Top 4 factors influencing house price growth

Top 4 factors influencing house price growth

When you take out a home loan, whether it’s because you want to invest in property or just have your own house to your name, you’ve got capital growth at the back of your mind. You eventually want the sale of your house to fall into the 91.4 percent of re-sales measured in the December 2014 Pain and Gain report that posted a gross profit – not the 8.6 percent that saw a gross loss. 

On the road to such capital growth, there are any number of factors that can positively influence the value of your home. Some, however, have more impact than others. 

Quality of infrastructure

Convenience is king for any home buyer. They want to know that not only do they have all the necessary facilities and services close at hand – public transport, health care – but that they are of a high quality. Well-made and well-placed infrastructure will therefore often lead buyers to pay a premium for property. 

Consider what a new rail project could do for an area, for instance. Previously, a lack of transport might have led residents to put less away in their savings accounts and spend valuable time and money commuting to work each day by car. It may also have created a sense of isolation and distance for residents, who were cut off from the city centre. A new rail link would essentially reduce this physical and psychological distance and increase the convenience of living in an area. That’s why the news that the latest budget was maintaining a high degree of spending on infrastructure was so widely celebrated. 

Supply of property

Demand and supply – they’re the most basic of forces that drive not just a specific market, but arguably the whole economy. The principle is simple: The more scarce a particular product is, the more valuable it is. If there is only a specific number of houses – or more importantly, land, which is finite – in an area, then in order for buyers to buy into it, they’ll have to outbid their fellow consumers. 

In a report released this March, titled “Key Truths on Housing in Australia”, the Australian Bankers’ Association noted that while claims of a housing shortage driving prices should be viewed critically, the amount of housing was not keeping up with population growth. While on a macro scale, this may not be pushing prices up, on a micro level a shrinking supply of housing and – more importantly – developable land in an area could certainly make values rise in a particular locality rise in value.

Proximity to key amenities

As noted before, convenience is a hugely important factor for many home buyers. This doesn’t simply stop at basic necessities and infrastructure, however. It also applies to essential – or desirable – amenities that make up the hallmark of modern living. 

This might include schools, from kindergarten all the way to universities. As IBISWorld has pointed out, the Australian birth rate is set to rise by 6.4 percent over the next five years, which will feed the growth of a number of child-related industries. It will also make homes that are close to quality schools particularly high in demand.

Or consider the impact of the construction of a new high-end store or shopping centre. While not exactly meeting a necessity, people want to live close to areas where they can spend conveniently. Such retailers also generally do comprehensive research of their own before moving in – if they’re coming to an area, there’s a good bet it’s set to see a boom. 

General desirability

It’s not always a utilitarian decision. Sometimes, the value of a particular neighbourhood will go up simply because its living standard is high – a somewhat ineffable concept that can comprise many aspects. 

Consider two hypothetical areas: Both are located in similarly central locations, and both have access to important amenities and infrastructure, such as a train line that runs through each. However, one area also happens to be rife with cafes and restaurants, along with a busy night life. The other not only lacks those features, it has a higher crime rate.

While this may be an extreme example, it’s not a surprise which of these neighbourhoods buyers would compete over. Safety, aesthetic appeal, entertainment and recreation – these are all elements that buyers take into account before carrying out a home loan comparison.

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Learn more about home loans

Does Australia have no cost refinancing?

No Cost Refinancing is an option available in the US where the lender or broker covers your switching costs, such as appraisal fees and settlement costs. Unfortunately, no cost refinancing isn’t available in Australia.

Can I change jobs while I am applying for a home loan?

Whether you’re a new borrower or you’re refinancing your home loan, many lenders require you to be in a permanent job with the same employer for at least 6 months before applying for a home loan. Different lenders have different requirements. 

If your work situation changes for any reason while you’re applying for a mortgage, this could reduce your chances of successfully completing the process. Contacting the lender as soon as you know your employment situation is changing may allow you to work something out. 

Can I get a home loan if I am on an employment contract?

Some lenders will allow you to apply for a mortgage if you are a contractor or freelancer. However, many lenders prefer you to be in a permanent, ongoing role, because a more stable income means you’re more likely to keep up with your repayments.

If you’re a contractor, freelancer, or are otherwise self-employed, it may still be possible to apply for a low-doc home loan, as these mortgages require less specific proof of income.

Will I have to pay lenders' mortgage insurance twice if I refinance?

If your deposit was less than 20 per cent of your property’s value when you took out your original loan, you may have paid lenders’ mortgage insurance (LMI) to cover the lender against the risk that you may default on your repayments. 

If you refinance to a new home loan, but still don’t have enough deposit and/or equity to provide 20 per cent security, you’ll need to pay for the lender’s LMI a second time. This could potentially add thousands or tens of thousands of dollars in upfront costs to your mortgage, so it’s important to consider whether the financial benefits of refinancing may be worth these costs.

Is there a limit to how many times I can refinance?

There is no set limit to how many times you are allowed to refinance. Some surveyed RateCity users have refinanced up to three times.

However, if you refinance several times in short succession, it could affect your credit score. Lenders assess your credit score when you apply for new loans, so if you end up with bad credit, you may not be able to refinance if and when you really need to.

Before refinancing multiple times, consider getting a copy of your credit report and ensure your credit history is in good shape for future refinances.

I have a poor credit rating. Am I still able to get a mortgage?

Some lenders still allow you to apply for a home loan if you have impaired credit. However, you may pay a slightly higher interest rate and/or higher fees. This is to help offset the higher risk that you may default on your repayments.

I can't pick a loan. Should I apply to multiple lenders?

Applying for home loans with multiple lenders at once can affect your credit history, as multiple loan applications in short succession can make you look like a risky borrower. Comparing home loans from different lenders, assessing their features and benefits, and making one application to a preferred lender may help to improve your chances of success

Will I be paying two mortgages at once when I refinance?

No, given the way the loan and title transfer works, you will not have to pay two mortgages at the one time. You will make your last monthly repayment on loan number one and then the following month you will start paying off loan number two.

If I don't like my new lender after I refinance, can I go back to my previous lender?

If you wish to return to your previous lender after refinancing, you will have to go through the refinancing process again and pay a second set of discharge and upfront fees. 

Therefore, before you refinance, it’s important to weigh up the new prospective lender against your current lender in a number of areas, including fees, flexibility, customer service and interest rate.

Can I refinance if I have other products bundled with my home loan?

If your home loan was part of a package deal that included access to credit cards, transaction accounts or term deposits from the same lender, switching all of these over to a new lender can seem daunting. However, some lenders offer to manage part of this process for you as an incentive to refinance with them – contact your lender to learn more about what they offer.

What are the responsibilities of a mortgage broker?

Mortgage brokers act as the go-between for borrowers looking for a home loan and the lenders offering the loan. They offer personalised advice to help borrowers choose the right home loan for their needs.

In Australia, mortgage brokers are required by law to carry an Australian Credit License (ACL) if they offer credit assistance services. Which is the legal term for guidance regarding the different kinds of credit offered by lenders, including home loan mortgages. They may not need this license if they are working for an aggregator, for instance, as a franchisee. In both these situations, they need to comply with the regulations laid down by the Australian Securities and Investments Commission (ASIC).

These regulations, which are stipulated by Australian legislation, require mortgage brokers to comply with what are called “responsible lending” and “best interest” obligations. Responsible lending obligations mean brokers have to suggest “suitable” home loans. This means loans that you can easily qualify for,  actually meet your needs, and don’t prove unnecessarily challenging for you.

Starting 1 January 2021, mortgage brokers must comply with best interest obligations in addition to responsible lending obligations. These require mortgage brokers to act in the best interest of their customers and also requires them to prioritise their customers’ interests over their own. For instance, a mortgage broker may not recommend a lender who gives them a commission if that lender’s home loan offer does not benefit that particular customer.

How to break up with your mortgage broker

If you find a mortgage broker giving you generic advice or trying to sell you a competitive offer from an unsuitable lender, you might be better off  breaking up with the mortgage broker and consulting someone else. Breaking up with a mortgage broker can be done over the phone, or via email. You can also raise a complaint, either with the broker’s aggregator or with the Australian Financial Complaints Authority as necessary.

As licensed industry professionals, mortgage brokers have the responsibility of giving you accurate advice so that you know what to expect when you apply for a home loan. You may have approached the mortgage broker, for instance, because you have questions about the terms of a home loan a lender offered you. 

You should remember that mortgage brokers are obliged by law to act in your best interests and as part of complying with The Australian Securities and Investments Commission’s (ASIC) regulations. If you feel you didn’t get the right advice from the mortgage broker, or that you lost money as a result of accepting the broker’s suggestions regarding a lender or home loan offer, you can file a complaint with the ASIC and seek compensation. 

When you first speak to a mortgage broker, consider asking them about their Lender Panel, which is the list of lenders they usually recommend and who may pay them a commission. This information can help you decide if the advice they give you has anything to do with the remuneration they may receive from one or more lenders.

Do mortgage brokers need a consumer credit license?

In Australia, mortgage brokers are defined by law as being credit service or assistance providers, meaning that they help borrowers connect with lenders. Mortgage brokers may not always need a consumer credit license however if they’re operating solo they will need an Australian Credit License (ACL). Further, they may also need to comply with requirements asking them to mention their license number in full.

Some mortgage brokers can be “credit representatives”, or franchisees of a mortgage aggregator. In this case, if the aggregator has a license, the mortgage broker need not have one. The reasoning for this is that the franchise agreement usually requires mortgage brokers to comply with the laws applicable to the aggregator. If you’re speaking to a mortgage broker, you can ask them if they receive commissions from lenders, which is a good indicator that they need to be licensed. Consider requesting their license details if they don’t give you the details beforehand. 

You should remember that such a license protects you if you’re given incorrect or misleading advice that results in a home loan application rejection or any financial loss. Brokers are regulated by the Australian Securities & Investment Commission (ASIC), as per the National Consumer Credit Protection (NCCP) Act. 

What happens to my home loan when interest rates rise?

If you are on a variable rate home loan, every so often your rate will be subject to increases and decreases. Rate changes are determined by your lender, not the Reserve Bank of Australia, however often when the RBA changes the cash rate, a number of banks will follow suit, at least to some extent. You can use RateCity cash rate to check how the latest interest rate change affected your mortgage interest rate.

When your rate rises, you will be required to pay your bank more each month in mortgage repayments. Similarly, if your interest rate is cut, then your monthly repayments will decrease. Your lender will notify you of what your new repayments will be, although you can do the calculations yourself, and compare other home loan rates using our mortgage calculator.

There is no way of conclusively predicting when interest rates will go up or down on home loans so if you prefer a more stable approach consider opting for a fixed rate loan.