Australians hesitant to buy property amid weak confidence in the housing market

Shaky confidence in the property market’s resilience against COVID-19 and the economic downturn has delayed Australians’ property plans, a new study suggests.

About 60 per cent of Australians expect property prices to fall between April and September, a survey by Budget Direct of 998 people showed.  More than 43 per cent believe the market will decline by up to 20 per cent and another 13 per cent reckon prices will drop by more than 20 per cent. 

A smaller proportion also tipped housing values to shoot up, with more than one in 10 expecting prices to grow by up to 15 per cent, and eight per cent believing that the market will surge by more than 15 per cent.

Nearly a quarter of those surveyed don’t think housing values will change in this period.

The findings somewhat align with NAB’s latest Residential Property Survey for the three months to June 2020, which showed that the bank’s Residential Property Index plunged to a survey low of -33 points, down from 38 in the first quarter.

Rising unemployment, job uncertainty and consumer confidence were among the most important perceived impacts for the future real estate market.

NAB has tipped housing values to fall by 10 to 15 per cent over the next year.

Despite the relative lack of confidence, property prices across the combined capital cities are still in positive territory when looking at longer term numbers. House prices shot up by 6.6 per cent in the 12 months to June, while unit prices are up 4.5 per cent, the latest Domain Group data showed.

However, real estate values in the past quarter were less optimistic, with house and unit prices falling by 2 and 2.2 per cent respectively.

Property plans on pause

Notably, Australians are sitting tight on their property plans. About 85 per cent of Australians don’t intend to buy or sell property before September, according to the Budget Direct poll.

Seven per cent have plans to make a purchase, while three per cent are intent to sell. Nearly 4 per cent want to trade their properties, and will both buy and sell.

For those who had been planning to buy or sell before the pandemic, about a quarter haven’t changed their minds since. Almost one in 10 have decided to delay their property plans for up to 12 months, while another eight per cent are riding out uncertainty by staying put for more than 12 months.

Similar research by J.D. Power indicated that 17 per cent of Australians are postponing their plans to buy a home. Meanwhile, one in five are delaying a home renovation, despite the government’s HomeBuilder grant.

If you intend to pause your property plans, it could be worth thinking about growing a larger deposit until the time is right for you. A sizeable deposit and a positive history of consistent saving can help prove that you’re a reliable borrower to the lender.

Other people may want to dive into the property market at a time when several mortgage rates on the market are starting with a one. The lowest fixed rate on the RateCity database, from Homestar Finance, dipped to 1.98 per cent, though this rate is fixed for one year and reverts to 2.49 per cent. 

Before making a decision, it’s best to consult a professional financial adviser or mortgage broker to assess your personal financial situation.

Many coping with property-related expenses

While many are choosing to hold their property plans, the financial situations of Australian mortgage-holders and renters are largely stable, bar some longer-term concerns. Two thirds indicated that they are able to afford their property costs, including mortgage payments and rents, the Budget Direct study showed.

About seven per cent said they were struggling to make these payments, while a quarter are unsure, a sign of uncertainty among many people over their personal finances and the pandemic’s impacts on the economy in the long run.

Nearly 90 per cent of those surveyed are not relying on government financial support.

Did you find this helpful? Why not share this news?

Advertisement

RateCity

The money talks which you don't need to avoid any more

Subscribe to our newsletter so we can send you awesome offers and discounts

Advertisement

Learn more about home loans

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.

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 is a loan-to-value ratio (LVR)?

A loan-to-value ratio (otherwise known as a Loan to Valuation Ratio or LVR), is a calculation lenders make to work out the value of your loan versus the value of your property, expressed as a percentage.   Lenders use this calculation to help assess your suitability for a home loan, and whether you need to pay lender’s mortgage insurance (LMI). As a general rule, most banks will require you to pay LMI if your loan-to-value ratio is 80 per cent or more.   LVR is worked out by dividing the loan amount by the value of the property. If you are looking for a quick ball-park estimate of LVR, the size of your deposit is a good indicator as it is directly proportionate to your LVR. For instance, a loan with an LVR of 80 per cent requires a deposit of 20 per cent, while a 90 per cent LVR requires 10 per cent down payment. 

LOAN AMOUNT / PROPERTY VALUE = LVR%

While this all sounds simple enough, it is worth doing a more accurate calculation of LVR before you commit to buying a place as there are some traps to be aware of. Firstly, the ‘loan amount’ is the price you paid for the property plus additional costs such as stamp duty and legal fees, minus your deposit amount. Secondly, the ‘property value’ is determined by your lender’s valuation of the property, not the price you paid for it, and sometimes these can differ so where possible, try and get your bank to evaluate the property before you put in an offer.

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.

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.

What is a low-deposit home loan?

A low-deposit home loan is a mortgage where you need to borrow more than 80 per cent of the purchase price – in other words, your deposit is less than 20 per cent of the purchase price.

For example, if you want to buy a $500,000 property, you’ll need a low-deposit home loan if your deposit is less than $100,000 and therefore you need to borrow more than $400,000.

As a general rule, you’ll need to pay LMI (lender’s mortgage insurance) if you take out a low-deposit home loan. You can use this LMI calculator to estimate your LMI payment.

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

What is a guarantor?

A guarantor is someone who provides a legally binding promise that they will pay off a mortgage if the principal borrower fails to do so.

Often, guarantors are parents in a solid financial position, while the principal borrower is a child in a weaker financial position who is struggling to enter the property market.

Lenders usually regard borrowers as less risky when they have a guarantor – and therefore may charge lower interest rates or even approve mortgages they would have otherwise rejected.

However, if the borrower falls behind on their repayments, the lender might chase the guarantor for payment. In some circumstances, the lender might even seize and sell the guarantor’s property to recoup their money.

How do I take out a low-deposit home loan?

If you want to take out a low-deposit home loan, it might be a good idea to consult a mortgage broker who can give you professional financial advice and organise the mortgage for you.

Another way to take out a low-deposit home loan is to do your own research with a comparison website like RateCity. Once you’ve identified your preferred mortgage, you can apply through RateCity or go direct to the lender.

What is breach of contract?

A failure to follow all or part of a contract or breaking the conditions of a contract without any legal excuse. A breach of contract can be material, minor, actual or anticipatory, depending on the severity of the breaches and their material impact.

What happens when you default on your mortgage?

A mortgage default occurs when you are 90 days or more behind on your mortgage repayments. Late repayments will often incur a late fee on top of the amount owed which will continue to gather interest along with the remaining principal amount.

If you do default on a mortgage repayment you should try and catch up in next month’s payment. If this isn’t possible, and missing payments is going to become a regular issue, you need to contact your lender as soon as possible to organise an alternative payment schedule and discuss further options.

You may also want to talk to a financial counsellor. 

How often is your data updated?

We work closely with lenders to get updates as quick as possible, with updates made the same day wherever possible.

Mortgage Calculator, Repayment Type

Will you pay off the amount you borrowed + interest or just the interest for a period?

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.