City rents could drop for years before bouncing back

City rents could drop for years before bouncing back

Renters living in the nation’s largest capitals are likely to pay less rent in the coming years, according to a government agency, as thousands of units in the city centres are expected to sit empty gathering dust.

The conditions are likely to free up funds for renters and help them move towards city centres, but the shortfall is expected to squeeze investors -- particularly those heavily in debt.

When supply outweighs demand

A population shortfall and throttled overseas visitors could lead to apartments outnumbering renters in Sydney and Melbourne, the National Housing Finance and Investment Corporation (NHFIC) said, in its first major report forecasting the next five years in housing.

“Housing demand is projected to fall over this year and next due to the dramatic impact of COVID-19 on net overseas migration,” Nathan Dal Bon said, chief executive of NHFIC.

“This in turn is projected to result in new housing supply temporarily exceeding new demand.”

But the relief of renters and strain of investors are also forecast to be short lived, provided pandemic health restrictions can be eased and health restrictions are dropped.

By 2023 to 2025, NHFIC estimates there will be more people vying for fewer rental homes.

“Any cumulative excess supply could be negligible if effective vaccines are available earlier and international borders reopen sooner than expected,” Mr Dal Bon said.

A million less people not needing a new roof

About a million fewer people than previously forecast due are expected to be living in Australia within the next five years, NHFIC said, in large part to the COVID-19 pandemic.

This is expected to lead to 286,000 fewer people needing a property between 2020 and 2025, when compared to the forecasts developed before the pandemic.

“With new supply expected to exceed new demand over the near term, it is likely to put downward pressure on rents in Sydney and Melbourne where vacancy rates are higher,” the NHFIC report said.

“This could improve overall rental affordability, although the real impact will differ across geographies and household income distributions.”

Apartments in city centres will likely be impacted the most, which tend to be favoured by international students and overseas migrants.

Then by 2023, on the back of a strengthening economy and the anticipated opening up of international borders, rents are expected to rise, as the number of people looking to sign a lease outweighs the number of homes listed on the market.

But by then, due to the pandemic and the circumstances surrounding it, fewer homes will be in the development pipeline, leading to demand outpacing supply.

NHFIC expects about 148,000 houses, townhouses and units will be developed and put onto the rental market by 2025.

There’s a key variable that could influence the accuracy of these forecasts, NHFIC said. And that’s if a vaccine is developed and implemented earlier than expected, leading to the reopening of international borders sooner.

The state of the market today

Sydney and Melbourne are already experiencing falling rents and elevated vacancy rates, although most other capital cities remain stable.

Rents fell across the two city capitals for houses and apartments over the year to December, according to SQM Research, pushing the national average down.

The only other city to experience falling rents was Hobart -- but just for units.

Renting a unit in Sydney cost 9.6 per cent less than it did a year earlier, the research firm said, with the average apartment costing $447 in the week ending 12 December. House rents were down 6.7 per cent to $638.

A similar story is unfolding in Melbourne, where units fell 6.7 per cent to $383, and houses dropped 4.1 per cent to $512.

SQM Research Weekly Rents Index

Week-ending: 12 Dec 2020 Rent

Chg on

prev week

Rolling month

% chg

12 month

% chg

Sydney All Houses 638.4

0.6

0.90%

-6.70%

All Units 446.5

-0.5

-0.60%

-9.60%

Melbourne All Houses 512.5

0.5

-0.10%

-4.10%

All Units 382.6

-1.6

-1.40%

-6.70%

Brisbane All Houses 469.7

2.3

0.50%

0.20%

All Units 378.9

2.1

0.40%

0.10%

Perth All Houses 485.2

-0.2

1.30%

10.50%

All Units 365.5

0.5

0.90%

9.50%

Adelaide All Houses 421.8

1.2

0.70%

4.90%

All Units 314.8

0.2

1.90%

0.30%

Canberra All Houses 655.8

8.2

3.50%

1.10%

All Units 473.9

-2.9

-1.20%

2.40%

Darwin All Houses 585.4

5.6

6.70%

21.20%

All Units 395.2

4.8

4.30%

3.80%

Hobart All Houses 461.1

4.9

6.40%

1.70%

All Units 401

-2

3.30%

-5.10%

National All Houses 483

-1

-0.40%

7.80%

All Units 381

-1

0.00%

4.70%

Cap City Average All Houses 540

0

0.40%

-1.80%

All Units 408

0

-0.20%

-6.00%

The falling property prices correlate to the rise in properties sitting vacant across the city centres.

The national vacancy rate sits at 2.1 per cent as of November, SQM Research said.

But about 9.1 per cent of properties are vacant in Melbourne’s CBD, while 9.5 per cent gather dust in Sydney’s CBD.

"Rents for units in our two largest cities are still falling, though … there appears to be a commencement of a reversal in the abundance of listings in the CBD’s of these two cities,” Louis Christopher said, managing director of SQM research.

“They are still very elevated, but we could be starting to see some of the population moving back to the CBD and inner city locations.”

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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.

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.

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 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).

Can I get a NAB home loan on casual employment?

While many lenders consider casual employees as high-risk borrowers because of their fluctuating incomes, there are a few specialist lenders, such as NAB, which may provide home loans to individuals employed on a casual basis. A NAB home loan for casual employment is essentially a low doc home loan specifically designed to help casually employed individuals who may be unable to provide standard financial documents. However, since such loans are deemed high risk compared to regular home loans, you could be charged higher rates and receive lower maximum LVRs (Loan to Value Ratio, which is the loan amount you can borrow against the value of the property).

While applying for a home loan as a casual employee, you will likely be asked to demonstrate that you've been working steadily and might need to provide group certificates for the last two years. It is at the lender’s discretion to pick either of the two group certificates and consider that to be your income. If you’ve not had the same job for several years, providing proof of income could be a bit of a challenge for you. In this scenario, some lenders may rely on your year to date (YTD) income, and instead calculate your yearly income from that.

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.

 

 

How long does NAB home loan approval take?

The time required to get your home loan from NAB approved can vary based on a number of factors involved in the application process. 

Once you have applied for a home loan, a NAB specialist will contact you within 24 hours over the phone to take down relevant information, including your total income, debts (existing loans, credit cards, etc.), assets (car, shares, etc.), and your monthly expenses (food, utility bills, etc.). Your lender might also ask for information related to the property you want to purchase, including the type of dwelling and preferred postcode.

NAB will then verify all your information and check your credit score, and if the details stack up, you should be given a conditional approval certificate. This certificate stipulates how much money NAB is willing to lend you and is typically valid for 90 days. 

Once you have your conditional approval, you can start browsing for properties that you like and that fit within the budget that NAB has provided. After you find a suitable property, you’ll need to give a copy of the signed deed to NAB, following which you should get full approval and access to the funds. This process can take up to 4-6 weeks. 

Can I take a personal loan after a home loan?

Are you struggling to pay the deposit for your dream home? A personal loan can help you pay the deposit. The question that may arise in your mind is can I take a home loan after a personal loan, or can you take a personal loan at the same time as a home loan, as it is. The answer is that, yes, provided you can meet the general eligibility criteria for both a personal loan and a home loan, your application should be approved. Those eligibility criteria may include:

  • Higher-income to show repayment capability for both the loans
  • Clear credit history with no delays in bill payments or defaults on debts
  • Zero or minimal current outstanding debt
  • Some amount of savings
  • Proven rent history will be positively perceived by the lenders

A personal loan after or during a home loan may impact serviceability, however, as the numbers can seriously add up. Every loan you avail of increases your monthly installments and the amount you use to repay the personal loan will be considered to lower the money available for the repayment of your home loan.

As to whether you can get a personal loan after your home loan, the answer is a very likely "yes", though it does come with a caveat: as long as you can show sufficient income to repay both the loans on time, you should be able to get that personal loan approved. A personal loan can also help to improve your credit score showing financial discipline and responsibility, which may benefit you with more favorable terms for your home loan.

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.

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.

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 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.

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What is the flexibility score?

Today’s home loans often try to lure borrowers with a range of flexible features, including offset accounts, redraw facilities, repayment frequency options, repayment holidays, split loan options and portability. Real Time Ratings™ weights each of these features based on popularity and gives loans a ‘flexibility score’ based on how much they cater to borrowers’ needs over time. The aim is to give a higher score to loans which give borrowers more features and options.