House, apartment and townhouse developments recover after COVID-19 dip: ABS

House, apartment and townhouse developments recover after COVID-19 dip: ABS

The number of houses, townhouses and apartments given the green light to be developed sharply rose recently, turning the tide against a downturn exacerbated by the coronavirus pandemic. 

Approved applications to build residential properties jumped by 12 per cent to 13,840 in July, according to seasonally adjusted data released by the Australian Bureau of Statistics, but the combined value of these greenlit developments dropped by about 4 per cent.

"The July results likely reflect improved consumer sentiment in May, on the back of falling COVID-19 cases and easing of restrictions,” Daniel Rossi said, director of construction statistics at the ABS.

Coming off an eight year low

Apartment and townhouse developments fuelled the rise with an increase of almost 23 per cent in July, coming off the back of an eight year low experienced a month earlier. 

Freestanding houses still had their own rally with an almost 9 per cent rise, the strongest monthly increase since January 2015, the ABS said.

Tasmania experienced the greatest percentage surge in development approvals for July with approvals rising 50 per cent over the previous month. It was followed by NSW at 32 per cent, Victoria at 9.3 per cent and Queensland at 7.7 per cent.

Other states experienced a decline in development approvals. South Australia and Western Australia recorded respective drops of 11 and 8 per cent.

Similarly, there was a national divide in the number of applications stamped for freestanding houses. 

Queensland approved almost 16 per cent more in July than the previous month, while NSW approved 14 per cent and Victoria 6 per cent. 

Freestanding house applications fell in Western Australia and South Australia with respective drops of 3 and 2 per cent.

This is not HomeBuilder, but something else: HIA

The largest builders industry association doesn’t believe the rise in housing approvals is related to the government’s HomeBuilder program, a grant designed to stimulate housing development and renovations.
“The HomeBuilder program has been very positive for the detached house sector but the impact of this program is yet to be seen in ABS approval data,” Tim Reardon said, chief economist at the Housing Industry Association. 

“The lift in detached house approvals … more likely reflects building application lodgement and processing returning to normal after the shut-down.”

Development approvals were down almost 3 per cent over the three months to July, he said, falling after significant development concentrated in city areas.

The industry anticipates the government’s HomeBuilder scheme will help it cope with the fall in development demand brought about by the COVID-19 pandemic, where restrictions on international travel has led to weaker development demand.

The $680 million HomeBuilder scheme offers grants of $25,000 to owner-occupiers spending from $150,000 to $750,000 renovating their home, or people building a new home on land worth no more than $750,000.

“The detached market will benefit from HomeBuilder and several other state initiatives which will underpin work on the ground in the December quarter,” Mr Reardon said.

“New Home Sales data suggests that detached house approvals will increase toward the end of the year.”

Another scheme helped new builds rise 

A federal government agency released a research report this week on another scheme that’s making it easier for some people to buy a property and build a new home.

The National Housing Finance and Investment Corporation found the government’s $400 million first home loan deposit scheme helped one in eight people enter the property market four years quicker in the six months it's been available to June 30.

The scheme makes it possible for 10,000 first time buyers to buy a property with a 5 per cent deposit and not need to save for lenders mortgage insurance, an insurance premium paid to banks typically costing thousands of dollars. 

This is because the government guarantees the remainder of the deposit up until 20 per cent.

The report found almost 10 per cent of the people who settled on a property purchased one newly built. 

This included 381 people who bought the land separately and had a contract to build, another 142 who purchased a house and land package, and 105 people who purchased a property off the plan.

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Select a number of years to see how much money you can save with different home loans over time.

e.g. To see how much you could save in two years by switching mortgages,  set the slider to 2.

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.

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.

How much deposit will I need to buy a house?

A deposit of 20 per cent or more is ideal as it’s typically the amount a lender sees as ‘safe’. Being a safe borrower is a good position to be in as you’ll have a range of lenders to pick from, with some likely to offer up a lower interest rate as a reward. Additionally, a deposit of over 20 per cent usually eliminates the need for lender’s mortgage insurance (LMI) which can add thousands to the cost of buying your home.

While you can get a loan with as little as 5 per cent deposit, it’s definitely not the most advisable way to enter the home loan market. Banks view people with low deposits as ‘high risk’ and often charge higher interest rates as a precaution. The smaller your deposit, the more you’ll also have to pay in LMI as it works on a sliding scale dependent on your deposit size.

What is a low-deposit home loan?

A low-deposit home loan is a mortgage where you need to borrow more than 80 per cent of the purchase price – in other words, your deposit is less than 20 per cent of the purchase price.

For example, if you want to buy a $500,000 property, you’ll need a low-deposit home loan if your deposit is less than $100,000 and therefore you need to borrow more than $400,000.

As a general rule, you’ll need to pay LMI (lender’s mortgage insurance) if you take out a low-deposit home loan. You can use this LMI calculator to estimate your LMI payment.

Will I have to pay lenders' mortgage insurance twice if I refinance?

If your deposit was less than 20 per cent of your property’s value when you took out your original loan, you may have paid lenders’ mortgage insurance (LMI) to cover the lender against the risk that you may default on your repayments. 

If you refinance to a new home loan, but still don’t have enough deposit and/or equity to provide 20 per cent security, you’ll need to pay for the lender’s LMI a second time. This could potentially add thousands or tens of thousands of dollars in upfront costs to your mortgage, so it’s important to consider whether the financial benefits of refinancing may be worth these costs.

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How can I avoid mortgage insurance?

Lenders mortgage insurance (LMI) can be avoided by having a substantial deposit saved up before you apply for a loan, usually around 20 per cent or more (or a LVR of 80 per cent or less). This amount needs to be considered genuine savings by your lender so it has to have been in your account for three months rather than a lump sum that has just been deposited.

Some lenders may even require a six months saving history so the best way to ensure you don’t end up paying LMI is to plan ahead for your home loan and save regularly.

Tip: You can use RateCity mortgage repayment calculator to calculate your LMI based on your borrowing profile

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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).

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 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. 

If I don't like my new lender after I refinance, can I go back to my previous lender?

If you wish to return to your previous lender after refinancing, you will have to go through the refinancing process again and pay a second set of discharge and upfront fees. 

Therefore, before you refinance, it’s important to weigh up the new prospective lender against your current lender in a number of areas, including fees, flexibility, customer service and interest rate.