More owner occupiers sell at a profit than investors

More owner occupiers sell at a profit than investors

Australia’s housing market continues to make money for owner occupiers and investors, with 9 out of 10 resold properties making a profit in the June 2017 quarter.

According to the latest CoreLogic Pain & Gain report, 89.8% of dwellings which resold over the June 2017 quarter did so for more than their purchase price; a 0.3% increase on the 89.5% result recorded in the March 2017 quarter.

Combined, resales earned sellers $18.2 billion in gross profits in the June 2017 quarter, with the median profit recorded at $195,000.  On the other hand, gross resale losses totalled $469.6 million, with a median loss of $35,000. 

Of the property types to resell over the period, houses saw profit gains of 92.1%, while unit resales achieved an 87.5% gain.

So, who’s making all this money from property resales? According to CoreLogic, it’s owner occupiers, whose nationwide profitable resales were estimated at 92.3%, while investor profitable resales were estimated at 88.1%. Australia’s capital cities and regional areas both saw a significant gap between owner occupiers and investors in terms of profitable resales; a gap that was more extreme in the cities than in the country.   

CoreLogic research analyst, Cameron Kusher, said that Sydney was the only major region of the country where investors were more likely to resell at a profit than owner occupiers. 

“Investors were 4.8 times as likely to resell at a loss as owner occupiers in Melbourne, in Brisbane the figure was 2.8 times and in Canberra the figure was 3.5 times.”

“For owner occupiers, the results show the benefits of selling in a buoyant market.  In a falling market, owner occupiers may be more prepared to sell at a loss if they are purchasing their next home at an equivalent or greater discount.  Because of taxation rules, investors may be more prepared to incur a loss because they, unlike owner occupiers, can offset those loses against future capital gains.”  

“Should home values fall in the future, investors, which have been increasingly active in the housing market, may be more inclined to sell at a loss and offset those losses which in turn could result in much more supply becoming available for purchase at a time in which demand for housing falls because values are declining.” 

Mr Kusher added that regions making fewer profitable resales are closely linked to the mining and resources sectors.  

“While the June 2017 quarter results show a reduction in the proportion of profit-making sales in some of these regions, home owners seem willing to sell but there remains little demand to purchase in these regions which is resulting in a high proportion of vendors materialising losses. The regions with the lowest proportion of resales at a loss makes for interesting reading. 

“The Sydney and Melbourne housing markets have been powerhouses over recent years however, regions outside but adjacent to Sydney are seeing a lower proportion of resales at a loss.  Similarly in Victoria, Melbourne continues to see relatively few resales at a loss however, the proportion of loss-making resales is actually lower in both Geelong and Bendigo.” 

Region Pain (Houses) Gain (Houses) Pain (Units) Gain (Units)
Sydney 1.9% 98.1% 1.6% 98.4%
Regional NSW 4.6% 95.4% 8.3% 91.7%
Melbourne 1.1% 98.9% 9.6% 90.4%
Regional VIC 7.1% 92.9% 7.2% 92.8%
Brisbane 4.1% 95.9% 25.8% 74.2%
Regional QLD 15.8% 84.2% 19.4% 80.6%
Adelaide 7.5% 92.5% 12.4% 87.6%
Regional SA 17.2% 82.8% 42.3% 57.7%
Perth 24.2% 75.8% 37.8% 62.2%
Regional WA 34.2% 65.8% 43.5% 56.5%
Hobart 3.9% 96.1% 8.5% 91.5%
Regional TAS 14.0% 86.0% 19.3% 80.7%
Darwin 28.4% 71.6% 53.4% 46.6%
Regional NT 17.3% 82.7% 29.6 70.4%
Australian Capital Territory 2.2% 97.8% 20.7% 79.3%
National 7.9% 92.1% 12.5% 87.5%
Capital cities 6.0% 94.0% 11.1% 88.9%
Regional 11.0% 89.0% 15.9% 84.1%

Source: CoreLogic

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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.

What factors does Real Time Ratings consider?

Real Time RatingsTM uses a range of information to provide personalised results:

  • Your loan amount
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  • Your loan-to-value ratio (LVR)
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How can I get a home loan with no deposit?

Following the Global Financial Crisis, no-deposit loans, as they once used to be known, have largely been removed from the market. Now, if you wish to enter the market with no deposit, you will require a property of your own to secure a loan against or the assistance of a guarantor.

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.

Who offers 40 year mortgages?

Home loans spanning 40 years are offered by select lenders, though the loan period is much longer than a standard 30-year home loan. You're more likely to find a maximum of 35 years, such as is the case with Teacher’s Mutual Bank

Currently, 40 year home loan lenders in Australia include AlphaBeta Money, BCU, G&C Mutual Bank, Pepper, and Sydney Mutual Bank.

Even though these lengthier loans 35 to 40 year loans do exist on the market, they are not overwhelmingly popular, as the extra interest you pay compared to a 30-year loan can be over $100,000 or more.

How do I refinance my home loan?

Refinancing your home loan can involve a bit of paperwork but if you are moving on to a lower rate, it can save you thousands of dollars in the long-run. The first step is finding another loan on the market that you think will save you money over time or offer features that your current loan does not have. Once you have selected a couple of loans you are interested in, compare them with your current loan to see if you will save money in the long term on interest rates and fees. Remember to factor in any break fees and set up fees when assessing the cost of switching.

Once you have decided on a new loan it is simply a matter of contacting your existing and future lender to get the new loan set up. Beware that some lenders will revert your loan back to a 25 or 30 year term when you refinance which may mean initial lower repayments but may cost you more in the long run.

What is a low-deposit home loan?

A low-deposit home loan is a mortgage where you need to borrow more than 80 per cent of the purchase price – in other words, your deposit is less than 20 per cent of the purchase price.

For example, if you want to buy a $500,000 property, you’ll need a low-deposit home loan if your deposit is less than $100,000 and therefore you need to borrow more than $400,000.

As a general rule, you’ll need to pay LMI (lender’s mortgage insurance) if you take out a low-deposit home loan. You can use this LMI calculator to estimate your LMI payment.

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. 

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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.