Home loan market has become stronger and safer: APRA

Home loan market has become stronger and safer: APRA

Australia’s banking regulator has applauded its efforts over the past four years to strengthen the banking system and reinforce sound mortgage lending standards.

APRA has assessed that banks “lifted the quality of their lending standards” between 2014 and 2018, following APRA’s interventions in the mortgage market.

During that time, APRA said, there was a significant reduction in:

  • Investor lending growth
  • The share of interest-only lending
  • Loans with high LVRs (loan-to-value ratios)

APRA chairman Wayne Byres said the regulator had implemented targeted measures to address the key problem – that “strong competitive pressures” were encouraging home loan lenders to lower their standards so they could keep winning new customers.

“APRA’s assessment is that, collectively, its interventions achieved the necessary objective of strengthening lending standards and reducing a build-up of systemic risk in residential mortgage lending,” he said.

No news is good news

Meanwhile, in a separate announcement, APRA said it had decided to hold the countercyclical capital buffer at 0 per cent – where it has been since being introduced in 2016.

This buffer is an additional amount of capital that APRA can require some lenders to hold “to bolster the resilience of the banking sector during periods of heightened systemic risk”.

APRA offered several reasons for leaving the buffer unchanged:

  • APRA has strengthened the banking system over the past four years
  • Banks have continued to strengthen their capital positions
  • There was moderate growth in home loan and business loan lending in 2018
  • There has been a decline in higher-risk categories of new mortgage lending, including interest-only loans, investor loans and high-LVR loans

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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.

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What does going guarantor' mean?

Going guarantor means a person offers up the equity in their home as security for your loan. This is a serious commitment which can have major repercussions if the person is not able to make their repayments and defaults on their loan. In this scenario, the bank will legally be able to the guarantor until the debt is settled.

Not everyone can be a guarantor. Lenders will generally only allow immediate family members to act as a guarantor but this can sometimes be stretched to include extended family depending on the circumstances.

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Why should you trust Real Time Ratings?

Real Time Ratings™ was conceived by a team of data experts who have been analysing trends and behaviour in the home loan market for more than a decade. It was designed purely to meet the evolving needs of home loan customers who wish to merge low cost with flexible features quickly. We believe it fills a glaring gap in the market by frequently re-rating loan products based on the changes lenders make daily.

Real Time Ratings™ is a new idea and will change over time to match the frequently-evolving demands of the market. Some things won’t change though – it will always rate all relevent products in our database and will not be influenced by advertising.

If you have any feedback about Real Time Ratings™, please get in touch.

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What happens to your mortgage when you die?

There is no hard and fast answer to what will happen to your mortgage when you die as it is largely dependent on what you have set out in your mortgage agreement, your will (if you have one), other assets you may have and if you have insurance. If you have co-signed the mortgage with another person that person will become responsible for the remaining debt when you die.

If the mortgage is in your name only the house will be sold by the bank to cover the remaining debt and your nominated air will receive the remaining sum if there is a difference. If there is a turn in the market and the sale of your house won’t cover the remaining debt the case may go to court and the difference may have to be covered by the sale of other assets.  

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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.

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Mortgage brokers are finance professionals who help borrowers organise home loans with lenders. As such, they act as middlemen between borrowers and lenders.

While bank staff recommend home loan products only from their own employer, brokers are independent, so they can recommend products from a range of institutions.

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