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Market recovery: More home buyers hitting the market

Market recovery More home buyers hitting the market

March 2, 2011

Mortgage applications in Australia may have hit their lowest point in eight years, but there are some indications a slow, upward climb has begun.

Veda Advantage’s quarterly Consumer Credit Demand Index found mortgage enquiries during the October to December 2010 quarter were up 3.4 percent compared with the September quarter.

While applications were down 16 percent over the same quarter in 2009, that fall was less severe than in July to September, when applications dropped 23.6 percent compared with the same quarter in 2009.

Veda Advantage’s head of consumer risk, Angus Luffman, says mortgage applications over the past two years had been demonstrably affected by the global financial crisis, declining in 2008 and then strengthening in 2009 during the government stimulus.

In 2010 applications wound back again, with mortgage demand falling by an average 19 percent across the 2010 calendar year to below levels seen in the middle of the GFC.

The biggest year-on-year fall was in Queensland, where home loan demand fell by 24 percent, while the smallest was in the ACT at 8.6 percent. However in December each state and territory saw a rise over the previous quarter, led by the Northern Territory with 8.7 percent.

Luffman says adding to the indicators of a positive trend was a 2.4 percent increase in consumer credit demand in October to December 2010 and a modest 0.4 percent increase for the 2010 calendar year.

“The first six months of the year saw a decrease in credit card applications as consumers focused on saving money, but the July to September quarter showed some signs that people were willing to start spending on credit again,” Luffman says.

“Demand for personal loans has been slower to pick up pace, with falls recorded all year, until the last three months to December when we finally started to see some recovery.”

He says it remained to be seen how the new consumer credit regulations that came into effect on January 1 would impact demand in all areas. Under the regulations, mortgage brokers, credit providers and finance companies now have to prove they have taken all reasonable steps to establish the consumer has the capacity to repay their loan and meet their financial objectives.

They are also required to prove the loan will not put the consumer in a position of substantial financial hardship.

So if you’re in the market for a home loan, while you can feel a little more secure that lenders will only provide you with a loan you can afford, don’t be too reliant on what lenders advice. Be sure to shop around to find a good value home loan and start by comparing deals on financial comparison websites like RateCity.

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Learn more about home loans

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.

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 responsibilities of a mortgage broker?

Mortgage brokers act as the go-between for borrowers looking for a home loan and the lenders offering the loan. They offer personalised advice to help borrowers choose the right home loan for their needs.

In Australia, mortgage brokers are required by law to carry an Australian Credit License (ACL) if they offer credit assistance services. Which is the legal term for guidance regarding the different kinds of credit offered by lenders, including home loan mortgages. They may not need this license if they are working for an aggregator, for instance, as a franchisee. In both these situations, they need to comply with the regulations laid down by the Australian Securities and Investments Commission (ASIC).

These regulations, which are stipulated by Australian legislation, require mortgage brokers to comply with what are called “responsible lending” and “best interest” obligations. Responsible lending obligations mean brokers have to suggest “suitable” home loans. This means loans that you can easily qualify for,  actually meet your needs, and don’t prove unnecessarily challenging for you.

Starting 1 January 2021, mortgage brokers must comply with best interest obligations in addition to responsible lending obligations. These require mortgage brokers to act in the best interest of their customers and also requires them to prioritise their customers’ interests over their own. For instance, a mortgage broker may not recommend a lender who gives them a commission if that lender’s home loan offer does not benefit that particular customer.