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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How can I get ANZ home loan pre-approval?

Shopping for a new home is an exciting experience and getting a pre-approval on the loan may give you the peace of mind that you are looking at properties within your budget. 

At the time of applying for the ANZ Bank home loan pre-approval, you will be required to provide proof of employment and income, along with records of your savings and debts.

An ANZ home loan pre-approval time frame is usually up to three months. However, being pre-approved doesn’t necessarily mean you will get your home loan. Other factors could lead to your home loan application being rejected, even with a prior pre-approval. Some factors include the property evaluation not meeting the bank’s criteria or a change in your financial circumstances.

You can make an application for ANZ home loan pre-approval online or call on 1800100641 Mon-Fri 8.00 am to 8.00 pm (AEST).

Interest Rate

Your current home loan interest rate. To accurately calculate how much you could save, an accurate interest figure is required. If you are not certain, check your bank statement or log into your mortgage account.

Savings over

Select a number of years to see how much money you can save with different home loans over time.

e.g. To see how much you could save in two years by switching mortgages,  set the slider to 2.

Monthly Repayment

Your current monthly home loan repayment. To accurately calculate how much you could save, an accurate payment figure is required. If you are not certain, check your bank statement.

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.

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.

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.

Does Australia have no cost refinancing?

No Cost Refinancing is an option available in the US where the lender or broker covers your switching costs, such as appraisal fees and settlement costs. Unfortunately, no cost refinancing isn’t available in Australia.

Can I change jobs while I am applying for a home loan?

Whether you’re a new borrower or you’re refinancing your home loan, many lenders require you to be in a permanent job with the same employer for at least 6 months before applying for a home loan. Different lenders have different requirements. 

If your work situation changes for any reason while you’re applying for a mortgage, this could reduce your chances of successfully completing the process. Contacting the lender as soon as you know your employment situation is changing may allow you to work something out. 

If I don't like my new lender after I refinance, can I go back to my previous lender?

If you wish to return to your previous lender after refinancing, you will have to go through the refinancing process again and pay a second set of discharge and upfront fees. 

Therefore, before you refinance, it’s important to weigh up the new prospective lender against your current lender in a number of areas, including fees, flexibility, customer service and interest rate.