Melbourne becomes capital city with the highest vacancy rate

Melbourne becomes capital city with the highest vacancy rate

Melbourne has overtaken Sydney to become the rental market with the highest proportion of vacant properties in Australia, according to new research, as a COVID-19 policy that bans landlords from evicting struggling tenants could be extended. 

Melbourne’s vacancy rate edged up by 0.6 percentage points to 3.8 per cent in August, more than double the proportion recorded in the same month last year, Domain Group figures showed. It was also the only capital city that recorded a rise in vacancy rates over the past month.

The vacancy rate increase is due to empty properties in Melbourne shooting up by about 20 per cent in August, and 140 per cent in the past 12 months.

Meanwhile, other capital cities, including Sydney, have managed to keep rental demand up or stable, with the vacancy rates falling in five cities, including Brisbane, Perth, Hobart, Canberra and Darwin.

Sydney’s vacancy rate saw no change at 3.5 per cent, though it is up by 0.5 percentage points in August 2019.

Other capital cities fared better with vacancy rates between 0.6 per cent and 2.2 per cent.

The national vacancy rate in August remained the same for a third month in a row at 2.1 per cent, nearly 2 percentage points lower than that of Melbourne. 

Domain Group research analyst Henry Yu said Melbourne’s stage four lockdown, which began on August 2, had “disrupted the rental market”.

“A two-speed vacancy rate has emerged as Melbourne entered its first month of heightened stage four restrictions in early August,” he said.

“Elsewhere, other capitals have avoided secondary lockdowns despite minor outbreaks occurring.”

Rental vacancy - Domain.JPG

Victoria extends rental eviction moratorium

The new data comes as the Victorian government moves to extend the moratorium on residential rental evictions and freeze on rental hikes for a second time until March 28, 2021. It was originally slated to end on September 26, but Premier Daniel Andrews extended the moratorium in August until the end of 2020.

While eligible tenants may be able to receive up to $3,000 in rental relief handouts, a bump up from the previous $2,000, landlords may also be able to access a 25 per cent discount to their 2021 land tax. The remainder of the bill may be deferred until the end of November 2021.

“We know there are plenty of Victorians doing it tough right now – the last thing they need to worry about is whether they can keep a roof over their head,” Mr Andrews said in a statement.

“With an extended timeline and expanded eligibility for rental help, it means a little less stress and a little more certainty for tenants.”

But the Real Estate Institute of Victoria (REIV) said extending the moratorium for another six months meant landlords “have virtually no relief” during the ban.

“This demagogue decision to extend the moratorium means that for a whole year, landlords will be dictated to as how much rent they can charge, removing their right to make fundamental decisions about their own property,” REIV chief executive officer Gil King said.

“Property owners who have worked hard to save and invest to provide for the future of their families are not being protected by the moratorium.”

Investors in mortgage stress

Meanwhile, the Australian Banking Association announced today that banks are reaching out to mortgage holders across the country who hit pause on their home loans to discuss when and how they can restart repayments. 

A quarter of property investors, or 826,000 borrowers, are in mortgage stress, according to the latest research from Digital Finance Analytics (DFA). 

“Clearly the fiscal cliff, which is now legislated, will push more over the edge,” DFA principal Martin North said, adding that he expects to see higher default levels and more forced sales over the next few months. 

Rents for Melbourne units declined by 4.4 per cent between March 31 and August 31, CoreLogic data showed, while for houses it dropped by 1 per cent, indicating units may be bearing the brunt of the pandemic’s impact on the rental market.

Tim Lawless, CoreLogic’s head of research, said high levels of apartment supply and falling demand was largely to blame for the weaker rental conditions for the unit market.

“Supply levels for rental grade units have surged over recent years, especially in Sydney and Melbourne, where high-rise unit supply across key inner-city markets has remained substantially above average,” he said.

“At the end of March there remained around 51,000 units under construction across NSW (+19 per cent on the 10-year average), and about 45,000 units were under construction across Victoria (+24 per cent above the decade average).”

Rental demand has been affected by a fall in overseas migration, due to domestic students studying from home, and weak labour market conditions across sectors which predominantly employ renters. 

With falling interest rates across the home loan market, financially distressed investors could consider shopping around and potentially refinancing to a lower rate.

The average investor interest rate plummeted from 3.92 per cent in March to 3.47 per cent in September, RateCity data showed.

But the lowest interest rate on the RateCity database for investors is an introductory 1.99 per cent (comparison rate 2.71 per cent) from Loans.com.au. The rate reverts to 2.74 per cent after the one-year introductory period. However, investors will need to bundle the mortgage with their owner-occupier home loan to be eligible for the rate. 

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Learn more about home loans

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.

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.

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 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.

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.

How much debt is too much?

A home loan is considered to be too large when the monthly repayments exceed 30 per cent of your pre-tax income. Anything over this threshold is officially known as ‘mortgage stress’ – and for good reason – it can seriously affect your lifestyle and your actual stress levels.

The best way to avoid mortgage stress is by factoring in a sizeable buffer of at least 2 – 3 per cent. If this then tips you over into the mortgage stress category, then it’s likely you’re taking on too much debt.

If you’re wondering if this kind of buffer is really necessary, consider this: historically, the average interest rate is around 7 per cent, so the chances of your 30 year loan spending half of its time above this rate is entirely plausible – and that’s before you’ve even factored in any of life’s emergencies such as the loss of one income or the arrival of a new family member.

How much deposit do I need for a home loan from ANZ?

Like other mortgage lenders, ANZ often prefers a home loan deposit of 20 per cent or more of the property value when you’re applying for a home loan. It may be possible to get a home loan with a smaller deposit of 10 per cent or even 5 per cent, but there are a few reasons to consider saving a larger deposit if possible:

  • A larger deposit tells a lender that you’re a great saver, which could help increase the chances of your home loan application getting approved.
  • The more money you pay as a deposit, the less you’ll have to borrow in your home loan. This could mean paying off your loan sooner, and being charged less total interest.
  • If your deposit is less than 20 per cent of the property value, you might incur additional costs, such as Lenders Mortgage Insurance (LMI).

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.

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 do I need for a home loan from NAB?

The right deposit size to get a home loan with an Australian lender will depend on the lender’s eligibility criteria and the value of your property.

Generally, lenders look favourably on applicants who save up a 20 per cent deposit for their property This also means applicants do not have to pay Lenders Mortgage Insurance (LMI). However, you may still be able to obtain a mortgage with a 10 - 15 per cent deposit.  

Keep in mind that NAB is one of the participating lenders for the First Home Loan Deposit Scheme, which allows eligible borrowers to buy a property with as low as a 5 per cent deposit without paying the LMI. The Federal Government guarantees up to 15 per cent of the deposit to help first-timers to become homeowners.

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.

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.