Get a foot in the door to the property market

Get a foot in the door to the property market

June 30, 2011

Property prices may be flat or falling in many areas of the country and borrowers are beginning to return to the market, but life is still tough for those trying to get a foot into the property market for the first time.

The average mortgage taken out by first home buyers is $285,400, according to Australian Bureau of Statistics data for April. That means buyers need to save a deposit of at least $5700 in order to qualify for a mortgage.

However, there is only one mortgage available on the market which allows buyers to borrow up to 98 percent of the property’s value with lender’s mortgage insurance (LMI): Teacher’s Credit Union’s My First Home Loan with a rate of 7.29 percent. While they do exist, the rates on higher loan-to-value ratio (LVR) products are typically higher than those available to borrowers with larger deposits.

Plus there are a number of additional costs involved in buying a house, such as solicitor’s fees and in some cases stamp duty. Therefore, many future home owners are saving even larger amounts before they enter the market.

Given these entry conditions, it’s little wonder that the number of first-time buyers is low. In April first home buyers accounted for only 15.8 percent of all borrowers, according to ABS data. Two years ago, first timers made up more than 28 percent of the market.

What help is out there?
Fortunately there are various schemes, led both by the federal government and the banks, which aim to help cash-strapped Australians into the market for the first time. For instance, the government’s First Home Saver account scheme offers a tax-effective way of saving for a first home through a combination of government contributions and low taxes. You can find more information about government-backed schemes by visiting www.firsthome.gov.au.

Institutions also give first home buyers a head start including via help from other family members, which can use the equity in their own home to provide additional security for a portion of your loan amount. By doing so, it can reduce your LVR and save you money on LMI.

Best mortgage deals
Of course, not everyone will need a hand getting into the property market, and the cheapest way will almost always be found by saving at least 10 percent of your future home cost as deposit, and then comparing the best mortgages online.

Some of the top variable home loans available on the market include Loans.com.au Dream Loan Express with a rate of 6.58 percent, Mortgage Port Management’s Essential at 6.69 percent and eMoney’s Full Doc Variable Pro Pack at 6.71 percent, according to the RateCity database.

So compare mortgages before you sign up, because shopping around for a great deal could save you hundreds, if not thousands, of dollars over the life of your home loan.

 

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Learn more about home loans

How can I get a home loan with no deposit?

Following the Global Financial Crisis, no-deposit loans, as they once used to be known, have largely been removed from the market. Now, if you wish to enter the market with no deposit, you will require a property of your own to secure a loan against or the assistance of a guarantor.

Interest Rate

Your current home loan interest rate. To accurately calculate how much you could save, an accurate interest figure is required. If you are not certain, check your bank statement or log into your mortgage account.

How common are low-deposit home loans?

Low-deposit home loans aren’t as common as they once were, because they’re regarded as relatively risky and the banking regulator (APRA) is trying to reduce risk from the mortgage market.

However, if you do your research, you’ll find there is still a fairly wide selection of banks, credit unions and non-bank lenders that offers low-deposit home loans.

Mortgage Calculator, Interest Rate

The percentage of the loan amount you will be charged by your lender to borrow. 

Mortgage Calculator, Deposit

The proportion you have already saved to go towards your home. 

Mortgage Calculator, Loan Results

These are the loans that may be suitable, based on your pre-selected criteria. 

What do mortgage brokers do?

Mortgage brokers are finance professionals who help borrowers organise home loans with lenders. As such, they act as middlemen between borrowers and lenders.

While bank staff recommend home loan products only from their own employer, brokers are independent, so they can recommend products from a range of institutions.

Brokers need to be accredited with a particular lender to be able to work with that lender. A typical broker will be accredited with anywhere from 10 to 30 lenders – the big four banks, as well as a range of smaller banks, credit unions and non-bank lenders.

As a general rule, brokers don’t charge consumers for their services; instead, they receive commissions from lenders whenever they place a borrower with that institution.

How much are repayments on a $250K mortgage?

The exact repayment amount for a $250,000 mortgage will be determined by several factors including your deposit size, interest rate and the type of loan. It is best to use a mortgage calculator to determine your actual repayment size.

For example, the monthly repayments on a $250,000 loan with a 5 per cent interest rate over 30 years will be $1342. For a loan of $300,000 on the same rate and loan term, the monthly repayments will be $1610 and for a $500,000 loan, the monthly repayments will be $2684.

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 is it important to get the most up-to-date information?

The mortgage market changes constantly. Every week, new products get launched and existing products get tweaked. Yet many ratings and awards systems rank products annually or biannually.

We update our product data as soon as possible when lenders make changes, so if a bank hikes its interest rates or changes its product, the system will quickly re-evaluate it.

Nobody wants to read a weather forecast that is six months old, and the same is true for home loan comparisons.

What is the ratings scale?

The ratings are between 0 and 5, shown to one decimal point, with 5.0 as the best. The ratings should be used as an easy guide rather than the only thing you consider. For example, a product with a rating of 4.7 may or may not be better suited to your needs than one with a rating of 4.5, but both are probably much better than one with a rating of 1.2.

Savings over

Select a number of years to see how much money you can save with different home loans over time.

e.g. To see how much you could save in two years by switching mortgages,  set the slider to 2.

Mortgage Calculator, Property Value

An estimate of how much your desired property is worth. 

What happens to your mortgage when you die?

There is no hard and fast answer to what will happen to your mortgage when you die as it is largely dependent on what you have set out in your mortgage agreement, your will (if you have one), other assets you may have and if you have insurance. If you have co-signed the mortgage with another person that person will become responsible for the remaining debt when you die.

If the mortgage is in your name only the house will be sold by the bank to cover the remaining debt and your nominated air will receive the remaining sum if there is a difference. If there is a turn in the market and the sale of your house won’t cover the remaining debt the case may go to court and the difference may have to be covered by the sale of other assets.  

If you have a life insurance policy your family may be able to use some of the lump sum payment from this to pay down the remaining mortgage debt. Alternatively, your lender may provide some form of mortgage protection that could assist your family in making repayments following your passing.