Record rebound in home loan borrowing, but investor loans struggle to recover

Record rebound in home loan borrowing, but investor loans struggle to recover

The rebound from Australia’s first recession in almost 30 years appears to be underway as people spend record amounts on the homes they want to live in, according to the nation’s statistical agency.

The spending spree comes after interest rates were dropped to historic lows due to the coronavirus pandemic, which in turn contributed to property prices dropping for five straight months.

Owner occupier loans hit a record high

Australians looking to buy their own home secured $16.3 billion in owner occupier loans for 12,302 properties in the month of August, the Australian Bureau of Statistics (ABS) said, a 13.6 per cent surge representing the largest increase since records were established 18 years ago.

The posting surpasses the previous record of 10.7 per cent in July, doubling down on a trend indicating an economic recovery is taking place in an otherwise uncertain climate. 

The result defies the expectations of a country that entered a recession when it shrank by 7 per cent in the June quarter, Craig James said, chief economist at CommSec.

“This is not your typical recession … Aussies are embracing housing like never before,” he said.

“Not only have home loans posted record gains in July and August but the value of loans has never been higher.”

But backed up applications mean the snapshot is months behind, Amanda Seneviratne said, head of finance and wealth at the ABS. 

“Lenders are reporting to us that current processing times mean that August commitments reflect customer demand in June and early July,” she said, “prior to Victoria imposing stage 3 and stage 4 restrictions.”

The owner occupier results were a standout figure in the data series -- propped up by first home buyers and an increase in renovations -- and they lifted up the general average. 

Overall loan commitments were up 12.6 per cent, according to the seasonally adjusted data, but they were held back by the underwhelming performance of investor and personal loans.

Investor loans begin to recover, personal loans struggle

The news isn’t good for everyone. Investor loans are undertaking a modest recovery from a low not seen since 2002.

After dropping to $4.1 billion in May, the value of investor loans increased by 9.3 per cent in a month to $5 billion in August.

It wasn’t the only category posting lacklustre results. Personal fixed term loans dropped in value by 12.5 per cent in August to $1.4 billion, mostly due to a fall in people buying new cars. 

New car sales have been on the decline for the last 30 months in a row, but the industry is hailing a government pledge to make securing finance easier as a possible turnaround.

Government incentives drive first home purchases and renovations

First home buyers, some of which likely aided by a $400 million government scheme, accounted for almost a third of owner occupier home approvals, reaching a high last seen immediately after the Global Financial Crisis (GFC). 

About 12,302 home loans were secured by first home buyers in August, an increase of 17.7 compared to the previous month. 

“New loan commitments for owner occupier housing rose in all states and territories, except the Northern Territory,” the ATO’s Ms Seneviratne said. 

“The largest increases in the value of new loan commitments were in Victoria, Queensland and New South Wales.”

The result, accounting for 31 per cent of owner occupier commitments and a decade high, was possibly fueled by the federal government’s first home loan deposit scheme

The scheme makes it possible for people to secure a property with a 5 per cent deposit and not have to pay lenders mortgage insurance, a tax typically levied on deposits less than 20 per cent. This is because the government secures the remaining 15 per cent difference.

A recent report found the scheme makes it possible for first home buyers to enter the market four years quicker on average. And the scheme has since been expanded, with a further 10,000 placements being made available for new build properties with increased price caps.

Time to renovate as we social distance

People stuck at home due to social distancing measures and the lure of a government grant for some may have contributed to an increase in loans secured for renovations. 

People spent $784 million renovating their homes in August, an increase of 7 per cent over the previous month. 

The result eclipsed pre-COVID renovations and reached a high not seen since April 2016. 

The federal government is incentivising renovations from $150,000 to $750,000 to residential properties by offering a further $25,000 to eligible applicants under its Homebuilder grant, possibly explaining some of the performance boost.

Data from Suncorp Bank reveals there was an increase in renovation loans over $150,000. Of the loans issued for renovations during the last financial year, 31 per cent were over $150,000 -- a rise of more than 10 per cent compared to the year before.

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Interest Rate

Your current home loan interest rate. To accurately calculate how much you could save, an accurate interest figure is required. If you are not certain, check your bank statement or log into your mortgage account.

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.

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.

Monthly Repayment

Your current monthly home loan repayment. To accurately calculate how much you could save, an accurate payment figure is required. If you are not certain, check your bank statement.

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.

How will Real Time Ratings help me find a new home loan?

The home loan market is complex. With almost 4,000 different loans on offer, it’s becoming increasingly difficult to work out which loans work for you.

That’s where Real Time RatingsTM can help. Our system automatically filters out loans that don’t fit your requirements and ranks the remaining loans based on your individual loan requirements and preferences.

Best of all, the ratings are calculated in real time so you know you’re getting the most current information.

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 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).

Remaining loan term

The length of time it will take to pay off your current home loan, based on the currently-entered mortgage balance, monthly repayment and interest rate.

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.

How long does NAB home loan approval take?

The time required to get your home loan from NAB approved can vary based on a number of factors involved in the application process. 

Once you have applied for a home loan, a NAB specialist will contact you within 24 hours over the phone to take down relevant information, including your total income, debts (existing loans, credit cards, etc.), assets (car, shares, etc.), and your monthly expenses (food, utility bills, etc.). Your lender might also ask for information related to the property you want to purchase, including the type of dwelling and preferred postcode.

NAB will then verify all your information and check your credit score, and if the details stack up, you should be given a conditional approval certificate. This certificate stipulates how much money NAB is willing to lend you and is typically valid for 90 days. 

Once you have your conditional approval, you can start browsing for properties that you like and that fit within the budget that NAB has provided. After you find a suitable property, you’ll need to give a copy of the signed deed to NAB, following which you should get full approval and access to the funds. This process can take up to 4-6 weeks. 

Can I take a personal loan after a home loan?

Are you struggling to pay the deposit for your dream home? A personal loan can help you pay the deposit. The question that may arise in your mind is can I take a home loan after a personal loan, or can you take a personal loan at the same time as a home loan, as it is. The answer is that, yes, provided you can meet the general eligibility criteria for both a personal loan and a home loan, your application should be approved. Those eligibility criteria may include:

  • Higher-income to show repayment capability for both the loans
  • Clear credit history with no delays in bill payments or defaults on debts
  • Zero or minimal current outstanding debt
  • Some amount of savings
  • Proven rent history will be positively perceived by the lenders

A personal loan after or during a home loan may impact serviceability, however, as the numbers can seriously add up. Every loan you avail of increases your monthly installments and the amount you use to repay the personal loan will be considered to lower the money available for the repayment of your home loan.

As to whether you can get a personal loan after your home loan, the answer is a very likely "yes", though it does come with a caveat: as long as you can show sufficient income to repay both the loans on time, you should be able to get that personal loan approved. A personal loan can also help to improve your credit score showing financial discipline and responsibility, which may benefit you with more favorable terms for your home loan.