With the uncertainty of tax changes gone, a lessening of borrowing restrictions, and a new scheme to help first home buyers – coupled with two interest rate drops – it looks like things are swinging back into the borrowers’ favour.
The election result took most of us by surprise. The Labor victory many were expecting didn’t happen and the result on the property markets is already being felt.
As always, in the lead up to the election the market was a little flat, as people stopped to wait and see what happened. Perhaps even more so this time as Labor was promising to address affordability with reforms to negative gearing and the capital gains tax. Now this hasn’t happened there’s definitely more certainty, and some experts are predicting a shorter and shallower downturn as a result.
In addition, the Reserve Bank of Australia has dropped official interest rates twice in a row. This will have a positive impact on the market – rate drops always do – but there are still some conditions holding the larger economy back. Higher unemployment and weak economic growth will probably keep the market subdued.
Whatever the size of the effect, any rate drop will help housing demand because loans become more affordable, which means more people can potentially get into the market.
Say goodbye to the 7 per cent buffer.
What will really increase the effect of the rate drop is APRA’s decision to remove its requirement for lenders to use a minimum 7 per cent interest rate when assessing a customer’s ability to service a new loan.
This buffer was put in place a few years ago to protect borrowers from the financial stress of a rate rise. But with rates dropping 0.5 per cent in June and July, the gap between the lenders’ home loan rates and the 7 per cent minimum has got wider and doesn’t really reflect the home loan market.
If you’re a potential home buyer, your borrowing power will be increased.
More government help for first home buyers.
Now that its been re-elected, the Liberal Party is set to go forward with its promised First Home Loan Deposit Scheme. From January 1 the Government will offer loan guarantees for first home buyers, so they can buy a home with a deposit as low as 5 per cent of the purchase price.
If you’re a single person earning up to $125,000 a year, or a couple with a combined income of up to $200,000, and you’ve saved at least 5 per cent of the value of the home you’d like to buy, you’ll be eligible.
While this will no doubt enable some people to get into a new home much sooner, it’s difficult to tell how much this will help the wider market as the scheme is capped at 10,000, and there were 110,000 first home buyers in 2018.
For those who do qualify, they also stand to save thousands by having enough of a deposit to avoid paying lenders mortgage insurance.
Limiting it to 10,000 buyers may not be enough to make a real impact on home ownership rates, it will simply bring the purchase date forward for those who are close to the required deposit already. But if it gets people into a home who haven’t been able to afford it previously, it could act like the First Home Owners Grant and push up prices.
We’re keen to see the effect it has on the market but one thing’s for sure – for the people who can access it, there’s no doubt it will significantly cut down the time it takes to save for a deposit.
Keeping the competition alive.
One of the big pieces of news to come from the election campaign was the Liberal’s decision to delay a recommendation from the Banking Royal Commission and re-examine it in three years time. This recommendation would have changed the mortgage broking model so you, our customers, would have to pay for our services which have always been paid by the lenders. As an industry we are working to show the government the value delivered by the broker channel to our customers and the lending process and affirm the recommendation is not necessary.
It’s good news for us and even better news for you. As a broker, it’s our role to help you find a loan that’s right for your needs and individual circumstances. We meet with you, help get a clear picture of your financial situation, and then use this to go to a range of lenders to identify the products that suit you. We then speak with the lenders and handle the loan process from application through to settlement and beyond.
This doesn’t just make it easier for you, it forces the lenders to be more competitive as they have to fight for your business. It’s not hard to see that if brokers were no longer being used, more people would be going directly to the lenders, putting power back in their hands.
The value that brokers add to the process of finding and securing the right loan is seen in the fact that around 60 per cent of all Australians now choose to get their loan through a broker. Mortgage brokers also help smaller lenders compete with major banks that have a larger and more extensive branch network.
The competition this creates benefits us all, as lenders are continually improving their products, and keeping fees and rates low.
Thankfully, post-election, we’re still here to keep you up-to-date with how the mortgage market is changing and helping you make the most of it by getting you into your first home, or reassessing your situation to see if now’s the time to refinance.