Australians are feeling confident about spending as the economy bounces back

Australians are feeling confident about spending as the economy bounces back

Big bank economists are observing a rebound in people’s willingness to spend on items big and small, after the public stockpiled their savings for months in response to the uncertainty of a once in a century pandemic.

Senior economists at Westpac, Commonwealth Bank and ANZ have observed a sharp rebound in consumer confidence after it was revealed the federal government’s budget will rack up a large deficit in an effort to stimulate an economic recovery.

Consumer confidence lifted by 11.9 per cent to 105.0 in October, according to the Westpac-Melbourne Institute Index of Consumer Sentiment, a telephone survey of 1200 adults across Australia.

“This is an extraordinary result,” Bill Evans said, chief economist at Westpac.

“The Index has now lifted by 32 per cent over the last two months to the highest level since July 2018. (It) is now 10% above the average level in the six months prior to the pandemic.”

The growing confidence was owed to a few reasons, he said. These include the containment of the coronavirus pandemic, the federal budget drafted in response, and an expectation further financial relief is on the way from the Reserve Bank of Australia (RBA).

The trend was echoed in the ANZ-Roy Morgan Consumer Confidence report, which found consumer confidence has rebounded 49.6 per cent since hitting an almost 50 year low of 65.3 in March.

Feeling good about buying a house

People are feeling more confident about their family finances, securing employment and the economy, the Westpac survey found, but it observed another interesting insight: the time for many to buy a house is now.

The ‘time to buy a dwelling index’ jumped by 10.6 per cent in October to 122.2, reaching its highest level since September 2019.

“Of all the results in this … survey, this one is the most surprising and reassuring,” Mr Evans said. “Confidence in the housing market has boomed.”

The sentiment comes as a bit of a surprise given nearly a million people lost their jobs about six months ago, stimulus payments are on schedule to be wound down, and the pandemic remains ongoing. 

But economists claim the challenges posed have been met with proportionate responses, such as a stimulatory budget and historically low mortgage interest rates, combined with five months of falling property prices

Optimism for buying a property in NSW increased by 11.3 per cent, followed by rises in Victoria of 7 per cent and Queensland of 4.4 per cent. 

“The levels of the index in each of these eastern states are comparable, indicating a high degree of expectation that the Victorian market is set to reopen,” Mr Evans said.

Backing the growing sentiment is a solid increase in the value of owner occupier loans being issued. The Australian Bureau of Statistics revealed $16.3 billion in loans for 12,302 properties were approved in August, a rise of 13.6 per cent -- the largest increase since records were established 18 years ago.

Expecting interest rates to fall next month

The RBA dropped the cash rate to 0.25 in March, its lowest level in 30 years. 

But now there’s an increasing expectation the rate will reach an extraordinary new low with an atypical cut when the board meets next on 3 November.

“One of the likely factors behind the surge in sentiment this month is an expectation that the Board is set to cut the overnight cash rate from 0.25% to 0.10%,” Mr Evans said. 

“Communication from the Bank over the last few weeks points to this outcome.”

The extraordinary cut will help the nation’s central bank meet its targets for employment and inflation, he said. 

“Recently, we have detected a change in attitude indicating more confidence that the plumbing of the financial system can operate effectively at an even lower set of policy rates,” Mr Evans said. 

“With that in mind … there seems to be no reason for the (RBA) Board to delay its decision.”

From saving to spend, spend, spend

The federal government’s budget may blow out the deficit to $213.7 billion, but it appears the spending spree has left people feeling optimistic about the economy.

Outlook over the next year jumped by 24 per cent in October, while the five year economic forecast increased by 14 per cent. 

“The surge in the five year outlook has taken this sub-index to its highest level since August 2010,” Mr Evans said. 

“Respondents are likely to be seeing the Budget as setting a foundation for a sustained lift in Australia’s economic fortunes.”

People felt better about family finances, the survey found. About 6.2 per cent more people believed they were better off financially today than they were a year ago, and about 9.4 per cent believe they’re on track to be better off in five year’s time. 

One reason for this increase could be the “stunning lift” in confidence around job security. A 14.2 per cent increase was registered for October, reaching levels not seen since early 2019. 

“Despite media warnings about the looming ‘fiscal cliff’, respondents have become markedly more confident about job security,” Mr Evans said.

“In particular, those over 45 saw a 20 per cent lift in confidence – that was despite job-related measures in the Budget only providing specific support for younger employees.”

 

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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 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.

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 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.

Cash or mortgage – which is more suitable to buy an investment property?

Deciding whether to buy an investment property with cash or a mortgage is a matter or personal choice and will often depend on your financial situation. Using cash may seem logical if you have the money in reserve and it can allow you to later use the equity in your home. However, there may be other factors to think about, such as whether there are other debts to pay down and whether it will tie up all of your spare cash. Again, it’s a personal choice and may be worth seeking personal advice.

A mortgage is a popular option for people who don’t have enough cash in the bank to pay for an investment property. Sometimes when you take out a mortgage you can offset your loan interest against the rental income you may earn. The rental income can also help to pay down the loan.

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 much debt is too much?

A home loan is considered to be too large when the monthly repayments exceed 30 per cent of your pre-tax income. Anything over this threshold is officially known as ‘mortgage stress’ – and for good reason – it can seriously affect your lifestyle and your actual stress levels.

The best way to avoid mortgage stress is by factoring in a sizeable buffer of at least 2 – 3 per cent. If this then tips you over into the mortgage stress category, then it’s likely you’re taking on too much debt.

If you’re wondering if this kind of buffer is really necessary, consider this: historically, the average interest rate is around 7 per cent, so the chances of your 30 year loan spending half of its time above this rate is entirely plausible – and that’s before you’ve even factored in any of life’s emergencies such as the loss of one income or the arrival of a new family member.

How much deposit will I need to buy a house?

A deposit of 20 per cent or more is ideal as it’s typically the amount a lender sees as ‘safe’. Being a safe borrower is a good position to be in as you’ll have a range of lenders to pick from, with some likely to offer up a lower interest rate as a reward. Additionally, a deposit of over 20 per cent usually eliminates the need for lender’s mortgage insurance (LMI) which can add thousands to the cost of buying your home.

While you can get a loan with as little as 5 per cent deposit, it’s definitely not the most advisable way to enter the home loan market. Banks view people with low deposits as ‘high risk’ and often charge higher interest rates as a precaution. The smaller your deposit, the more you’ll also have to pay in LMI as it works on a sliding scale dependent on your deposit size.

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.

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).

How can I avoid mortgage insurance?

Lenders mortgage insurance (LMI) can be avoided by having a substantial deposit saved up before you apply for a loan, usually around 20 per cent or more (or a LVR of 80 per cent or less). This amount needs to be considered genuine savings by your lender so it has to have been in your account for three months rather than a lump sum that has just been deposited.

Some lenders may even require a six months saving history so the best way to ensure you don’t end up paying LMI is to plan ahead for your home loan and save regularly.

Tip: You can use RateCity mortgage repayment calculator to calculate your LMI based on your borrowing profile

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 Lender's Mortgage Insurance (LMI)

Lender’s Mortgage Insurance (LMI) is an insurance policy, which protects your bank if you default on the loan (i.e. stop paying your loan). While the bank takes out the policy, you pay the premium. Generally you can ‘capitalise’ the premium – meaning that instead of paying it upfront in one hit, you roll it into the total amount you owe, and it becomes part of your regular mortgage repayments.

This additional cost is typically required when you have less than 20 per cent savings, or a loan with an LVR of 80 per cent or higher, and it can run into thousands of dollars. The policy is not transferrable, so if you sell and buy a new house with less than 20 per cent equity, then you’ll be required to foot the bill again, even if you borrow with the same lender.

Some lenders, such as the Commonwealth Bank, charge customers with a small deposit a Low Deposit Premium or LDP instead of LMI. The cost of the premium is included in your loan so you pay it off over time.

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.