Home lending lifts, refinancers lead the charge

New ABS data out today shows borrowers are refinancing at the highest level in three years, spurred on by the falling interest rate market.

Owner-occupiers lead the refinancing charge, posting a 8.38 per cent jump in the value of loans refinanced, month-on-month, in seasonally-adjusted terms. This was the highest value of refinanced loans since September 2016.

Home lending – refinancing

Value of new home loans

% change from previous month

% change year-on-year

Refinancing - all home loans

7.71%

5.71%

Refinancing - owner-occupier

8.38%

4.55%

Notes: Seasonally adjusted figures.

Source: ABS lending to households and businesses statistics for August 2019, released 10 October 2019.

Home lending

Overall home lending has continued to make a gradual come-back, increasing in value by 2.88 per cent month-on-month in August 2019 in seasonally adjusted terms, excluding refinanced loans.

The biggest growth this month was in investor lending, up 5.66 per cent compared to the previous month. Owner-occupier lending increased 1.91 per cent month-on-month. 

Value of new home loans

% change from previous month

% change year-on-year

Owner occupiers

1.91%

-1.75%

Investors

5.66%

-12.98%

All loans

2.88%

-5.00%

Notes: Seasonally adjusted figures. Figures exclude refinancing.

Source: ABS lending to households and businesses statistics for August 2019, released 10 October 2019.

Sally Tindall, research director at RateCity.com.au, said the increase in refinancing activity came on the back of the June and July rate cuts.

“It’s great to see home owners are taking advantage of what is an incredibly competitive market, fuelled by record low rates,” she said.

“The first two rate cuts have clearly encouraged borrowers to sit up and take notice of their home loan rates.

“Refinancing is at the highest level in three years, which, coincidentally was just after the last round of RBA cuts.

“We expect this trend will continue as refinance applications, that are still in the pipeline, are settled. The most recent cash rate cut, and the decision by most banks not to pass it on in full, is also likely to spur more refinancing activity.

“Banks have been making a play for new customers for months, with many slashing rates even before the RBA made its first cut in June. For borrowers looking to switch, the ball is really in their court.

“Things are looking up for investors with the election now behind them, and the threat of negative gearing changes gone. Investor rates have continued to tumble, in many cases further than owner occupier rates. This, combined with the relaxing of APRA’s serviceability requirements means the market is looking increasingly appealing for investors,” she said.

Interestingly, in terms of market share, the banks have continued to hold their ground somewhat. These latest ABS statistics show that 95 per cent of home loans settled in August were with an authorised deposit taking institution.

Home loan share 

ADI’s

Percentage share of new owner occupier loans

95.4%

Percentage share of refinanced owner occupier loans

94.0% 

Non ADI's

Percentage share of new owner occupier loans

4.6%

Percentage share of refinanced owner occupier loans

6.0%

Notes: Original figures including refinancing, number of loans.

Source: ABS lending to households and businesses statistics for August 2019, released 10 October 2019.

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Learn more about home loans

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 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.

How common are low-deposit home loans?

Low-deposit home loans aren’t as common as they once were, because they’re regarded as relatively risky and the banking regulator (APRA) is trying to reduce risk from the mortgage market.

However, if you do your research, you’ll find there is still a fairly wide selection of banks, credit unions and non-bank lenders that offers low-deposit home loans.

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.

How will Real Time Ratings help me find a new home loan?

The home loan market is complex. With almost 4,000 different loans on offer, it’s becoming increasingly difficult to work out which loans work for you.

That’s where Real Time RatingsTM can help. Our system automatically filters out loans that don’t fit your requirements and ranks the remaining loans based on your individual loan requirements and preferences.

Best of all, the ratings are calculated in real time so you know you’re getting the most current information.

When should I switch home loans?

The answer to this question is dependent on your personal circumstances – there is no best time for refinancing that will apply to everyone.

If you want a lower interest rate but are happy with the other aspects of your loan it may be worth calling your lender to see if you can negotiate a better deal. If you have some equity up your sleeve – at least 20 per cent – and have done your homework to see what other lenders are offering new customers, pick up the phone to your bank and negotiate. If they aren’t prepared to offer you lower rate or fees, then you’ve already done the research, so consider switching.

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.

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.

How do I know if I have to pay LMI?

Each lender has its own policies, but as a general rule you will have to pay lender’s mortgage insurance (LMI) if your loan-to-value ratio (LVR) exceeds 80 per cent. This applies whether you’re taking out a new home loan or you’re refinancing.

If you’re looking to buy a property, you can use this LMI calculator to work out how much you’re likely to be charged in LMI.

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 personalised is my rating?

Real Time Ratings produces instant scores for loan products and updates them based what you tell us about what you’re looking for in a loan. In that sense, we believe the ratings are as close as you get to personalised; the more you tell us, the more we customise to ratings to your needs. Some borrowers value flexibility, while others want the lowest cost loan. Your preferences will be reflected in the rating. 

We also take a shorter term, more realistic view of how long borrowers hold onto their loan, which gives you a better idea about the true borrowing costs. We take your loan details and calculate how much each of the relevent loans would cost you on average each month over the next five years. We assess the overall flexibility of each loan and give you an easy indication of which ones are likely to adjust to your needs over time. 

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.

How can I get a home loan with no deposit?

Following the Global Financial Crisis, no-deposit loans, as they once used to be known, have largely been removed from the market. Now, if you wish to enter the market with no deposit, you will require a property of your own to secure a loan against or the assistance of a guarantor.

How much of the RBA rate cut do lenders pass on to borrowers?

When the Reserve Bank of Australia cuts its official cash rate, there is no guarantee lenders will then pass that cut on to lenders by way of lower interest rates. 

Sometimes lenders pass on the cut in full, sometimes they partially pass on the cut, sometimes they don’t at all. When they don’t, they often defend the decision by saying they need to balance the needs of their shareholders with the needs of their borrowers. 

As the attached graph shows, more recent cuts have seen less lenders passing on the full RBA interest rate cut; the average lender was more likely to pass on about two-thirds of the 25 basis points cut to its borrowers.  image002