Bank of mum and dad' popular choice for first home buyers

Bank of mum and dad' popular choice for first home buyers

It’s always been a bank you can trust, but just how popular is the bank of mum and dad?

New RateCity research shows that half of Gen Y couples now need financial help from their parents to get into the property market.

Parents love to tell their kids they’ve ‘never had it so good’, but when it comes to property, the saying falls flat, with the research showing around half of Gen X couples needed just two salaries to afford their first home, while half of baby boomers needed just one.

Property prices have sky-rocketed in the last five years, particularly in our capital cities, so it’s no wonder a lot of younger people are struggling to outbid cashed-up investors at the point of sale.

In NSW, potential first home owners are also about to take another hit.  The state’s first home owners’ grant, which is for new homes only, is scheduled to be scaled back from $15,000 to $10,000 on 1 Jan 2016.

Watch the Channel Nine News report

So what are the biggest financial pressures holding under 35’s back? 

The RateCity study found the biggest barrier to homeownership was salary, with 68 per cent of respondents indicating they didn’t earn enough to meet the financial commitments a mortgage brings.  This was closely followed by cost of living (59 per cent), rising property prices (55 per cent) and rent (22 per cent).

Interestingly, those on a higher income were the ones that felt the rental pinch the most, while the majority of 18 – 24 year olds didn’t rate it as a concern at all, most likely because they are still living at home.

Are parental financial gifts driving inequality?

Recent modelling by economists from Sydney University and RMIT University found that kids who receive a gift of $5,000 or more from a parent are much more likely to own a home than others.

Fantastic news for people whose parents can afford to give them a leg up, but of course, the issue is that this predominantly applies to wealthier families. 

Does this mean that lower income families are entrenched in a cycle of renting? Hopefully not.  As the researchers explain, their study is hoped to help inform governments when assessing the effectiveness of housing policies and grants.

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First-time landlords

Perhaps unsurprisingly, a number of young Australians are now opting to be first-time landlords, purchasing property that they can afford but might not necessarily want to live in. A recent Mortgage Choice survey showed that 37 per cent of investors were first home buyers, up from 21 per cent on the previous year.

But the introduction of higher interest rates for investors, which began just six months ago and has now been widely adopted by lenders across the market, is a thorn in the side of these young venture capitalists. 

With rates for investors now as much as 1.4 percentage points higher, the extra $100’s in repayments could be enough to deter young investors who only have access to limited funds.

Deposits

Saving for a deposit is hard to do, particularly if your bank tells you you’ll need a sizeable sum before they’ll even consider loaning you the remainder.  But this shouldn’t necessarily be seen as a stumbling block.  Deposits of 20 per cent can really work in your favour when negotiating the best possible rate from your bank. 

A deposit of 20 per cent or more will also mean you can avoid the added burden of lenders mortgage insurance which can be as high as $14,000.

Tips to buying a home

Cracking the property market for the first time is no mean feat.  It requires a lifetime of savings, plus the capacity to meet the monthly mortgage repayments, even when rates rise.

If you can’t quite meet these financial benchmarks, there are some shortcuts you could consider to get your foot on the property ladder faster.

  1. Consider an investment property.  Investment properties do attract higher interest rates but it does mean you aren’t restricted by location.  There’s nothing stopping you looking out of town or interstate, as long as you do your research and try to buy in an area where rental demand is high and house prices are likely to go up, not down.
  2. Get the best rate. Comparing the home loan market and negotiating your home loan rate will save you thousands in mortgage repayments over the life of your loan.  Plus, whenever you can afford to make additional repayments, do.  A mortgage calculator will show you just how many years you can knock off your loan with deposits of a few hundred dollars here and there.
  3. Consider buying with a friend.  Buying with a friend can be perilous, so you’ll need to weigh up the pros and cons carefully and war-game potential problems such as what happens if one of us wants to sell. But with careful planning it is possible to make it work.
  4. Move back with your parents.  It’s a scary thought but if you sit down and work out how much you’ll save in just one year, not just on rent but on other household bills such as electricity and, if you’re lucky, food, then it might just be worth it.
  5. Ask your parents to guarantor your loan. Going guarantor can be a great way to convince a bank to lend you money, but it isn’t as easy as getting mum and dad to sign the bottom line. If you default on your loan, your parents will be expected to step in meet the repayments.

If you still can’t afford it, wait another year or two. Despite the hype, the housing market will still be there in a couple of years’ time.  It is better to have all the safeguards and buffers you need in place, before you take the property plunge.

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What are the pros and cons of no-deposit home loans?

It’s no longer possible to get a no-deposit home loan in Australia. In some circumstances, you might be able to take out a mortgage with a 5 per cent deposit – but before you do so, it’s important to weigh up the pros and cons.

The big advantage of borrowing 95 per cent (also known as a 95 per cent home loan) is that you get to buy your property sooner. That may be particularly important if you plan to purchase in a rising market, where prices are increasing faster than you can accumulate savings.

But 95 per cent home loans also have disadvantages. First, the 95 per cent home loan market is relatively small, so you’ll have fewer options to choose from. Second, you’ll probably have to pay LMI (lender’s mortgage insurance). Third, you’ll probably be charged a higher interest rate. Fourth, the more you borrow, the more you’ll ultimately have to pay in interest. Fifth, if your property declines in value, your mortgage might end up being worth more than your home.

How can I apply for a first home buyers loan with Commonwealth Bank?

Getting a home loan requires planning and research. If you are considering a home loan with the Commonwealth Bank, you can find the information you need in the buying your first home section of the bank’s website.

You can see the steps you should take before applying for the loan and use the calculators to work out how much you can borrow, what your monthly repayments would be and the upfront costs you’d likely pay.

You can also book a time with a Commonwealth first home loan specialist by calling 13 2221.

CommBank publishes a property report that may help you understand the real estate market. The bank has also created a CommBank Property App that you can use to search for property.  The link to download this app is available on the same webpage.

If you are eligible for the First Home Loan Deposit Scheme, CommBank will help you process your application. The scheme helps first home buyers to purchase a home with a low deposit. You can read details about this scheme here and speak with a CommBank home lending specialist to understand your options.

When does Commonwealth Bank charge an early exit fee?

When you take out a fixed interest home loan with the Commonwealth Bank, you’re able to lock the interest for a particular period. If the rates change during this period, your repayments remain unchanged. If you break the loan during the fixed interest period, you’ll have to pay the Commonwealth Bank home loan early exit fee and an administrative fee.

The Early Repayment Adjustment (ERA) and Administrative fees are applicable in the following instances:

  • If you switch your loan from fixed interest to variable rate
  • When you apply for a top-up home loan
  • If you repay over and above the annual threshold limit, which is $10,000 per year during the fixed interest period
  • When you prepay the entire outstanding loan balance before the end of the fixed interest duration.

The fee calculation depends on the interest rates, the amount you’ve repaid and the loan size. You can contact the lender to understand more about what you may have to pay. 

What do people do with a Macquarie Bank reverse?

There are a number of ways people use a Macquarie Bank reverse mortgage. Below are some reasons borrowers tend to release their home’s equity via a reverse mortgage:

  • To top up superannuation or pension income to pay for monthly bills;
  • To consolidate and repay high-interest debt like credit cards or personal loans;
  • To fund renovations, repairs or upgrades to their home
  • To help your children or grandkids through financial difficulties. 

While there are no limitations on how you can use a Macquarie reverse mortgage loan, a reverse mortgage is not right for all borrowers. Reverse mortgages compound the interest, which means you end up paying interest on your interest. They can also affect your entitlement to things like the pension It’s important to think carefully, read up and speak with your family before you apply for a reverse mortgage.

How to use the ME Bank reverse mortgage calculator?

You can access the equity in your home to help you fund your needs during your senior years. A ME Bank reverse mortgage allows you to tap into the equity you’ve built up in your home while you continue living in your house. You can also use the funds to pay for your move to a retirement home and repay the loan when you sell the property.

Generally, if you’re 60 years old, you can borrow up to 15 per cent of the property value. If you are older than 75 years, the amount you can access increases to up to 30 per cent. You can use a reverse mortgage calculator to know how much you can borrow.

To take out a ME Bank reverse mortgage, you’ll need to provide information like your age, type of property – house or an apartment, postcode, and the estimated market value of the property. The loan to value ratio (LVR) is calculated based on your age and the property’s value.

What are the features of home loans for expats from Westpac?

If you’re an Australian citizen living and working abroad, you can borrow to buy a property in Australia. With a Westpac non-resident home loan, you can borrow up to 80 per cent of the property value to purchase a property whilst living overseas. The minimum loan amount for these loans is $25,000, with a maximum loan term of 30 years.

The interest rates and other fees for Westpac non-resident home loans are the same as regular home loans offered to borrowers living in Australia. You’ll have to submit proof of income, six-month bank statements, an employment letter, and your last two payslips. You may also be required to submit a copy of your passport and visa that shows you’re allowed to live and work abroad.

Remaining loan term

The length of time it will take to pay off your current home loan, based on the currently-entered mortgage balance, monthly repayment and interest rate.

Why does Westpac charge an early termination fee for home loans?

The Westpac home loan early termination fee or break cost is applicable if you have a fixed rate home loan and repay part of or the whole outstanding amount before the fixed period ends. If you’re switching between products before the fixed period ends, you’ll pay a switching break cost and an administrative fee. 

The Westpac home loan early termination fee may not apply if you repay an amount below the prepayment threshold. The prepayment threshold is the amount Westpac allows you to repay during the fixed period outside your regular repayments.

Westpac charges this fee because when you take out a home loan, the bank borrows the funds with wholesale rates available to banks and lenders. Westpac will then work out your interest rate based on you making regular repayments for a fixed period. If you repay before this period ends, the lender may incur a loss if there is any change in the wholesale rate of interest.

How is interest charged on a reverse mortgage from IMB Bank?

An IMB Bank reverse mortgage allows you to borrow against your home equity. You can draw down the loan amount as a lump sum, regular income stream, line of credit or a combination. The interest can either be fixed or variable. To understand the current rates, you can check the lender’s website.

No repayments are required as long as you live in the home. If you sell it or move to a senior living facility, the loan must be repaid in full. In some cases, this can also happen after you have died. Generally, the interest rates for reverse mortgages are higher than regular mortgage loans.

The interest is added to the loan amount and it is compounded. It means you’ll pay interest on the interest you accrue. Therefore, the longer you have the loan, the higher is the interest and the amount you’ll have to repay.

How much deposit do I need for a home loan from ANZ?

Like other mortgage lenders, ANZ often prefers a home loan deposit of 20 per cent or more of the property value when you’re applying for a home loan. It may be possible to get a home loan with a smaller deposit of 10 per cent or even 5 per cent, but there are a few reasons to consider saving a larger deposit if possible:

  • A larger deposit tells a lender that you’re a great saver, which could help increase the chances of your home loan application getting approved.
  • The more money you pay as a deposit, the less you’ll have to borrow in your home loan. This could mean paying off your loan sooner, and being charged less total interest.
  • If your deposit is less than 20 per cent of the property value, you might incur additional costs, such as Lenders Mortgage Insurance (LMI).

Can I get a NAB first home loan?

The First Home Loan Deposit Scheme of NAB helps first home buyers purchase a property sooner by reducing the upfront costs required. This scheme is offered based on a Government-backed initiative, with10,000 available places announced in October 2020.

Suppose your application for the NAB first home buyer loan is successful. In that case, you’ll only need to pay a low deposit, between 5 and 20 per cent of the property value and won’t be asked to pay lender's mortgage insurance (LMI). You’ll also receive a limited guarantee from the Australian government to purchase the property.

If you’re applying for the NAB first home buyer home loan as an individual, you need to have earned less than $125,000 in the last financial year. Couples applying for the NAB first home loan need to have earned less than $200,000 to be eligible. To be considered a couple, you need to be married or in a de facto relationship. A parent and child, siblings or friends are not considered a couple when applying for a NAB first home loan.

The NAB First Home Loan Deposit Scheme is currently offered only to purchase a brand new property, rather than an established property.

When do mortgage payments start after settlement?

Generally speaking, your first mortgage payment falls due one month after the settlement date. However, this may vary based on your mortgage terms. You can check the exact date by contacting your lender.

Usually your settlement agent will meet the seller’s representatives to exchange documents at an agreed place and time. The balance purchase price is paid to the seller. The lender will register a mortgage against your title and give you the funds to purchase the new home.

Once the settlement process is complete, the lender allows you to draw down the loan. The loan amount is debited from your loan account. As soon as the settlement paperwork is sorted, you can collect the keys to your new home and work your way through the moving-in checklist.

How much deposit do I need for a home loan from NAB?

The right deposit size to get a home loan with an Australian lender will depend on the lender’s eligibility criteria and the value of your property.

Generally, lenders look favourably on applicants who save up a 20 per cent deposit for their property This also means applicants do not have to pay Lenders Mortgage Insurance (LMI). However, you may still be able to obtain a mortgage with a 10 - 15 per cent deposit.  

Keep in mind that NAB is one of the participating lenders for the First Home Loan Deposit Scheme, which allows eligible borrowers to buy a property with as low as a 5 per cent deposit without paying the LMI. The Federal Government guarantees up to 15 per cent of the deposit to help first-timers to become homeowners.

What is a secured home loan?

When the lender creates a mortgage on your property, they’re offering you a secured home loan. It means you’re offering the property as security to the lender who holds this security against the risk of default or any delays in home loan repayments. Suppose you’re unable to repay the loan. In this case, the lender can take ownership of your property and sell it to recover any outstanding funds you owe. The lender retains this hold over your property until you repay the entire loan amount.

If you take out a secured home loan, you may be charged a lower interest rate. The amount you can borrow depends on the property’s value and the deposit you can pay upfront. Generally, lenders allow you to borrow between 80 per cent and 90 per cent of the property value as the loan. Often, you’ll need Lenders Mortgage Insurance (LMI) if the deposit is less than 20 per cent of the property value. Lenders will also do a property valuation to ensure you’re borrowing enough to cover the purchase.