Property investors eye opportunities during COVID-19: PIPA

Property investors eye opportunities during COVID-19: PIPA

Almost one-in-two property investors are more likely to buy a property in the next year because of the COVID-19 pandemic, the leading industry group has said, with many casting their eyes interstate to Queensland.

About 45 per cent of investors are more likely to buy in the next year as property prices are widely forecast to contract, according to the PIPA annual investor sentiment survey.

“About 67 per cent of investors believe that now is a good time to invest in residential property … (a drop of 15 per cent that is) no doubt a direct impact of the pandemic,” Peter Koulizos said, chairman of the property investment professionals of Australia (PIPA)

“However, at the current time, the property market has continued to show its resilience with prices materially stable in most parts of the nation.”

The online survey’s findings, of nearly 1100 property investors in August, come as property prices are widely forecast by banks, analysts and experts to contract by about 10 per cent over the next year.

Buy and hold strategy adopted by some: PIPA

The majority of property investors are hoping to wait out the property contraction forecast for the coming year or so, according to the survey. 

About 71 per cent are less likely to sell their property, the survey found, compared to the 7 per cent who said the COVID-19 pandemic made them want to sell.

“The pandemic has made it less likely they will sell a property over the next year, which is another factor that will help to underpin property prices,” Mr Koulizos said.

Some investors are worried about the rippling effects the coronavirus will cause; about 18 per cent worry about its toll on their portfolio.

A minority of investors deferred their mortgage: PIPA

Most investors managed to maintain their investments during the pandemic with little impact, according to survey results. About 92 per cent of them did not apply to defer their mortgage repayments and 75 per cent of them didn’t have to extend the term of their loans.

The report did not reveal how many renters were ultimately granted a reduction. About 16 per cent of investors had tenants who applied for a rent reduction or deferral during the pandemic, it said, and about 47 per cent of them were eligible under relevant state-based legislation.

This contrasts with a report released by a rental advocacy group released in June. Less than 10 per cent of renters confronted with a loss of income during COVID-19 were granted relief with an adequate discount, Better Renting said. 

Looking interstate for property growth

A growing number of investors -- about 40 per cent -- are looking to snap up property in other states, PIPA said.

Queensland is considered to have the best investment prospects in the coming year, according to 36 per cent of people surveyed. It’s followed by Victoria at 27 per cent and NSW at 21 per cent.

Capital cities adhered to the same pattern. About 36 per cent of people surveyed said they’d put their money into a Brisbane property, followed by Melbourne at 27 per cent, Sydney at 18 per cent and Adelaide at 8 per cent.

The trend of interstate investing has been growing in recent years, Mr Koulizos said.

“Investors are recognising the value of working with property investment professionals to help them secure the best opportunities across the nation,” he said.

Demand in capital cities fall as regional towns pick up: PIPA

Investors are still keen on buying a property in metropolitan areas, the survey found, but the sentiment is on the decline. About 61 per cent of investors surveyed said they’d buy property in a metropolitan area, a drop of 12 per cent compared to the year earlier.

Regional markets on the other hand are gaining momentum, PIPA said. About 22 per cent of investors said they’d buy a regional property, an increase of 7 per cent, with coastal properties rising by 4 per cent to 12 percent.

Remote working, barren cities and country lifestyles helped accelerate the shift in demand, Ben Plohl said, a buyer’s agent and PIPA member. 

“We have been active in parts of regional New South Wales and regional Victoria over recent months because of the favourable market conditions in these locations,” he said.

“... Many of these areas will be welcoming plenty of new residents in the months ahead, which will likely further strengthen property markets in some regional locations.”

Some investors want to move to the country too: PIPA

About 17 per cent of investors are considering a move likely to a regional area due to the COVID-19 pandemic, PIPA said. 

Most of them were looking at regional towns in NSW at 21 per cent, Queensland at 18 per cent and Victoria at 14 per cent.

“It’s no surprise that COVID19 and made many people reconsider their lifestyles,” Mr Koulizos said.

“The main reasons for doing so were improved lifestyle factors (78 per cent), working from home in the future (46 per cent) and housing affordability (40 per cent).”

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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 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 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-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 is a loan-to-value ratio (LVR)?

A loan-to-value ratio (otherwise known as a Loan to Valuation Ratio or LVR), is a calculation lenders make to work out the value of your loan versus the value of your property, expressed as a percentage.   Lenders use this calculation to help assess your suitability for a home loan, and whether you need to pay lender’s mortgage insurance (LMI). As a general rule, most banks will require you to pay LMI if your loan-to-value ratio is 80 per cent or more.   LVR is worked out by dividing the loan amount by the value of the property. If you are looking for a quick ball-park estimate of LVR, the size of your deposit is a good indicator as it is directly proportionate to your LVR. For instance, a loan with an LVR of 80 per cent requires a deposit of 20 per cent, while a 90 per cent LVR requires 10 per cent down payment. 

LOAN AMOUNT / PROPERTY VALUE = LVR%

While this all sounds simple enough, it is worth doing a more accurate calculation of LVR before you commit to buying a place as there are some traps to be aware of. Firstly, the ‘loan amount’ is the price you paid for the property plus additional costs such as stamp duty and legal fees, minus your deposit amount. Secondly, the ‘property value’ is determined by your lender’s valuation of the property, not the price you paid for it, and sometimes these can differ so where possible, try and get your bank to evaluate the property before you put in an offer.

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.

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).

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.