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Lockdown puts the brakes on new home lending but mortgage sizes blowout

Lockdown puts the brakes on new home lending but mortgage sizes blowout

The value of new home loans has dropped by $1.37 billion in just a month, according to the latest ABS lending indicators released today.

In August, a total of $30.76 billion of new loans were settled, down 4.3 per cent from July, in seasonally-adjusted terms.

New loans to owner-occupiers fell by $1.51 billion month-on-month, a drop of 6.6 per cent.

New investor loans rose for the tenth month in a row, almost doubling from August 2020.

RateCity.com.au research director, Sally Tindall, said: “NSW saw the biggest drop in dollar terms as lockdowns promoted some sellers put their plans on hold, while potential buyers were limited by restrictions.”

“Investors defied the trend, particularly in Queensland, where lockdowns have been brief and property prices are lower than in NSW and Victoria,” she said.

Value of new home loans approved in August

AmountMonthly changeYear-on-year change
TOTAL

$30.76 billion 

-$1.37 billion

-4.3%

$9.89 billion

47.4%

Owner-occupier

$21.26 billion

-$1.51 billion

-6.6%

$5.33 billion

33.5%

Investor

$9.49 billion 
highest since April 2015

$139 million

1.5%

$4.55 billion

92.2%

Source: ABS Lending Indicators August 2021, released 1 October 2021, seasonally adjusted data. Annual change is Aug 2020 to Aug 2021.

Loan sizes explode as house prices continue to rise

With property prices across Australia rising 20.3 per cent in just one year, according to today’s CoreLogic data, the debt households are taking on is also exploding.

Analysis of today’s ABS data by RateCity.com.au shows the average new loan in NSW and Victoria has risen by more than $100,000 in just a year.

Average mortgage size

1 year ago

Aug-2020

NOW

Aug-2021

Difference
NSW

$562,966

$674,839

$111,873

VIC

$447,766

$553,802

$106,036

QLD

$389,117

$436,301

$47,184

SA

$338,204

$368,016

$29,813

WA

$368,092

$408,828

$40,736

TAS

$290,964

$355,601

$64,637

NT

$355,497

$382,085

$26,587

ACT

$475,698

$523,001

$47,303

Source: ABS lending indicators, original data from August 2021, released October 2021. Total housing excluding refinancing.

Sally Tindall said: “Surging property prices have pushed some people into borrowing more than they had ever imagined.”

“New buyers might be able to make their monthly mortgage repayments now while rates are low, but a home loan is for up to 30 years, a lot can happen in that time.

“With loan sizes exploding, it’s no surprise APRA is now looking to implement policies to prevent Australians from taking on unsafe levels of debt.

“While no one likes to be told ‘no’ from their bank, these types of policy changes are about protecting people from overcommitting themselves,” she said.

The number of first home buyers drops 22.8% since January

In a worrying trend, the number of owner-occupier first home buyer loans has dropped by 3.0 per cent month-on-month.

Since the peak in January 2021, the number of owner-occupiers first-home buyers is down 22.8 per cent.

Owner-occupier first home buyers in August

AmountMonthly changeChange since peak

(Jan 2021)

Value of loans

$5.55 billion

-$289million

-4.9%

-$1.52 billion

-21.5%

Number of loans

12,547

-383

-3.0%

-3,710

-22.8%

Source: ABS Lending Indicators August 2021, released 1 October 2021, excludes refinancing, seasonally adjusted data.

Sally Tindall said: “With the number of first home buyers dropping for the seventh month in a row, more needs to be done to help young Australians get into the market.

“First home buyers just can’t compete with bidders who already have skin in the game.

“When they’re forced to go toe-to-toe with a cashed-up investor or an existing owner-occupier, their budgets just don’t stack up,” she said.

External refinancing hits another record high

A total of $17.78 billion in mortgages were refinanced in the month of August, a new record high.

This was an increase of $559 million from the previous month, in seasonally-adjusted terms.

Value of externally refinanced loans in August

Amount in August 2021Monthly changeYear-on-year changeChange from 2 years ago

$17.78 billion

– highest on record

$559 million

3.2%

$6.5 billion

58.1%

$8.54 billion

92.4%

Source: ABS Lending Indicators August 2021, released 1 October 2021, seasonally adjusted data. Annual change is Aug 2020 to Aug 2021, and 2-year change is Aug 2019 to Aug 2021.

Sally Tindall said: “Australians have been pro-actively refinancing their loans since the cash rate cuts of 2019, a trend that has been turbo-charged since COVID.”

“We’re now seeing fixed rates as low as 1.59 per cent – it’s no wonder people are shopping around,” she said.

State by state – total value of new home loans

Aug-21Month-on-month change
Australia

$30.76 billion

-4.3%

NSW

$10.95 billion

-7.5%

VIC

$8.91 billion

-3.1%

QLD

$5.81 billion

5.4%

SA

$1.49 billion

0.9%

WA

$2.53 billion

-1.0%

TAS

$394 million

-0.7%

NT

$167 million

7.0%

ACT

$751 million

-7.9%

Source: ABS Lending Indicators August 2021, released 1 October 2021, seasonally adjusted data.

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This article was reviewed by Research Director Sally Tindall before it was published as part of RateCity's Fact Check process.

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Learn more about home loans

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 are the benefits of a reverse mortgage from P&B Bank?

A reverse mortgage allows senior homeowners to unlock the equity in their homes. There is no repayment schedule, and the loan is repaid at the time of selling, if you move out or when the homeowner passes away. The interest accumulates on the outstanding amount and is added to what was initially borrowed.

Here are some benefits of applying for a P&B Bank reverse mortgage:

  • Flexibility to use the funds as desired; you can travel, pay for medical bills or undertake home improvements or use it for your regular living costs
  • A negative equity guarantee ensures the amount you have to repay never exceeds the value of your home
  • A reverse mortgage does not have a regular monthly instalment, and you can repay any amount you wish at any point during the loan tenure
  • You can choose to withdraw the loan amount as per your requirements

The P&B Bank reverse mortgage amount is based on factors like your age, location of the property, and the loan-to-value ratio (LVR).

What is the ME bank home loan approval time?

To start the process of getting a loan with ME bank, you can fill out the online application form. You’ll have to provide information about your income details, assets and liabilities, and the property you want to buy.

Generally, the pre-approval of your loan application can happen within four hours, and in some instances, it may take up to two weeks. It’s important to remember this is only conditional approval.

If you make an offer and the seller accepts it, you’ll need to wait for the cooling-off period, which varies from two to five days depending on where you live. After that, it can take between six and eight weeks after contracts have been exchanged for your application for unconditional approval to be processed.

Is a second mortgage tax deductible?

If you take out a loan to invest in a property, you can claim a tax deduction on the interest you pay as long as the property is earning income. In other words, if you rent the property for the entire year, you can claim a tax deduction for 12 months of interest payments. But, if you use the home for six months and rent it for the other six months, you can claim deduction only for 50 per cent of the interest amount.

You also get tax benefits for items that lose value over the years. But, the entire amount is not allowed as a tax deduction in the same year; instead you’ll have to claim a portion each year over a number of years. 

Additional borrowing costs, such as maintenance fees, stamp duty, offset account setting up fees, Lenders Mortgage Insurance (LMI), and establishment fees, can also be claimed as tax deductions.

Before you claim second mortgage tax deductions, it’s often worth checking with an experienced tax expert.

What is a secured home loan?

When the lender creates a mortgage on your property, they’re offering you a secured home loan. It means you’re offering the property as security to the lender who holds this security against the risk of default or any delays in home loan repayments. Suppose you’re unable to repay the loan. In this case, the lender can take ownership of your property and sell it to recover any outstanding funds you owe. The lender retains this hold over your property until you repay the entire loan amount.

If you take out a secured home loan, you may be charged a lower interest rate. The amount you can borrow depends on the property’s value and the deposit you can pay upfront. Generally, lenders allow you to borrow between 80 per cent and 90 per cent of the property value as the loan. Often, you’ll need Lenders Mortgage Insurance (LMI) if the deposit is less than 20 per cent of the property value. Lenders will also do a property valuation to ensure you’re borrowing enough to cover the purchase. 

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.

What is the ANZ home loan settlement process?

Settlement is the procedure for the official transfer of ownership between the seller and buyer. It’s often done without the seller or buyers input but between both parties’ the financial and legal representatives.

Here is how the ANZ home loan settlement process works:

  1. The solicitor or conveyancer prepares the Transfer of Land document at least two weeks before the settlement date.
  2. The signed document is registered at the state or territory land registry office.
  3. Your solicitor or conveyancer will connect with the ANZ home loan settlement contact and the seller’s solicitor or conveyancer to finalise the date, time, and place of settlement.
  4. You must deposit any applicable amount into your ANZ account three days before the settlement date.
  5. After the settlement is completed, your solicitor or conveyancer will send you a Statement of Adjustment confirming the disbursal of funds from your home loan amongst the involved parties.

How does ANZ calculate early repayment costs?

If you have a fixed interest home loan, you’ll pay ANZ home loan early exit fees for partial or full repayment of the loan amount before the end of the fixed interest rate duration. These fees are also payable if you switch to another variable or fixed-rate loan.

The ANZ mortgage early exit fees can vary and you can get an estimate from the lender before you decide to prepay the loan. However, the exact early repayment cost can be determined when you prepay the loan.

The early exit fees are calculated after considering factors like the prepayment amount, the period left before the fixed-rate duration ends, and the change in the market rates since the beginning of the fixed-rate period. The early exit fees may not be charged if you’re paying off a smaller amount. You can check with ANZ to see how much you’ll have to pay.

How long should I have my mortgage for?

The standard length of a mortgage is between 25-30 years however they can be as long as 40 years and as few as one. There is a benefit to having a shorter mortgage as the faster you pay off the amount you owe, the less you’ll pay your bank in interest.

Of course, shorter mortgages will require higher monthly payments so plug the numbers into a mortgage calculator to find out how many years you can potentially shave off your budget.

For example monthly repayments on a $500,000 over 25 years with an interest rate of 5% are $2923. On the same loan with the same interest rate over 30 years repayments would be $2684 a month. At first blush, the 30 year mortgage sounds great with significantly lower monthly repayments but remember, stretching your loan out by an extra five years will see you hand over $89,396 in interest repayments to your bank.

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 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.

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.

Why does Westpac charge an early termination fee for home loans?

The Westpac home loan early termination fee or break cost is applicable if you have a fixed rate home loan and repay part of or the whole outstanding amount before the fixed period ends. If you’re switching between products before the fixed period ends, you’ll pay a switching break cost and an administrative fee. 

The Westpac home loan early termination fee may not apply if you repay an amount below the prepayment threshold. The prepayment threshold is the amount Westpac allows you to repay during the fixed period outside your regular repayments.

Westpac charges this fee because when you take out a home loan, the bank borrows the funds with wholesale rates available to banks and lenders. Westpac will then work out your interest rate based on you making regular repayments for a fixed period. If you repay before this period ends, the lender may incur a loss if there is any change in the wholesale rate of interest.

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.