Some property markets booming, others going backwards

Some property markets booming, others going backwards

Sydney, Melbourne and Hobart have recorded double-digit increases in property prices over the past year.

The median dwelling price in Sydney surged 16.0 per cent in the 12 months to 30 April 2017, according to CoreLogic.

Melbourne’s median price jumped 15.3 per cent, while Hobart’s jumped 13.6 per cent.

City Month Quarter Year Median
Sydney 0.0% 4.0% 16.0% $860,000
Melbourne 0.5% 3.9% 15.3% $650,000
Brisbane 0.6% 0.5% 2.1% $481,000
Adelaide 0.8% 1.8% 2.2% $430,000
Perth -1.0% -2.4% -6.0% $472,200
Hobart 1.0% 5.1% 13.6% $363,200
Darwin 0.5% -0.9% -2.3% $467,000
Canberra -2.8% 1.8% 8.4% $605,000
All capitals 0.1% 2.9% 11.2% $625,800

Not all markets are booming

However, the Perth and Darwin property markets are continuing to go backwards.

Perth’s median price has now fallen 8.5 per cent since February 2015, while Darwin’s median has dropped 10.8 per cent in the same period.

It shows that talk of a ‘housing boom’ in Australia is misguided, because while Sydney and Melbourne are booming, other parts of the country are experiencing very different conditions.

Canberra recorded strong growth over the past year, with its median price increasing 8.4 per cent.

However, in real terms, the Adelaide and Brisbane markets stagnated.

Adelaide grew 2.2 per cent and Brisbane 2.1 per cent – in line with Australia’s inflation rate, which is 2.1 per cent.

Too early to call time on Sydney

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Sydney’s median price may have boomed over the past year, but it remained unchanged in April.

However, CoreLogic head of research Tim Lawless said it was too early to say Sydney had peaked, especially as April included Easter, school holidays and a long weekend.

“The softer results should also be viewed against a backdrop of an ever-evolving regulatory landscape, which is firmly aimed at slowing investment and interest-only mortgage lending,” he said.

“Testament to this is mortgage rates which have been edging higher, particularly for investors and interest-only loans, as well as rental yields which have been hovering around record lows. The higher cost of debt, as well as stricter lending and servicing criteria, has likely dented investment demand over recent months.

“In a city like Sydney, where more than 50 per cent of new mortgage demand has been from investors, a tighter lending environment for investment purposes has the potential to impact housing demand more than other cities.”

How rising prices could help your debt position

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Borrowers who live in growing property markets could take advantage by refinancing their mortgage and simultaneously revaluing their home.

Why? It could give borrowers an improved loan-to-valuation ratio (LVR) and increased equity.

Imagine a home owner borrowed $600,000 to buy a $750,000 property – that would give them an LVR of 80 per cent. Imagine, three years later, the debt had fallen to $550,000 and the property’s value had risen to $850,000 – that would give them a new LVR of 65 per cent.

If the home owner refinanced, the new lender might reward them for their improved LVR by giving them a cheaper rate.

The new lender might also allow them to extend their LVR back to 80 per cent, which would allow them to increase their mortgage from $550,000 to $680,000.

That extra $130,000 could be used to pay for any number of things – a deposit on another property, renovations, school fees, a car or even a holiday.

RateCity is making it easier to refinance with its Switch & Save Sale, which is giving borrowers the chance to refinance to a cheaper rate.

If you have a mortgage with ANZ, Commonwealth Bank, NAB or Westpac, you could save up to $39,000 over 15 years by refinancing during the Switch & Save Sale.

RateCity arrived at that figure after calculating how much borrowers would save if they switched from an average-sized mortgage at the average discounted variable rate offered by one of the big four banks to the lowest variable rate in the Switch & Save Sale.

RateCity then factored in the discharge fees, application fees and ongoing fees to work out the savings over a 15-year loan term.

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Learn more about home loans

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 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.

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 are repayments on a $250K mortgage?

The exact repayment amount for a $250,000 mortgage will be determined by several factors including your deposit size, interest rate and the type of loan. It is best to use a mortgage calculator to determine your actual repayment size.

For example, the monthly repayments on a $250,000 loan with a 5 per cent interest rate over 30 years will be $1342. For a loan of $300,000 on the same rate and loan term, the monthly repayments will be $1610 and for a $500,000 loan, the monthly repayments will be $2684.

How can I avoid mortgage insurance?

Lenders mortgage insurance (LMI) can be avoided by having a substantial deposit saved up before you apply for a loan, usually around 20 per cent or more (or a LVR of 80 per cent or less). This amount needs to be considered genuine savings by your lender so it has to have been in your account for three months rather than a lump sum that has just been deposited.

Some lenders may even require a six months saving history so the best way to ensure you don’t end up paying LMI is to plan ahead for your home loan and save regularly.

Tip: You can use RateCity mortgage repayment calculator to calculate your LMI based on your borrowing profile

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. 

Can I get a home loan if I am on an employment contract?

Some lenders will allow you to apply for a mortgage if you are a contractor or freelancer. However, many lenders prefer you to be in a permanent, ongoing role, because a more stable income means you’re more likely to keep up with your repayments.

If you’re a contractor, freelancer, or are otherwise self-employed, it may still be possible to apply for a low-doc home loan, as these mortgages require less specific proof of income.

Will I have to pay lenders' mortgage insurance twice if I refinance?

If your deposit was less than 20 per cent of your property’s value when you took out your original loan, you may have paid lenders’ mortgage insurance (LMI) to cover the lender against the risk that you may default on your repayments. 

If you refinance to a new home loan, but still don’t have enough deposit and/or equity to provide 20 per cent security, you’ll need to pay for the lender’s LMI a second time. This could potentially add thousands or tens of thousands of dollars in upfront costs to your mortgage, so it’s important to consider whether the financial benefits of refinancing may be worth these costs.

Is there a limit to how many times I can refinance?

There is no set limit to how many times you are allowed to refinance. Some surveyed RateCity users have refinanced up to three times.

However, if you refinance several times in short succession, it could affect your credit score. Lenders assess your credit score when you apply for new loans, so if you end up with bad credit, you may not be able to refinance if and when you really need to.

Before refinancing multiple times, consider getting a copy of your credit report and ensure your credit history is in good shape for future refinances.

I have a poor credit rating. Am I still able to get a mortgage?

Some lenders still allow you to apply for a home loan if you have impaired credit. However, you may pay a slightly higher interest rate and/or higher fees. This is to help offset the higher risk that you may default on your repayments.

I can't pick a loan. Should I apply to multiple lenders?

Applying for home loans with multiple lenders at once can affect your credit history, as multiple loan applications in short succession can make you look like a risky borrower. Comparing home loans from different lenders, assessing their features and benefits, and making one application to a preferred lender may help to improve your chances of success

Will I be paying two mortgages at once when I refinance?

No, given the way the loan and title transfer works, you will not have to pay two mortgages at the one time. You will make your last monthly repayment on loan number one and then the following month you will start paying off loan number two.