Home-ownership within reach: will you qualify for new buyer scheme?

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Imagine buying your first home with only a 5% deposit and not having to pay lenders mortgage insurance (LMI). Well, that dream is one step closer to reality after the government introduced legislation to implement the First Home Loan Deposit Scheme.

Currently, people with a deposit of less than 20% usually have to pay LMI.

But under the scheme, some first home buyers will be able to borrow up to 95% of the value of their property without forking out for LMI.

The result: first home buyers stand to save up to $10,000 in LMI, allowing them to enter the property market earlier than they would have otherwise.

Now, the scheme is due to commence on 1 January 2020.

But here’s the catch: it’s limited to just 10,000 first home buyer loans each year.

That number is less than 10% of the 110,000 Australians who bought their first home in 2018.

So who gets dibs?

When the Coalition announced the scheme prior to the last election it warned that in order to be eligible first home buyers could not have earned more than $125,000 in the previous financial year, or $200,000 for couples (and both need to be first home buyers).

The recently introduced legislation further stipulates that there will be dwelling price caps which will differ from state to state, as well as between city and regional areas.

These caps haven’t been quantified just yet. But the keyword is that the scheme will be limited to ‘modest’ dwellings.

“Setting caps on the value of properties that can be purchased under the scheme will be a key lever used to constrain potential demand. It will be necessary to set these caps so that only modest properties in regional towns and capital cities can be purchased,” the legislation reads.

“This will also help to target access to the scheme to those first home buyers in more genuine need of assistance.”

So, while we don’t know what these caps are, it’s fair to say that you’re not going to be able to use the scheme to turn a 20% deposit on a $300,000 unit into a 5% deposit on a $1.2 million house.

Who will do the assessing?

To implement the scheme, the National Housing Finance and Investment Corporation (NHFIC) will contract with a panel of lenders, and smaller banks and non-bank lenders will be prioritised to encourage competition.

Participating lenders or mortgage brokers will then assess scheme eligibility alongside normal considerations such as loan serviceability tests.

An alternative model being considered is to have borrowers apply to the NHFIC directly to confirm eligibility. Approved borrowers would then approach a participating lender (directly or via a mortgage broker) to obtain the loan.

What next?

Well, preliminary consultations were initiated in late-May and involved a large number of meetings with a broad range of stakeholders, including lenders (large and small), LMI providers, industry associations, mortgage brokers, and consumer advocates.

Further consultation will continue on the legislative framework before the scheme’s eligibility and operations are fully revealed.

Want to know more?

If you’re a first home buyer looking at cracking into the property market in 2020 – or know someone who is – then get in touch.

Rest assured that we’ll be closely watching how the First Home Loan Deposit Scheme develops and will be able to help you get your application in pronto.

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.

Has the tide turned? Household lending surges

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Lending to Aussie households spiked 3.9% in July, the strongest growth seen since October 2014, according to the Australian Bureau of Statistics (ABS).

The bumper month follows a 1.9% rise in June 2019, suggesting the tide has finally started to turn in the lending market.

“Whoa. Quite the surge in housing credit in July,” remarked CoreLogic’s head of research Tim Lawless, “haven’t seen numbers like this since 2015/16”.

Lending for investors rose 4.7% in July with rises across all states and territories, while lending to owner-occupiers also recorded substantial gains at 5.3%.

Meanwhile, home loans to first home buyers rose 1.3% in July. This is the fourth consecutive month of growth for this segment.

Why the surge?

The rise came the same month that the prudential regulator, APRA, eased loan serviceability standards.

Essentially, APRA stopped telling lenders to assess whether borrowers could afford their repayment obligations based on a minimum interest rate of 7%.

BIS Oxford Economics’ Maree Kilroy adds that investor sentiment also received a boost following the Coalition government’s federal election victory, and pointed to back-to-back rate cuts in June and July.

“After withdrawing from the market for several years, investors have reacted positively,” Kilroy says.

Lawless agrees that the surge is due to “two rate cuts, easier credit, sentiment boost post-election and removal of macro-prudential”.

And his colleague, Cameron Kusher, suggests this might only be the beginning.

“Importantly this is only to July. We could see these figures go much higher by the time we are right in the middle of spring,” Kusher says.

Get in touch

As Kusher suggests, this might just be the beginning of a lending surge.

Spring usually brings plenty of new properties onto the market – everything looks nicer in spring!

So if one of them happens to catch your eye, get in touch and we’ll be happy to guide you through the process of obtaining finance.

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.

Is the housing market drought finally over?

Marge, Marge, the rains are ‘ere! Home prices have recorded their first rise since October 2017, with national dwelling values increasing 0.8% over August, according to the latest CoreLogic report.

Housing values across capital cities rose by 1%, with Sydney (1.6%), Melbourne (1.4%), Canberra (0.8%), Hobart (0.5%) and Brisbane (0.2%) leading the way.

While the lift in annual housing values is substantial, the recent growth is a continuation of the trend seen throughout the year whereby value falls were consistently losing momentum, and have now started to rise.

Indeed, while Adelaide (-0.2%), Perth (-0.5%) and Darwin (-1.2%) recorded losses, the figures are a substantial improvement on what the three cities recorded over the last quarter and year.

Likewise, while the combined regional figure was -0.1%, this was much better than the quarter (-0.6%) and annual (-2.9%) figures recorded for that market.

What’s driving the improvement?

The significant lift in values in August aligns with a consistent increase in auction clearance rates and a deeper pool of buyers at a time when the volume of stock advertised for sale remains low, says CoreLogic research director Tim Lawless.

“It’s likely that buyer demand and confidence is responding to the positive effect of a stable federal government, as well as lower interest rates, tax cuts and a subtle easing in credit policy,” says Lawless.

“While the recovery trend is still early, it does appear that growth trends are gathering some pace, particularly in the largest capital cities.”

Is a big bounce nigh?

Lawless says while he had previously believed the housing market recovery would be a “slow and steady one”, this might not necessarily be the case.

“With housing credit restrictions easing and mortgage rates likely to reduce further, this rebound could potentially turn into a ‘v-shaped’ recovery,” Lawless says.

“At the outset, it appears that a rapid recovery would confirm that low interest rates and a loosening in credit policy is reigniting some market exuberance.”

The spring selling season will be a timely test of the market’s depth.

“A key contributor to the housing recovery has been the increase in buyers, but also a lack of advertised stock. As stock levels continue to rise throughout spring, we will get a much better understanding of the depth of the current recovery,” Lawless says.

“As listing numbers and auction volumes rise, clearance rates may soften if buyer demand doesn’t lift to match the increase in supply.”

Interested in jumping in?

These latest figures indicate that the housing market recovery is underway, so if you’re interested in making a purchase, then please don’t hesitate to get in touch.

As mentioned above, spring tends to bring more properties onto the market, so if you’ve got your eye on one, let us know and we’ll be happy to help you obtain finance for it.

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.

New code to protect Aussies buying solar panels

Ever thought about investing in solar panels for your home? If so, you’ll know it’s a big decision and there’s a lot to wrap your head around. Fortunately, the consumer watchdog is proposing a new retailer code to make solar purchases safer and easier.

Australia is the sunniest continent on Earth. Yep, even more so than Africa.

Which is why it makes sense that more than two million homes have already decked out their rooftops with solar panels.

Sure, the initial outlay is between $5,000 and $10,000, but solar installations usually pay themselves off in two to six years – and then they save you a whole lot of money on power bills in the long run.

The thing is, though, household solar can be tricky to research if you’re not familiar with the industry – not to mention all the potential government rebates and incentives you need to wrap your head around.

Fortunately, the ACCC is stepping in

The Australian Competition and Consumer Commission (ACCC) has proposed a new consumer code for retailers selling solar and energy storage systems, with a draft determination due on September 9.

The New Energy Tech Consumer Code (the Code) sets minimum standards of good practice and consumer protection and will apply to all aspects of customers’ interactions with participating retailers.

That includes their marketing, finance and payments, warranties and complaints handling processes.

“Products like solar panels or battery storage involve significant financial outlays for households,” ACCC Deputy Chair Delia Rickard explains.

“This Code aims to give consumers more protection and more information to help them make informed purchases.”

What will The Code cover?

Signatories to the Code must comply with obligations, including that they:

– avoid high-pressure sales tactics
– ensure their advertising is clear and accurate
– educate consumers about their rights
– provide clear information about product performance and maintenance
– take extra steps to protect vulnerable consumers
– implement effective complaints handling processes.

The proposed code will also effectively prevent signatories from offering finance through ‘buy now pay later’ arrangements.

Financing options

There are a number of state government programs across Australia that offer interest-free loans for eligible households in the solar space, including in NSW, Victoria, Queensland and South Australia.

If you’re not eligible for any of the above schemes, rest assured that there are other smart ways to finance the installation of household solar.

If you’d like to find out more, get in touch. We’d be happy to talk you through some of your options.

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.

Caviar and wine, anyone? What a court ruling means for you

Indulgences such as caviar, wagyu beef and the finest bottles of wine shouldn’t count against you when lenders assess your application for finance, a Federal Court judge has said.

Ok, so maybe Federal Court Justice Nye Perram has a slightly different grocery list to the rest of us.

But his recent judgement should be welcome news to potential borrowers who have splashed out on the odd luxury over the past six months and are worried that it would completely derail their loan application.

So what’s going on?

Well, the corporate watchdog (the Australian Securities and Investments Commission, aka ASIC) filed a court case against Westpac in 2017 in an attempt to strengthen lending standards.

ASIC argued that Westpac’s automated decision system relied solely on a household expenses benchmark that underestimated real living expenses and, as such, was flawed.

However, Justice Perram ruled that Westpac had done nothing wrong by using its automated system, rather than manually checking the borrowers’ living expenses, when approving more than 260,000 home loans between December 2011 and March 2015.

A tasty morsel from the judgement

Justice Perram said that current laws do not explicitly require banks to check expenses.

“[I’m] unable to discern why, as a matter of principle, the consumer’s declared living expenses must be considered,” he said.

“I may eat wagyu beef every day washed down with the finest shiraz but, if I really want my new home, I can make do on much more modest fare.

“The fact that the consumer spends $100 per month on caviar throws no light on whether a given loan will put the consumer into circumstances of substantial hardship.”

Basically, what Justice Perram is saying is that just because you fork out for expensive items before you apply for a mortgage, doesn’t mean you’re incapable of reducing your expenses once you’ve taken out a loan.

What happened next?

The Australian Financial Review (AFR) followed up on the decision with a scathing smackdown of ASIC in an editorial that asked: “why did ASIC even bother?”.

“Leave banks – the institutions with the expertise and incentive to write good loans – to assess risks for home loans. Not second-guessing bureaucrats,” the editorial stated.

“After all, it is hardly in a bank’s own interest to lend to people who are unlikely to be able to pay the money back.”

CoreLogic Research Analyst Cameron Kusher meanwhile wrote that it was not only a big win for Westpac, but the entire lending industry.

“The judge in the ASIC/Westpac case seems to really get it. While you might spend a lot more before you get a mortgage, getting a loan is about knowing someone has the capacity to change their spending behaviour once they have a mortgage,” he said.

“Lending has become so prescriptive when it is really the unexpected life events that cause someone to default on their mortgage. You can’t foresee everything.”

Meanwhile, ASIC commissioner Sean Hughes said the commission was consulting on new guidance in relation to responsible lending obligations.

What this means for your next loan application

Westpac says the decision provides clarity for the interpretation of responsible lending obligations, however consumer groups who found the decision “disappointing” are calling on the government to amend responsible lending laws.

While this court ruling may have the potential to somewhat relax the tight lending standards currently in place, it’s better to be safe than sorry when applying for a loan and we can provide you with some good tips on how to get your accounts in order.

After all, it is still up to the lender’s discretion (perhaps hold off on the caviar for a while longer!).

So if you’re considering applying for finance in the near future, get in touch.

We’d be more than happy to help guide you through the ever-evolving responsible lending landscape.

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.