Home buying intentions increase as property prices tipped to rise

Home buying spending intentions are continuing to rise in 2021, following a sharp increase at the end of 2020, according to the latest Household Spending Intentions Series by CommBank.

According to the new research, both home loan applications and Google searches related to home buying had increased in January 2021, relative to the same period a year earlier.

Housing prices across Australia have been tipped to rise around 14 per cent in the next two years, according to an economics issues paper from CommBank’s head of Australian economics, Gareth Aird.

Darwin was expected to see the biggest increase in the next two years, with housing prices tipped to grow by 18.7 per cent. This was followed by Perth at 17.7 per cent, Brisbane at 16.6 per cent, Canberra and Hobart at 15.5 per cent and Adelaide at 15 per cent. Sydney and Melbourne were expected to increase by 13.7 and 12.4 per cent respectively by 2022.

The Household Spending Intentions Series also noted that the Home Buying market will be a “key source of support for the Australian economy in 2021 - driven largely by the very low level of interest rates”.

Speaking of low rates, RateCity research found that the average variable owner-occupier home loan rate (paying principal and interest) fell by 0.47 per cent from February 2020 to February 2021. As of publishing this article, the current lowest interest rate on the market now sits at 1.69 per cent from Greater Bank.

This pairing of record-low interest rates and growing home buying intention with rising property prices may mean housing market competition is reaching boiling point.

When could property prices fall again?

AMP Capital Chief Economist, Dr Shane Oliver, addressed the expectations of increasing property prices in a recent article.

The average Australian home prices were expected to rise thanks to “ultra-low” interest rates and general economic recovery from the impacts of Covid-19 last year. Due to record housing finance levels and auction clearance rates, first home buyer incentives may be reduced, with investor interest “expected to pick up and fill the gap”.

However, Dr Oliver suggested that the “hit to immigration” caused by Covid-19 may constrain inner city Sydney and Melbourne. In fact, the strong price gains are likely to be experienced by “smaller cities and regional property” moreso, thanks to increasing rates of Aussies migrating regionally.

For those wondering when prices may settle again, Dr Oliver suggests this relief won’t come until lending standards are tightened and the Reserve Bank of Australia can justify rate hikes once again - potentially in a number of years.

RateCity tips for getting home loan approval

With prices not expected to fall for some years, and market competition already at breaking point for buyers, let’s explore what first home buyers can do to help themselves get their home loan application over the line.

1. Save a deposit of at least 20 per cent. Easier said than done in most capital cities, but a deposit of at least 20 per cent will showcase your financial responsibility and reduce your risk of loan default to the lender.
2. Get a guarantor. A common misconception of mortgage guarantors is that they’re expected to cover the full cost of your mortgage. In fact, you can have a family member go guarantor on just the deposit, helping grow your deposit to at least 20 per cent. Security, such as equity in a home, may be expected from the guarantor by the lender.
3. Look at government assistance. If the above are not options for you, you’re not alone. The Australian government has a range of assistances available that may help you achieve your home loan dreams. This includes the First Home Loan Deposit Scheme, allowing borrowers with deposits as small as 5 per cent to purchase property without paying lender’s mortgage insurance.
4. Boost your credit score. Lenders will look at your credit score to determine both whether you can service a loan and what interest rate you may be offered. To improve your chances of approval, it’s worth going through your credit report with a fine-tooth comb and making sure your score is as high as it can be.
5. Show genuine savings. It’s not just the deposit a lender will look for. They want to see you are capable of diligently saving money of a period of time. These ‘genuine savings’ may include funds in a savings account, term deposit, interest from assets, shares or managed funds, or savings withdrawn from the First Home Super Saver Scheme. If need be, set a strict budget that allows you to showcase to any lender you’re capable of increasing your savings over at least 3 months.

For a full list of state-by-state government support available to homebuyers, please read our guide.

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