Housing values fell last financial year - what happened?

Australia’s housing markets have slowed over the past financial year, according to CoreLogic, with most capital cities experiencing downturns and most regional areas experiencing relatively sluggish growth.

The difference between the downturn experienced over the 2017-18 financial year and other housing downturns over the past 20 years is that the latest slowdown in value growth was not precipitated through movements in the cash rate, according to CoreLogic:

“Independent increases to the cost of borrowing, particularly for investors, tighter credit conditions and a lack of real wage growth which has led to reduced affordability are some of the main drivers of the weakening housing conditions.” – Cameron Kusher, CoreLogic

Australia’s dwelling values – the big picture

Nationally, CoreLogic found that dwelling values fell by -0.8% over the past financial year, the biggest drop since the -0.3% fall in 2011-12. The recent fall is a stark contrast to the 10.2% increase in values nationally over the previous 2016-17 financial year.

These national figures were found to be primarily driven by falling dwelling values in the capitals. 2017-18 was found to be one of only four financial years over the past two decades in which capital city values have fallen, with its -1.6% drop being the largest fall since the -0.3% fall in 2011-12.

The combined regions were found to have grown their dwelling value by 2.2% over the financial year, however this was a much slower rate of growth than the 6.4% the year before – the slowest since 2012-13 when values increased by just 0.9%.

What happened last financial year?

According to CoreLogic, in the 2017-18 financial year:

  • Sydney saw its largest fall in property values (-4.5%) in 20 years.
  • Regional NSW saw the slowest housing value growth since 2012-13 (+3.2%).
  • Melbourne values grew for the sixth consecutive year, though at the slowest rate out of any of those years (+1.0%).
  • Regional Victoria’s markets accelerated, experiencing the greatest increase in values since 2010-2011 (+5.0%).
  • Brisbane also saw value grow for the sixth consecutive year, though at the slowest rate out of any of those years (+1.1%).
  • Regional Queensland’s values barely increased (+0.3%), though it was still the sixth consecutive financial year of rising values.
  • Adelaide’s values increased for the fifth consecutive year, though at the slowest rate (+1.1%) since values fell in 2012-13.
  • Regional South Australia experienced a third consecutive financial year of falling values, though at the slightest rate of decline for these years (-0.1%).
  • Perth values fell for the fourth consecutive year, though the decline was the most moderate of those years (-2.1%).
  • Regional Western Australia saw values decline more steeply (-3.3%) than the previous year, though it wasn’t the steepest in the last six consecutive years of declines.
  • Hobart experienced a slightly smaller increase in dwelling values (+12.7%) on the previous year, though the past two years have seen the strongest growth since 2003-04.
  • Regional Tasmania saw values increase for the fifth consecutive year, though at a marginally lower rate (5.6%) than the previous year.
  • Darwin dwelling values fell for the fifth consecutive year, at a rate of decline (-7.7%) much greater than the previous year, though not quite as great as in 2015-16.
  • Values in the Regional Northern Territory rose (+4.8%), which was an improvement on the previous year, when values experienced a significant fall.
  • Canberra dwelling values increased (+2.3%) more slowly than the previous year, though this makes for four consecutive years of growth, following falls in three of the previous four financial years.

What’s the forecast for next financial year?

According to CoreLogic, the light at the end of the tunnel may not appear any time soon, with many of the factors that led to slowed housing growth in the recent financial year being unlikely to be removed over the coming financial year.

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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 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 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. 

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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

What is 'principal and interest'?

‘Principal and interest’ loans are the most common type of home loans on the market. The principal part of the loan is the initial sum lent to the customer and the interest is the money paid on top of this, at the agreed interest rate, until the end of the loan.

By reducing the principal amount, the total of interest charged will also become smaller until eventually the debt is paid off in full.

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.

How do I take out a low-deposit home loan?

If you want to take out a low-deposit home loan, it might be a good idea to consult a mortgage broker who can give you professional financial advice and organise the mortgage for you.

Another way to take out a low-deposit home loan is to do your own research with a comparison website like RateCity. Once you’ve identified your preferred mortgage, you can apply through RateCity or go direct to the lender.

What is an ombudsman?

An complaints officer – previously referred to as an ombudsman -looks at formal complaints from customers about their credit providers, and helps to find a fair and independent solution to these problems.

These services are handled by the Australian Financial Complaints Authority, a non-profit government organisation that addresses and resolves financial disputes between customers and financial service providers.

Remaining loan term

The length of time it will take to pay off your current home loan, based on the currently-entered mortgage balance, monthly repayment and interest rate.

Do other comparison sites offer the same service?

Real Time RatingsTM is the only online system that ranks the home loan market based on your personal borrowing preferences. Until now, home loans have been rated based on outdated data. Our system is unique because it reacts to changes as soon as we update our database.