Recovering home values could reach record prices early next year

Recovering home values could reach record prices early next year

Falling property prices are on their way to recovering after every city and country town posted gains in November, a first in seven straight months since the COVID-19 pandemic.

Australian homes grew an average of 0.8 per cent in value in the month of November, according to CoreLogic’s Home Value Index, marking a return to growth after sliding 2.1 per in the five months to September.

“If housing values continue to rise at the current pace, we could see a recovery from the COVID-19 downturn as early as January or February next year,” Tim Lawless said, head of research at CoreLogic.

“The recovery in Melbourne, where home values remain 5 per cent below their recent peak, will take longer.”

Change in dwelling values November - Source CoreLogic.JPG

The national average offers a clean, rounded number on the state of the property market, but the reality during the pandemic is spotty and inconsistent. Sydney, Melbourne, Perth and Darwin property values are far from their historical peaks, for instance, while Brisbane, Adelaide, Hobart and Canberra all set price records in November.

But experts studying the market are generally optimistic, even with the uncertain fate of a pandemic looming over the country.

House values drag the average up as unit values are down

Rising house values have more than offset the losses incurred by the falling unit market. National house values lifted by 1.1 per cent over the last three months, while units in capital cities actually dropped by 0.6 per cent.

“This trend towards stronger conditions in … housing markets is evident across most of the capital cities,” Mr Lawless said.

“Relative weakness in the unit market can be attributed to factors including low investment activity, higher supply levels in some regions, and weaker rental market conditions across key inner city unit precincts.”

Melbourne’s unit market, having endured one of the longest lockdowns in the world and largely affected by a lack of migration, proved surprisingly resilient, dropping less than expected in value and bouncing back quicker.

“We suspect the stronger trend in Melbourne unit values relative to houses could be short-lived,” Mr Lawless said, “unless overseas migration turns around sooner than expected which would help to shore up rental tenancy demand.”

Country homes grew twice as quick as city ones

Homes in country areas are growing in value at twice the speed of homes in city centres, CoreLogic said. Whereas capital city homes grew by 0.7 per cent in November, regional ones gained 1.4 per cent.

Changing lifestyles brought about by the COVID-19 pandemic, where working from home and social distancing is encouraged, have contributed to the shift, Ryan Felsman said, senior economist at CommSec.

“Idyllic beachside and semi-rural towns are being transformed by Sydneysiders and Melburnians keen to relocate or buy a second property, enabled by flexible working arrangements,” he said.

“The stampede to buy coastal properties and rural lifestyle blocks have pushed up home prices across regional Australia.”

Data from the Australian Bureau of Statistics (ABS) illustrates the extent of shifting demand. During the June quarter, when international and domestic border restrictions were generally in place, 5964 people moved away from Sydney and 7957 moved away from Melbourne.

This shift towards regional homes led to them growing at their quickest pace in 16 years, Mr Felsman said.

Future signs look good, but concerns remain

There’s plenty of signs indicating the property market is bouncing back, but experts warn the unresolved pandemic could complicate things.

Helping buoy home values is a high level of demand. CoreLogic’s data indicates there’s more buyers than there are properties for sale, which is fuelling competition and driving up prices.

Other good omens include four months of steady sale numbers, improving auction markets and increasing home values, the research firm said.

But because of the pandemic, the relief measures in place and the changing climate, the future outlook remains unclear, Shane Oliver said, chief economist at AMP Capital.

“The combination of reopening, government incentives, easing lending standards and low rates are likely to push prices higher in the months ahead,” he said.

“(But) the overall outlook into next year remains messy with a high risk that the negatives around weak rental markets and the collapse in immigration could reassert themselves particularly in inner city Melbourne and Sydney.

“The outlook is also widely divergent across cities, within cities and across units versus houses.”

Cheap mortgages, payment deferrals and government payments are making housing affordable for most people, but it’s also true there’s an increasing number of people who are struggling to make ends meet.

The number of people struggling to repay their mortgage has more than doubled since the early days of the pandemic, the ABS said, as unemployment remains high and loan deferrals come to an end.

Analysts have also acknowledged mortgage delinquencies -- that is, the number of mortgage repayments more than 30 days late -- have generally gone up too.

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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.

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 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.

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-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.

How much can I borrow with a guaranteed home loan?

Some lenders will allow you to borrow 100 per cent of the value of the property with a guaranteed home loan. For that to happen, the lender would have to feel confident in your ability to pay off the mortgage and in the security provided by your guarantor.

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.

What is equity and home equity?

The percentage of a property effectively ‘owned’ by the borrower, equity is calculated by subtracting the amount currently owing on a mortgage from the property’s current value. As you pay back your mortgage’s principal, your home equity increases. Equity can be affected by changes in market value or improvements to your property.

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.

Are bad credit home loans dangerous?

Bad credit home loans can be dangerous if the borrower signs up for a loan they’ll struggle to repay. This might occur if the borrower takes out a mortgage at the limit of their financial capacity, especially if they have some combination of a low income, an insecure job and poor savings habits.

Bad credit home loans can also be dangerous if the borrower buys a home in a stagnant or falling market – because if the home has to be sold, they might be left with ‘negative equity’ (where the home is worth less than the mortgage).

That said, bad credit home loans can work out well if the borrower is able to repay the mortgage – for example, if they borrow conservatively, have a decent income, a secure job and good savings habits. Another good sign is if the borrower buys a property in a market that is likely to rise over the long term.

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.