity work?

Let’s say you bought an $800,000 house five years ago that is now worth $1 million.

And let’s also say you took out a $600,000 loan for that house, which you’ve managed to pay down to $500,000 (you little beauty!).

By refinancing that $500,000 loan into an $800,000 loan (banks will typically let you borrow up to 80% of a property’s market value), you can unlock $300,000 in equity.

However, if you delay a year or so, and national property prices decline 10% over this period, your house might only be valued at $900,000.

That would mean if you wanted to unlock 80% of your property’s market value, you could only refinance your $500,000 mortgage into a $720,000 loan – and therefore only unlock $220,000 in equity.

Get in touch

If you’ve been considering refinancing lately, contact us to find out more. Whether you’re looking to land a better rate or unlock equity in your home, we can help you with all the particulars.

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 now a good time to buy an investment property?

You’ve bought a home. And now you might be considering adding an investment property to your portfolio. But have recent interest rate hikes cooled your heels? We’ve outlined reasons why now may still be a good time to buy.

To buy or not to buy, that is the question.

There’s no denying that rolling rate rises might have some sections of the media spouting doom and gloom.

After all, national property prices have dipped and higher interest rates can lower your borrowing power.

However, if you’re in a position to buy now, the current climate can provide less competition and more power to negotiate a good price.

Also, rental tenancy vacancy rates have reached record lows, meaning the demand for rentals is high.

So if you’re ready to dip your toe into property investment, we’ve outlined below why it could be a good time to do so.

It’s a buyer’s market

With rising interest rates and inflation, there’s been a softening of the market and this may reward those who are ready to buy now.

CoreLogic data shows there are fewer buyers at present, and properties are increasingly sitting on the market.

In the three months to September, median days on the market increased to 35 days. That’s a big increase from a median of 20 days in November 2021.

Fewer buyers can mean more property options for you to choose from and less competition when putting in an offer.

And by targeting properties that have been on the market for a while, you could potentially have more bargaining power (just be sure to do your due diligence!).

Low rental tenancy vacancy rates

Currently, there is a high demand for rental properties across Australia.

At 0.9%, the current national rental tenancy vacancy rate is the lowest it has been since 2006, according to SQM Research.

That means the likelihood of your investment property sitting empty now is low.

People are looking for solid rental properties. And if you’ve got just the thing, your investment property could have a number of good tenants putting in applications.

Flexibility around location

When purchasing an investment property, you’re not locked into buying in your home state or city.

You can set your sights further afield to make the most of what the current property market has to offer.

You can look to buy in areas where property prices have already dipped and leverage the current buyer’s market to negotiate. Also, consider purchasing in an area with a healthy demand for rental properties.

That way, you can make a financially sound purchase and increase the chances of having a good tenant in your property sooner.

Possible lower cost of entry than for owner-occupiers

You’re most likely more discerning when shopping for a property you want to live in – we all have personal preferences we want met.

And unfortunately, lists of non-negotiable bells and whistles usually come with primo pricing.

But when buying an investment property, you can be more flexible, which can open up more affordable options.

Look for the essentials that tenants want, such as a safe, comfortable, and low-maintenance property. And with lower competition now, there could be more viable properties to choose from.

The french door, olympic-sized pool, and ocean-view wish list that usually blows up budgets need not apply.

Give us a call

If you’re ready to dive into property investment, come and talk to us.

We can walk you through what you need to consider when it comes to your finances, such as your borrowing power, unlocking the equity in an existing property, finding the right loan, and much, much more.

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.