First home buyers – it’s now or never

First home buyers – it’s now or never

If you’ve been scrimping and saving for your first home, you may want to consider buying sooner rather than later while the property market is still hot – er – cold.

New housing price data from CoreLogic released yesterday has shown that although prices across capital cities are continuing their downward spiral, this is starting to slow down.

National dwelling values have fallen 7.4 per cent since peaking in October 2017. While this may be bad news for anyone currently owning property, the fall in property prices has come as a relief to a lot of buyers.

But this downturn is beginning to slow.

According to CoreLogic Research Director, Tim Lawless, “although the CoreLogic national hedonic index series trended lower in March, the actual rate of decline has been easing over the past three months”.

“In fact… the 0.6 per cent drop in March was actually the smallest of the month-on-month declines since values fell by 0.5 per cent in October last year,” said Mr Lawless.

What this means for would-be buyers is that if they’re in a position where they can afford a home, they may want to take advantage sooner rather than later.

Mr Lawless said, “The silver lining here is that housing is now very affordable, and first home buyers are proportionally much more active relative to other areas of the country.”

Latest median dwelling prices

Capital city

Median value

Sydney

$782,473

Melbourne

$624,425

Brisbane

$489,832

Adelaide

$426,990

Perth

$442,716

Hobart

$464,168

Darwin

$400,316

Canberra

$595,212

Source: CoreLogic Home Value Index tables

These falling house prices have taken pressure off of first home buyers and those looking to buy their next property.

Mortgage lenders have been targeting first home buyers with competitive rates from as low as 3.49 per cent or waived annual fees on first home owner products.

Variable first home buyer loans

Company

Product

Loan type

Rates from (%)

Comparison rate (%)

Bank First

First Rate Home Loan

Variable

3.72

3.77

Commonwealth Bank of Australia

Extra Loan*

Variable

3.84

4.29

Endeavour Mutual Bank

First Home Buyer Loan*

Variable

3.74

4.17

G&C Mutual Bank

First Home Premium Package*

Variable

3.91

3.91

Horizon Credit Union

KickStart First Home Buyer Loan

Variable

4.54

4.70

Hume Bank

First Home Starters Package*

Variable

3.49

4.62

Macquarie Credit Union

First Home Buyers*

Variable

4.49

4.89

Mortgage House

Affordable First Home Buyer Special

Variable

3.58

3.66

MOVE Bank

First Home Loan

Variable

3.69

3.99

SCU

First Home Buyer Loan Variable Rate

Variable

3.77

3.82

Suncorp Bank

Home Package Plus First Home Buyer Special Offer

Variable

3.99

4.00

Westpac

Flexi First Option Home Loan*

Variable

3.98

3.99

*Introductory rate 

Fixed first home buyer loans

Company

Product

Loan type

Fixed term

Rates from (%)

Comparison rate (%)

Beyond Bank Australia

First Home Buyers Fixed Rate Home Loan

Fixed

1 – 3 years

4.05

4.51

NAB

Choice Package

Fixed

2 years

3.69

4.95

People’s Choice Credit Union

Fixed Loan Package

Fixed

3 years

3.84

4.64

Suncorp Bank

Home Package Plus

Fixed

5 years

3.99

4.00

Virgin Money

Reward Me Fixed Rate Home Loan

Fixed

2 years

3.68

3.77

Westpac

Fixed Options Home Loan

Fixed

3 years

3.79

4.85

Tips for first home buyers

  1. Try to save a 20 per cent deposit to position yourself as a more reliable borrower to banks, take advantage of lower interest rates and avoid costly lenders mortgage insurance.
  2. Don’t try for your dream home on the first go. According to Domain’s First Home Buyer report, an entry house price for the Eastern Suburbs of Sydney, for example, is $2.18 million and would take 20 years for you to save a deposit. Aim for something within your budget and means. 
  3. Ditch the Uber Eats and Afterpay splurges while you’re in the application process. Lenders are cracking down on discretionary spending and having these transactions in your banking history can position you as a less ideal borrower.

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Learn more about home loans

What is a variable home loan?

A variable rate home loan is one where the interest rate can and will change over the course of your loan. The rate is determined by your lender, not the Reserve Bank of Australia, so while the cash rate might go down, your bank may decide not to follow suit, although they do broadly follow market conditions. One of the upsides of variable rates is that they are typically more flexible than their fixed rate counterparts which means that a lot of these products will let you make extra repayments and offer features such as offset accounts.

What is the difference between fixed, variable and split rates?

Fixed rate

A fixed rate home loan is a loan where the interest rate is set for a certain amount of time, usually between one and 15 years. The advantage of a fixed rate is that you know exactly how much your repayments will be for the duration of the fixed term. There are some disadvantages to fixing that you need to be aware of. Some products won’t let you make extra repayments, or offer tools such as an offset account to help you reduce your interest, while others will charge a significant break fee if you decide to terminate the loan before the fixed period finishes.

Variable rate

A variable rate home loan is one where the interest rate can and will change over the course of your loan. The rate is determined by your lender, not the Reserve Bank of Australia, so while the cash rate might go down, your bank may decide not to follow suit, although they do broadly follow market conditions. One of the upsides of variable rates is that they are typically more flexible than their fixed rate counterparts which means that a lot of these products will let you make extra repayments and offer features such as offset accounts.

Split rates home loans

A split loan lets you fix a portion of your loan, and leave the remainder on a variable rate so you get a bet each way on fixed and variable rates. A split loan is a good option for someone who wants the peace of mind that regular repayments can provide but still wants to retain some of the additional features variable loans typically provide such as an offset account. Of course, with most things in life, split loans are still a trade-off. If the variable rate goes down, for example, the lower interest rates will only apply to the section that you didn’t fix.

What is a fixed home loan?

A fixed rate home loan is a loan where the interest rate is set for a certain amount of time, usually between one and 15 years. The advantage of a fixed rate is that you know exactly how much your repayments will be for the duration of the fixed term. There are some disadvantages to fixing that you need to be aware of. Some products won’t let you make extra repayments, or offer tools such as an offset account to help you reduce your interest, while others will charge a significant break fee if you decide to terminate the loan before the fixed period finishes.

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 happens to my home loan when interest rates rise?

If you are on a variable rate home loan, every so often your rate will be subject to increases and decreases. Rate changes are determined by your lender, not the Reserve Bank of Australia, however often when the RBA changes the cash rate, a number of banks will follow suit, at least to some extent. You can use RateCity cash rate to check how the latest interest rate change affected your mortgage interest rate.

When your rate rises, you will be required to pay your bank more each month in mortgage repayments. Similarly, if your interest rate is cut, then your monthly repayments will decrease. Your lender will notify you of what your new repayments will be, although you can do the calculations yourself, and compare other home loan rates using our mortgage calculator.

There is no way of conclusively predicting when interest rates will go up or down on home loans so if you prefer a more stable approach consider opting for a fixed rate loan.

What is a standard variable rate (SVR)?

The standard variable rate (SVR) is the interest rate a lender applies to their standard home loan. It is a variable interest rate which is normally used as a benchmark from which they price their other variable rate home loan products.

A standard variable rate home loan typically includes most, if not all the features the lender has on offer, such as an offset account, but it often comes with a higher interest rate attached than their most ‘basic’ product on offer (usually referred to as their basic variable rate mortgage).

How much is the first home buyer's grant?

The first home buyer grant amount will vary depending on what state you’re in and the value of the property that you are purchasing. In general, they start around $10,000 but it is advisable to check your eligibility for the grant as well as how much you are entitled to with your state or territory’s revenue office.

How do I refinance my home loan?

Refinancing your home loan can involve a bit of paperwork but if you are moving on to a lower rate, it can save you thousands of dollars in the long-run. The first step is finding another loan on the market that you think will save you money over time or offer features that your current loan does not have. Once you have selected a couple of loans you are interested in, compare them with your current loan to see if you will save money in the long term on interest rates and fees. Remember to factor in any break fees and set up fees when assessing the cost of switching.

Once you have decided on a new loan it is simply a matter of contacting your existing and future lender to get the new loan set up. Beware that some lenders will revert your loan back to a 25 or 30 year term when you refinance which may mean initial lower repayments but may cost you more in the long run.

How can I get a home loan with bad credit?

If you want to get a home loan with bad credit, you need to convince a lender that your problems are behind you and that you will, indeed, be able to repay a mortgage.

One step you might want to take is to visit a mortgage broker who specialises in bad credit home loans (also known as ‘non-conforming home loans’ or ‘sub-prime home loans’). An experienced broker will know which lenders to approach, and how to plead your case with each of them.

Two points to bear in mind are:

  • Many home loan lenders don’t provide bad credit mortgages
  • Each lender has its own policies, and therefore favours different things

If you’d prefer to directly approach the lender yourself, you’re more likely to find success with smaller non-bank lenders that specialise in bad credit home loans (as opposed to bigger banks that prefer ‘vanilla’ mortgages). That’s because these smaller lenders are more likely to treat you as a unique individual rather than judge you according to a one-size-fits-all policy.

Lenders try to minimise their risk, so if you want to get a home loan with bad credit, you need to do everything you can to convince lenders that you’re safer than your credit history might suggest. If possible, provide paperwork that shows:

  • You have a secure job
  • You have a steady income
  • You’ve been reducing your debts
  • You’ve been increasing your savings

Who offers 40 year mortgages?

Home loans spanning 40 years are offered by select lenders, though the loan period is much longer than a standard 30-year home loan. You're more likely to find a maximum of 35 years, such as is the case with Teacher’s Mutual Bank

Currently, 40 year home loan lenders in Australia include AlphaBeta Money, BCU, G&C Mutual Bank, Pepper, and Sydney Mutual Bank.

Even though these lengthier loans 35 to 40 year loans do exist on the market, they are not overwhelmingly popular, as the extra interest you pay compared to a 30-year loan can be over $100,000 or more.

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. 

Are bad credit home loans dangerous?

Bad credit home loans can be dangerous if the borrower signs up for a loan they’ll struggle to repay. This might occur if the borrower takes out a mortgage at the limit of their financial capacity, especially if they have some combination of a low income, an insecure job and poor savings habits.

Bad credit home loans can also be dangerous if the borrower buys a home in a stagnant or falling market – because if the home has to be sold, they might be left with ‘negative equity’ (where the home is worth less than the mortgage).

That said, bad credit home loans can work out well if the borrower is able to repay the mortgage – for example, if they borrow conservatively, have a decent income, a secure job and good savings habits. Another good sign is if the borrower buys a property in a market that is likely to rise over the long term.

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 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.