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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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 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 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.

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.

Do mortgage brokers need a consumer credit license?

In Australia, mortgage brokers are defined by law as being credit service or assistance providers, meaning that they help borrowers connect with lenders. Mortgage brokers may not always need a consumer credit license however if they’re operating solo they will need an Australian Credit License (ACL). Further, they may also need to comply with requirements asking them to mention their license number in full.

Some mortgage brokers can be “credit representatives”, or franchisees of a mortgage aggregator. In this case, if the aggregator has a license, the mortgage broker need not have one. The reasoning for this is that the franchise agreement usually requires mortgage brokers to comply with the laws applicable to the aggregator. If you’re speaking to a mortgage broker, you can ask them if they receive commissions from lenders, which is a good indicator that they need to be licensed. Consider requesting their license details if they don’t give you the details beforehand. 

You should remember that such a license protects you if you’re given incorrect or misleading advice that results in a home loan application rejection or any financial loss. Brokers are regulated by the Australian Securities & Investment Commission (ASIC), as per the National Consumer Credit Protection (NCCP) Act. 

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.

How to break up with your mortgage broker

If you find a mortgage broker giving you generic advice or trying to sell you a competitive offer from an unsuitable lender, you might be better off  breaking up with the mortgage broker and consulting someone else. Breaking up with a mortgage broker can be done over the phone, or via email. You can also raise a complaint, either with the broker’s aggregator or with the Australian Financial Complaints Authority as necessary.

As licensed industry professionals, mortgage brokers have the responsibility of giving you accurate advice so that you know what to expect when you apply for a home loan. You may have approached the mortgage broker, for instance, because you have questions about the terms of a home loan a lender offered you. 

You should remember that mortgage brokers are obliged by law to act in your best interests and as part of complying with The Australian Securities and Investments Commission’s (ASIC) regulations. If you feel you didn’t get the right advice from the mortgage broker, or that you lost money as a result of accepting the broker’s suggestions regarding a lender or home loan offer, you can file a complaint with the ASIC and seek compensation. 

When you first speak to a mortgage broker, consider asking them about their Lender Panel, which is the list of lenders they usually recommend and who may pay them a commission. This information can help you decide if the advice they give you has anything to do with the remuneration they may receive from one or more lenders.

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 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. 

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.

How does Real Time Ratings work?

Real Time RatingsTM looks at your individual home loan requirements and uses this information to rank every applicable home loan in our database out of five.

This score is based on two main factors – cost and flexibility.

Cost is calculated by looking at the interest rates and fees over the first five years of the loan.

Flexibility is based on whether a loan offers features such as an offset account, redraw facility and extra repayments.

Real Time RatingsTM also includes the following assumptions:

  • Costs are calculated on the current variable rate however they could change in the future.
  • Loans are assumed to be principal and interest
  • Fixed-rate loans with terms greater than five years are still assessed on a five-year basis, so 10-year fixed loans are assessed as being only five years’ long.
  • Break costs are not included.

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