Housing boom forecast next year, but Jobkeeper will be ‘essential’

Housing boom forecast next year, but Jobkeeper will be ‘essential’

Home values are forecasted to bounce back next year posting strong gains across the country, according to a research firm, bucking a period of falling prices and circumventing the pitfalls of a pandemic.

Properties across the country are expected to grow by 5 to 9 per cent in value in 2021, SQM research claims, provided the cash rate holds, a third COVID wave is contained, JobKeeper is extended and a vaccine is progressively rolled out.

The scenario, a base analysis that’s one of four in the firm’s Christopher’s Housing Boom and Bust report, anticipates the largest gains will be made in Perth, Sydney and Adelaide.

“The national housing market has responded to the unprecedented economic stimulus packages as well as record low lending rates,” Louis Christopher said, managing director of SQM Research.

“Auction clearance rates have lifted since mid-year and various dwelling price measurements have started to record price rises.

“It is likely that the housing market will gain further momentum on the back of increased investor activity, especially from those who seek some sort of income yield.”

Dwelling values: actual versus projections, as per SQM Research

  ACTUALS 2021

Scenario 1

(base case)

2021

Scenario 2

2021

Scenario 3

2021

Scenario 4

City/Region · 12 months to

22-Nov-2020

All Dwellings

Source: Corelogic

· Cash Rate unchanged at 0.1%

· QE Expands

· 3rd COVID-19 wave contained via more lockdowns

· JobKeeper extended to Sept Qtr 2020

· Progressive roll out of Covid vaccine

· JobKeeper phased out as planned (March)

· JobSeeker returned to base

· QE unchanged. Rates unchanged

· Progressive roll out of Covid vaccine

· 3rd COVID-19 wave contained via more lockdowns

· Better than expected roll out of Vaccine in 1st half of year

· Bounce in employment

· No more lockdowns, State borders remain open, regional hub open

· JobKeeper phased out as planned

· QE scaled back after mid-year

· No Vaccine released in 2021

· International/State borders remain closed

· Negative cash rate

· JobKeeper/Seeker extended to end of year

Perth

0.80%

8 to 12%

8 to 12%

10 to 15%

3 to 6%

Brisbane

3.50%

4 to 8%

4 to 7%

5 to 9%

3 to 6%

Darwin

2.80%

6 to 9%

3 to 6%

3 to 6%

6 to 9%

Melbourne

0.70%

2 to 6%

-5 to 0%

-1 to 4%

-3 to 3%

Sydney

6.10%

7 to 11%

0 to 4%

3 to 7%

4 to 8%

Adelaide

4.40%

6 to 10%

1 to 4%

-2 to 2%

4 to 8%

Hobart

6.40%

3 to 7 %

-2 to 3%

3 to 6%

1 to 3%

Canberra

6.80%

5 to 9%

5 to 9%

4 to 7%

2 to 6%

Capital City Average (weighted)

3.50%

5 to 9%

0 to 4%

2 to 6%

2 to 6%

The forecasts come after the housing market posted gains in every capital city for the first time in seven months, climbing out of a five month streak of falling prices.

Government stimulus will be essential

The government’s JobKeeper payment will be essential in keeping the economic recovery afoot, SQM Research said, by subsidising people’s employment and keeping housing demand high.

“An extension of JobKeeper is regarded as essential for the ongoing momentum of the housing recovery, which appears to have formed from the end of … 2020,” Mr Christopher said.

“If JobKeeper is scaled back too prematurely, the housing market recovery in Sydney and Melbourne could stall.”

The JobKeeper payment, due to expire on 28 March 2021, effectively subsidises the pay of staff members for eligible businesses, a move intended to clot the unemployment surge experienced at the beginning of the pandemic -- where 932,000 people were put out of work.

The majority of these jobs have since been recovered -- about 232,000 people remain out of work as of October, according to the Australian Bureau of Statistics (ABS).

Meanwhile, containment of the pandemic has prevented the unemployment rate from reaching worst-case projections.

“When we met three months ago, I was saying the unemployment rate in Australia could get to 10 per cent,” Philip Lowe said, the head of the Reserve Bank of Australia (RBA), to a parliamentary inquiry yesterday.

“Now I think somewhere in the sevens will be the peak … It's not changing the medium term, but the bounce back has been quicker than we'd hoped.”

Sydney and Melbourne are most vulnerable

Whereas houses grew in value by 1.1 per cent in the three months to November, unit values in capital cities actually dropped by 0.6 per cent, according to CoreLogic.

Sydney and Melbourne unit values have been particularly affected, where international border closures have disappeared a key demographic of renters: international students and migrants.

The weakened demand in the rental space of these capital cities presents an additional hurdle that needs to be overcome before the property market can return to growth, Mr Christopher said.

“This new recovery will be one of the more speculative rises seen in some time,” he said.

“Let’s keep in mind unemployment remains elevated and net migration is expected to be negative next year.

“We have a surplus of inner-city units in our two largest cities.

“And if there was another negative macro event in 2021, there is not much room left to cut lending rates further.”

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Learn more about home loans

How is interest charged on a reverse mortgage from IMB Bank?

An IMB Bank reverse mortgage allows you to borrow against your home equity. You can draw down the loan amount as a lump sum, regular income stream, line of credit or a combination. The interest can either be fixed or variable. To understand the current rates, you can check the lender’s website.

No repayments are required as long as you live in the home. If you sell it or move to a senior living facility, the loan must be repaid in full. In some cases, this can also happen after you have died. Generally, the interest rates for reverse mortgages are higher than regular mortgage loans.

The interest is added to the loan amount and it is compounded. It means you’ll pay interest on the interest you accrue. Therefore, the longer you have the loan, the higher is the interest and the amount you’ll have to repay.

How to use the ME Bank reverse mortgage calculator?

You can access the equity in your home to help you fund your needs during your senior years. A ME Bank reverse mortgage allows you to tap into the equity you’ve built up in your home while you continue living in your house. You can also use the funds to pay for your move to a retirement home and repay the loan when you sell the property.

Generally, if you’re 60 years old, you can borrow up to 15 per cent of the property value. If you are older than 75 years, the amount you can access increases to up to 30 per cent. You can use a reverse mortgage calculator to know how much you can borrow.

To take out a ME Bank reverse mortgage, you’ll need to provide information like your age, type of property – house or an apartment, postcode, and the estimated market value of the property. The loan to value ratio (LVR) is calculated based on your age and the property’s value.

What are the features of home loans for expats from Westpac?

If you’re an Australian citizen living and working abroad, you can borrow to buy a property in Australia. With a Westpac non-resident home loan, you can borrow up to 80 per cent of the property value to purchase a property whilst living overseas. The minimum loan amount for these loans is $25,000, with a maximum loan term of 30 years.

The interest rates and other fees for Westpac non-resident home loans are the same as regular home loans offered to borrowers living in Australia. You’ll have to submit proof of income, six-month bank statements, an employment letter, and your last two payslips. You may also be required to submit a copy of your passport and visa that shows you’re allowed to live and work abroad.

When do mortgage payments start after settlement?

Generally speaking, your first mortgage payment falls due one month after the settlement date. However, this may vary based on your mortgage terms. You can check the exact date by contacting your lender.

Usually your settlement agent will meet the seller’s representatives to exchange documents at an agreed place and time. The balance purchase price is paid to the seller. The lender will register a mortgage against your title and give you the funds to purchase the new home.

Once the settlement process is complete, the lender allows you to draw down the loan. The loan amount is debited from your loan account. As soon as the settlement paperwork is sorted, you can collect the keys to your new home and work your way through the moving-in checklist.

What do people do with a Macquarie Bank reverse?

There are a number of ways people use a Macquarie Bank reverse mortgage. Below are some reasons borrowers tend to release their home’s equity via a reverse mortgage:

  • To top up superannuation or pension income to pay for monthly bills;
  • To consolidate and repay high-interest debt like credit cards or personal loans;
  • To fund renovations, repairs or upgrades to their home
  • To help your children or grandkids through financial difficulties. 

While there are no limitations on how you can use a Macquarie reverse mortgage loan, a reverse mortgage is not right for all borrowers. Reverse mortgages compound the interest, which means you end up paying interest on your interest. They can also affect your entitlement to things like the pension It’s important to think carefully, read up and speak with your family before you apply for a reverse mortgage.

When does Commonwealth Bank charge an early exit fee?

When you take out a fixed interest home loan with the Commonwealth Bank, you’re able to lock the interest for a particular period. If the rates change during this period, your repayments remain unchanged. If you break the loan during the fixed interest period, you’ll have to pay the Commonwealth Bank home loan early exit fee and an administrative fee.

The Early Repayment Adjustment (ERA) and Administrative fees are applicable in the following instances:

  • If you switch your loan from fixed interest to variable rate
  • When you apply for a top-up home loan
  • If you repay over and above the annual threshold limit, which is $10,000 per year during the fixed interest period
  • When you prepay the entire outstanding loan balance before the end of the fixed interest duration.

The fee calculation depends on the interest rates, the amount you’ve repaid and the loan size. You can contact the lender to understand more about what you may have to pay. 

Cash or mortgage – which is more suitable to buy an investment property?

Deciding whether to buy an investment property with cash or a mortgage is a matter or personal choice and will often depend on your financial situation. Using cash may seem logical if you have the money in reserve and it can allow you to later use the equity in your home. However, there may be other factors to think about, such as whether there are other debts to pay down and whether it will tie up all of your spare cash. Again, it’s a personal choice and may be worth seeking personal advice.

A mortgage is a popular option for people who don’t have enough cash in the bank to pay for an investment property. Sometimes when you take out a mortgage you can offset your loan interest against the rental income you may earn. The rental income can also help to pay down the loan.

What is a honeymoon rate and honeymoon period?

Also known as the ‘introductory rate’ or ‘bait rate’, a honeymoon rate is a special low interest rate applied to loans for an initial period to attract more borrowers. The honeymoon period when this lower rate applies usually varies from six months to one year. The rate can be fixed, capped or variable for the first 12 months of the loan. At the end of the term, the loan reverts to the standard variable rate.

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.

What is the difference between a fixed rate and variable rate?

A variable rate can fluctuate over the life of a loan as determined by your lender. While the rate is broadly reflective of market conditions, including the Reserve Bank’s cash rate, it is by no means the sole determining factor in your bank’s decision-making process.

A fixed rate is one which is set for a period of time, regardless of market fluctuations. Fixed rates can be as short as one year or as long as 15 years however after this time it will revert to a variable rate, unless you negotiate with your bank to enter into another fixed term agreement

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 however fixed rates do offer customers a level of security by knowing exactly how much they need to set aside each month.

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 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 is a comparison rate?

The comparison rate is a more inclusive way of comparing home loans that factors in not only on the interest rate but also the majority of upfront and ongoing charges that add to the total cost of a home loan.

The rate is calculated using an industry-wide formula based on a $150,000 loan over a 25-year period and includes things like revert rates after an introductory or fixed rate period, application fees and monthly account keeping fees.

In Australia, all lenders are required by law to publish the comparison rate alongside their advertised rate so people can compare products easily.

What's wrong with traditional ratings systems?

They’re impersonal 

Most comparison sites give you information about rates, fees and features, but expect you’ll pay more with a low advertised rate and $400 ongoing fee or a slightly higher rate and no ongoing fee. The answer is different for each borrower and depends on a number of variables, in particular how big your loan is. Comparisons are either done based on just today or projected over a full 25 or 30 year loan. That’s not how people borrow these days. While you may take a 30 year loan, most borrowers will either upgrade their house or switch their home loan within the first five years. 

You’re also expected to know exactly which features you want. This is fine for the experienced borrower, but most people know some flexibility is a good thing, but don’t know exactly which features offer more flexibility than others. 

What is the flexibility score?

Today’s home loans often try to lure borrowers with a range of flexible features, including offset accounts, redraw facilities, repayment frequency options, repayment holidays, split loan options and portability. Real Time Ratings™ weights each of these features based on popularity and gives loans a ‘flexibility score’ based on how much they cater to borrowers’ needs over time. The aim is to give a higher score to loans which give borrowers more features and options.

They’re not always timely

In today’s competitive home loan market, lenders are releasing new offers almost daily. These offers are often some of the most attractive deals in the market, but won’t get rated by traditional ratings systems for up to a year. 

The assumptions are out of date 

The comparison rate is based on a loan size of $150,000 and a loan term of 25 years. However, the typical loan size is much higher than that. Million dollar loans are becoming increasingly common, especially if you live in metropolitan parts of Australia, like Sydney and Melbourne. It’s also uncommon for borrowers to hold a loan for 25 years. The typical shelf life for a home loan is a few years. 

The other problem is because it’s a percentage, the difference between 3.9 or 3.7 per cent on a $500,000 doesn’t sound like much, but equals around $683 a year. Real Time Ratings™ not only looks at the difference in the monthly repayments, but it will work out the actual cost difference once fees are taken into consideration.