City dwellers flock to regional property due to COVID-19

City dwellers flock to regional property due to COVID-19

Regional property markets are seemingly benefitting from COVID-19, as the pandemic accelerates the trend of city dwellers relocating to regional areas.

While some capital city CBD markets are recording double-digit rental vacancy rates, with Sydney CBD and Melbourne CBD at 12.9 per cent and 10 per cent respectively, renters hunting in regional areas are facing slim pickings. 

In NSW’s Blue Mountains, a record-low of only 0.7 per cent of the area’s rental property market were vacant in August, nosediving from 2 per cent in March, the latest SQM Research data showed.

The Mornington Peninsula in Victoria saw a similar situation, with its vacancy rate dropping from 1.3 per cent in March to 0.7 per cent in August – also a record low for the region.

The vacancy rate in Queensland’s Ipswich plummeted from 2.1 per cent in March to 0.9 per cent in August, the lowest it has been in the area since 2005.

Louis Christopher, managing director of SQM Research, said the vacancy figures indicate an ongoing transition to regional areas, thanks to the space and low-density living these areas offer.

“The shift towards regional living continues at pace, largely at the expense of higher inner-city rental vacancy rates. I suspect there will have to be a high point in this move soon,” he said.

“However, I also suspect there will be a degree of permanency with the massive population shift.”

Home buyers no longer limited to employment hubs

Pete Wargent, co-founder of buyer’s agency marketplace Buyers Buyers, said many property buyers were moving to regional areas because of the improved lifestyle. 

“Those who work in a stable corporate environment, but do so remotely, are now taking advantage of great buying opportunities in NSW, Victoria and southeast Queensland,” he said.

“Before COVID-19 hit, there was already a strong trend of sea- and tree-change homebuyers looking for the best of all worlds – lifestyle, accessibility to employment hubs and affordable housing.”

RiskWise Property Research’s chief executive officer, Doron Peleg, said Australians have the opportunity to move away from employment hubs to an area with better lifestyle prospects, due to COVID-19 accelerating a move to remote working.

“While there’s nothing new about mobile professionals, the onset of COVID-19 changed the way we work as a nation with vastly increasing numbers working from home - and it’s here to stay,” Mr Peleg said.

He noted that demand for regional areas with lifestyle prospects is likely to surge, particularly among stable income earners. 

That demand could send property prices up in regional areas, according to Steve Laidlaw, the chief executive of People's Choice Credit Union, among the largest of its kind in Australia. 

"I expect property prices in regional centres to grow, and grow strongly,” he told the Australian Financial Review, adding that regional hubs which have strong transport networks with Sydney and Melbourne are tipped to be sought-after. 

“A million bucks doesn't buy you much in Sydney and Melbourne,'' Mr Laidlaw said.

Regional living trend big in Victoria

In Victoria, where the impact of COVID-19 has likely delivered the biggest blow, property listing views for regional areas in the state soared by about 44 per cent since July 2019, the highest point in at least four years, according to Domain Group data

Ad views skyrocketed in some Victorian regional areas during COVID-19, between February and July 2020, including:

  • Hume – 73 per cent
  • Bendigo – 68 per cent
  • Shepparton – 54 per cent
  • North West – 51 per cent

Domain Group senior research analyst, Dr Nicola Powell, said while city dwellers moving to regional locations was not uncommon due to housing affordability reasons, COVID-19 has fast-tracked the trend.

“The demand for a regional lifestyle has clearly been reignited,” she said.

“Demographic changes tend to be a gradual process rather than an instant switch. Prior to the pandemic, the movement of residents from the city to rural areas was already underway.”

Property investors increasingly attracted to regional areas

It’s not just owner-occupiers who want to move away from the big smoke. Property investors are also becoming more drawn to regional markets. 

More than one in five of investors prefer to park their money in regional areas, up from 15 per cent in 2019, a national survey of nearly 1,100 property investors conducted by the Property Investment Professionals of Australia (PIPA) showed. 

Coastal locations are also fielding interest, and were the most attractive investment to 12 per cent of investors, up from 8 per cent last year.

Conversely, the investor interest in metropolitan markets dropped to 61 per cent from 73 per cent last year.

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

Advertisement

RateCity

Money Health Newsletter

Subscribe for news, tips and expert opinions to help you make smarter financial decisions

By signing up, you agree to the ratecity.com.au Privacy & Cookies Policy and Terms of Use, Disclaimer & Privacy Policy

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.

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.

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.

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.

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.

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.