New stats show big jump in use of offset accounts

New stats show big jump in use of offset accounts

Australians are taking increasing advantage of offset accounts when signing up for mortgages, new data has revealed.

The number of mortgages with offset facilities reached 2.1 million at the end of March 2017 – a 9.3 per cent jump on the March 2016 result.

There was also an increase in the share of loans with offset facilities, from 35.0 per cent to 37.0 per cent.

 

These statistics, which were provided by APRA, the banking regulator, cover authorised deposit-taking institutions (ADIs) with at least $1 billion of mortgages on their books. This captures 98.7 per cent of the mortgages held by ADIs.

March quarter Quarterly change Annual change
Total number of residential term loans to households 5.8 million 0.6% 3.6%
Loans with offset facilities 2.1 million 0.9% 9.3%
Loans with redraw facilities 4.1 million 0.5% 4.5%
Interest-only mortgages 1.7 million -0.4% 2.6%
Reverse mortgages 28,000 0% 0%
Low-documentation loans 116,000 -3.3% -13.4%

Mortgage exposures hit $1.5 trillion

The ADIs had $1.5 trillion in outstanding mortgages at the end of March – up 7.7 per cent on the year before.

That was driven by an 8.8 per cent increase in owner-occupied loans and a 5.8 per cent increase in investment loans.

Interest-only loans climbed 6.9 per cent, while reverse mortgages climbed 2.0 per cent.

March quarter Quarterly change Annual change
Total value of residential term loans to households $1.5 trillion 1.4% 7.7%
Owner-occupied $971.1 billion 1.5% 8.8%
Investment $523.7 billion 1.2% 5.8%
Loans with offset facilities $669.1 billion 1.9% 12.2%
Interest-only mortgages $583.3 billion 1.4% 6.9%
Reverse mortgages $2.8 billion 0.8% 2.0%
Low-documentation loans $22.4 billion -3.1% -13.1%
Other non-standard loans $930 million -2.9% -13.3%

Investors increase their share

There were $89.3 billion worth of new mortgages issued during the first three months of 2017 – up 9.5 per cent on the first three months of 2016.

Investment loans represented 35.0 per cent of that volume, compared to 31.5 per cent the year before. The owner-occupied share was 65.0 per cent, down from 68.5 per cent.

Mortgage brokers increased their share of the mortgage market from 46.5 per cent to 48.4 per cent.

In a sign that lenders have been tightening their lending standards over the past year, there was a 59.4 per cent drop in the value of loans approved outside serviceability.

As a result, the share of loans approved outside serviceability fell from 4.4 per cent to 1.6 per cent.

March quarter Quarterly change Annual change
Total new residential term loans to households approved $89.3 billion -11.7% 9.5%
Owner-occupied $58.0 billion -11.4% 3.9%
Investment $31.2 billion -12.2% 21.7%
Low-documentation loans approved $377 million -8.9% 42.8%
Interest-only loans approved $32.4 billion -14.7% 13.8%
Other non-standard loans approved $142 million 1.4% 21.4%
Third-party originated loans approved $43.2 billion -12.4% 14.0%
Loans approved outside serviceability $1.5 billion -57.8% -59.4%
LVR 60% and under $22.8 billion -9.5% 12.8%
LVR 60-79.9% $46.8 billion -12.1% 8.5%
LVR 80-89.9% $12.7 billion -12.8% 14.5%
LVR 90% and above $6.9 billion -13.7% -2.2%

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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 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.

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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What fees are there when buying a house?

Buying a home comes with ‘hidden fees’ that should be factored in when considering how much the total cost of your new home will be. These can include stamp duty, title registration costs, building inspection fees, loan establishment fee, lenders mortgage insurance (LMI), legal fees and bank valuation costs.

Tip: you can calculate your stamp duty costs as well as LMI in Rate City mortgage repayments calculator

Some of these fees can be taken out of the mix, such as LMI, if you have a big enough deposit or by asking your lender to waive establishment fees for your loan. Even so, fees can run into the thousands of dollars on top of the purchase price.

Keep this in mind when deciding if you are ready to make the move in to the property market.

What is breach of contract?

A failure to follow all or part of a contract or breaking the conditions of a contract without any legal excuse. A breach of contract can be material, minor, actual or anticipatory, depending on the severity of the breaches and their material impact.

How often is your data updated?

We work closely with lenders to get updates as quick as possible, with updates made the same day wherever possible.