Aussies hunker down on debt in lockdown

Aussies hunker down on debt in lockdown

New figures released today from the ABS show new home lending plunged in the month of April by $935.5 million. In the same month, Australians wiped a record $1.55 billion off debt accruing interest on their credit cards – the highest drop on record.

HOUSING

The ABS lending indicator statistics released today show that new lending dropped by 4.80 per cent, month-on-month, with the total value of new lending down by $935.5 million compared to March 2020, according to the seasonally adjusted data. Of this, a $720.9 million drop was from new owner-occupier loans.

Refinancing, however, picked up pace – the number of external refinances increased by 11.20 per cent in the month of April, and 26.96 per cent, year-on-year, according to the seasonally adjusted figures.

Value of new loans % change % change
Mar 2020 – Apr 2020 Apr 2019 – Apr 2020
Total housing

-4.80%

11.24%

Owner occupiers

-5.00%

14.75%

Investors

-4.23%

2.38%

Notes: Seasonally adjusted figures. Figures exclude refinancing.

Source: ABS lending indicator statistics for April 2020, released 10 June 2020.

Number of owner-occupier loans % change % change
Mar 2020 – Apr 2020 Apr 2019 – Apr 2020
First home buyers

-3.75%

15.56%

Refinancers

11.20%

26.96%

Notes: Based on the number of new loans to owner occupiers using seasonally adjusted figures.

Source: ABS lending indicator statistics for April 2020, released 10 June 2020.

  • Considering refinancing your home loan? With rates at historic lows, it may be worth comparing your options and seeing what's available.

CREDIT CARDS

Statistics released yesterday from the RBA show that outstanding debt accruing interest dropped by $1.55 billion or 5.76 per cent. The highest monthly drop on record.

TOTAL Apr-20 Mar 2020 vs Apr 2020 Apr 19 vs Apr 2020
Number of accounts 13.50 million

-136,817

-1.00%

-1.09 million

-7.48%

Total balances accruing interest $25.43 billion

-$1.55 billion

-5.76%

-$4.10 billion

-13.87%

Total value of purchases $14.72 billion

-$6.43 billion

-30.42%

-$7.22 billion

-32.92%

Total value of cash advance

$307.44 million

-$199.54 million

-39.36%

-$287.76 million

-48.35%

Notes: excludes commercial cards, using original data from the RBA. Data released 9 June 2020.

RateCity.com.au research director, Sally Tindall, said a lot of Australians spent their lockdown refinancing their mortgages and getting on top of their debt.

“Australians spent the month of April getting their finances in order, scaling back spending and knocking down their debt, with the biggest monthly drop in debt accruing interest on record,” she said.

“The early access to superannuation program is likely to be a factor in this record busting drop, giving some Australians an opportunity to wipe clean their credit cards that was, in their mind, too good to refuse.

“Refinance activity has also taken off during lockdown. We expect this to continue to gain pace with many homeowners looking to sure up their finances.

“In relation to mortgages, today’s drop is likely to be the beginning of a long road ahead for the home lending market.

“In April alone, nearly one billion dollars of new lending was ripped out of the property market, as the country went into lockdown; the biggest monthly drop in new lending since October 2015, in dollar terms,” she said.

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Learn more about home loans

How long does Bankwest take to approve home loans?

Full approval for a home loan usually involves a property valuation, which, Bankwest suggests, can take “a week or two”. As a result, getting your home loan approved may take longer. However, you may get full approval within this time if you applied for and received conditional approval, sometimes called a pre-approval, from Bankwest before finalising the home you want to buy.  

Another way of speeding up approvals can be by completing, signing, and submitting your home loan application digitally. Essentially, you give the bank or your mortgage broker a copy of your home’s sale contract and then complete the rest of the steps online. Bankwest has claimed this cuts the approval time to less than four days, although this may only happen if your income and credit history can be verified easily, or if your home’s valuation doesn’t take time.

Why should I get an ING home loan pre-approval?

When you apply for an ING home loan pre-approval, you might be required to provide proof of employment and income, savings, as well as details on any on-going debts. The lender could also make a credit enquiry against your name. If you’re pre-approved, you will know how much money ING is willing to lend you. 

Please note, however, that a pre-approval is nothing more than an idea of your ability to borrow funds and is not the final approval. You should receive the home loan approval  only after finalising the property and submitting a formal loan application to the lender, ING. Additionally, a pre-approval does not stay valid indefinitely, since your financial circumstances and the home loan market could change overnight.

 

 

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.

Can I apply for an ANZ non-resident home loan? 

You may be eligible to apply for an ANZ non-resident home loan only if you meet the following two conditions:

  1. You hold a Temporary Skill Shortage (TSS) visa or its predecessor, the Temporary Skilled Work (subclass 457) visa.
  2. Your job is included in the Australian government’s Medium and Long Term Strategic Skills List. 

However, non-resident home loan applications may need Foreign Investment Review Board (FIRB) approval in addition to meeting ANZ’s Mortgage Credit Requirements. Also, they may not be eligible for loans that require paying for Lender’s Mortgage Insurance (LMI). As a result, you may not be able to borrow more than 80 per cent of your home’s value. However, you can apply as a co-borrower with your spouse if they are a citizen of either Australia or New Zealand, or are a permanent resident.

How can I calculate interest on my home loan?

You can calculate the total interest you will pay over the life of your loan by using a mortgage calculator. The calculator will estimate your repayments based on the amount you want to borrow, the interest rate, the length of your loan, whether you are an owner-occupier or an investor and whether you plan to pay ‘principal and interest’ or ‘interest-only’.

If you are buying a new home, the calculator will also help you work out how much you’ll need to pay in stamp duty and other related costs.

Does Australia have no-deposit home loans?

Australia no longer has no-deposit home loans – or 100 per cent home loans as they’re also known – because they’re regarded as too risky.

However, some lenders allow some borrowers to take out mortgages with a 5 per cent deposit.

Another option is to source a deposit from elsewhere – either by using a parental guarantee or by drawing out equity from another property.

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.

What is 'principal and interest'?

‘Principal and interest’ loans are the most common type of home loans on the market. The principal part of the loan is the initial sum lent to the customer and the interest is the money paid on top of this, at the agreed interest rate, until the end of the loan.

By reducing the principal amount, the total of interest charged will also become smaller until eventually the debt is paid off in full.

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.

How can I get ANZ home loan pre-approval?

Shopping for a new home is an exciting experience and getting a pre-approval on the loan may give you the peace of mind that you are looking at properties within your budget. 

At the time of applying for the ANZ Bank home loan pre-approval, you will be required to provide proof of employment and income, along with records of your savings and debts.

An ANZ home loan pre-approval time frame is usually up to three months. However, being pre-approved doesn’t necessarily mean you will get your home loan. Other factors could lead to your home loan application being rejected, even with a prior pre-approval. Some factors include the property evaluation not meeting the bank’s criteria or a change in your financial circumstances.

You can make an application for ANZ home loan pre-approval online or call on 1800100641 Mon-Fri 8.00 am to 8.00 pm (AEST).

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. 

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.