RateCity.com.au
powering smart financial decisions

Is a regional move post-COVID right for you?

Is a regional move post-COVID right for you?

If offices are enacting work-from-home policies for longer and longer, does it still make sense to stay living in your expensive, inner-city apartment right by your work?

That’s the question some workers may already be asking themselves, as regional centres across Australia see an increase in capital growth over the last three months, according to the latest figures from CoreLogic.

However, the notion of moving to greener pastures is not unique to COVID-19 and has been steadily becoming more popular throughout the last decade.

And with home prices at decade highs across capital cities, there are potentially thousands of dollars to be saved, and time taken to save a deposit to be reduced, just by making that sea or tree change you’ve been daydreaming of.

Regional areas have strong appeal

For some, there is an obvious appeal in regional areas, particularly at a time of global pandemic crisis.

Not only are these regional areas typically more affordable than capital cities – particularly in terms of housing – but the smaller populations are a draw when trying to avoid a contagious illness.

As early as May this year, the Real Estate Institute of New South Wales (REINSW) predicted that regional areas would “do well in the long-term as a result of the pandemic”.

REINSW President, Leanne Pilkington, said she expected to see a “rise in demand for rural and regional properties”.

"I think we have all realised now that we can work from home very effectively and we don't actually need to travel to meetings like we used to," said Ms Pilkington.

COVID-19 the push some would-be movers need

According to CoreLogic research, in the June 2020 quarter, regional centres have seen higher capital growth than the capital city regions.

Eliza Owen, Head of Australian Research at CoreLogic, noted that this positive outcome for June 2020 is “short term, and is more likely tied to cyclical patterns than changes in demographic trends”.

In fact, growth rates have seen a slowdown in momentum, as they peaked around late 2019.

Ms Owen also noted that the “normalisation of remote work amid COVID-19 is more likely to bolster regional migration than slow it.

“But in the wake of the pandemic, the return to an office environment may still be desirable for some employees and employers,” said Ms Owen.

Migrating from big cities not unique to COVID-19

Between 2011 and 2016, more than 1.2 million people either moved to regional Australia or moved around regional Australia from one location to another, according to Regional Australia Institute (RAI) research.

RAI CEO, Liz Ritchie, said the notion of how we work has been “turned on its head” and that she hopes this change will “see significant population growth in regions, following on from a trend that has already been set over a decade”.

“From 2011 to 2016, our two biggest cities, Sydney and Melbourne lost more residents to regions than they gained – and this was well before COVID-19.

“Over the last few months, we’ve all had to change how we work, and this has allowed staff and employers to see that location is no longer a barrier for where we choose to work,” Ms Ritchie said.

According to RAI report ‘The Big Movers’, in the five years to 2016:

  • Sydney saw a net loss of 64,756 people to regional Australia.
  • Melbourne saw a net loss of 21,609 to regional Australia.
  • Adelaide recorded a small net loss of around 1,000 residents.

Interestingly, Brisbane reported a net gain of 15,597 people, perhaps as it appears as an ideal location for those seeking a “sea change” from bigger cities - Sydney and Melbourne.

How much more affordable is housing in regional areas?

When it comes to deciding between buying property in a big city and buying in a regional area, the price differences are unsurprisingly sharp.

CoreLogic figures show that the median dwelling value for combined regional areas of Australia was $394,570 at June 2020. This is 38.5 per cent lower than the combined capital city median of $641,671.

RateCity research shows that on average, would-be buyers looking to buy in regional areas will take almost half the time to save for a 20 per cent deposit than those looking to buy in capital cities, based on savings amount of $400 a month.

Time taken to save a 20% deposit – capital cities vs. regional areas

LocationMedian house priceDeposit (20%)Time taken to save based on weekly deposit of $200Time taken to save based on weekly deposit of $400
Combined Capitals$641,671

$128,334

11 years 3 months5 years 11 months
Combined regional$394,570

$78,914

7 years 2 months3 years 8 months

Source: RateCity.com.au, Median house prices based on latest CoreLogic figures.

Note: Does not factor stamp duty or LMI as different across each state and territory. Time taken to save factors in savings interest rate of 1.50 per cent.

Making the move from a big city to a regional area is a personal decision, and the motives to do so will differ for each individual and household.

There are also important factors to keep in mind, such as access to hospitals, schools, banks, and, in some remote areas, access to internet, when considering making that sea or tree change. All of these components should come into play when making a decision as significant as relocating.

If you are serious about making a move, you may want to consider using the higher affordability of housing as a means to save a larger deposit, i.e. 20 per cent or greater.

Lenders typically reserve their most competitive interest rates for homeowners with larger deposits, as it lowers the level of risk that you will default on the loan. Further, it should mean you can avoid paying costly lenders mortgage insurance.

Here are some low-rate home loans from the RateCity database:

Did you find this helpful? Why not share this news?

This article was reviewed by Finance Writer Alison Cheung before it was published as part of RateCity's Fact Check process.

Advertisement

RateCity
ratecity-newsletter

Money Health Newsletter

Subscribe for news, tips and expert opinions to help you make smarter financial decisions

By signing up, you agree to the RateCity Privacy Policy, Terms of Use and Disclaimer.

Advertisement

Learn more about home loans

What are the features of home loans for expats from Westpac?

If you’re an Australian citizen living and working abroad, you can borrow to buy a property in Australia. With a Westpac non-resident home loan, you can borrow up to 80 per cent of the property value to purchase a property whilst living overseas. The minimum loan amount for these loans is $25,000, with a maximum loan term of 30 years.

The interest rates and other fees for Westpac non-resident home loans are the same as regular home loans offered to borrowers living in Australia. You’ll have to submit proof of income, six-month bank statements, an employment letter, and your last two payslips. You may also be required to submit a copy of your passport and visa that shows you’re allowed to live and work abroad.

When do mortgage payments start after settlement?

Generally speaking, your first mortgage payment falls due one month after the settlement date. However, this may vary based on your mortgage terms. You can check the exact date by contacting your lender.

Usually your settlement agent will meet the seller’s representatives to exchange documents at an agreed place and time. The balance purchase price is paid to the seller. The lender will register a mortgage against your title and give you the funds to purchase the new home.

Once the settlement process is complete, the lender allows you to draw down the loan. The loan amount is debited from your loan account. As soon as the settlement paperwork is sorted, you can collect the keys to your new home and work your way through the moving-in checklist.

When does Commonwealth Bank charge an early exit fee?

When you take out a fixed interest home loan with the Commonwealth Bank, you’re able to lock the interest for a particular period. If the rates change during this period, your repayments remain unchanged. If you break the loan during the fixed interest period, you’ll have to pay the Commonwealth Bank home loan early exit fee and an administrative fee.

The Early Repayment Adjustment (ERA) and Administrative fees are applicable in the following instances:

  • If you switch your loan from fixed interest to variable rate
  • When you apply for a top-up home loan
  • If you repay over and above the annual threshold limit, which is $10,000 per year during the fixed interest period
  • When you prepay the entire outstanding loan balance before the end of the fixed interest duration.

The fee calculation depends on the interest rates, the amount you’ve repaid and the loan size. You can contact the lender to understand more about what you may have to pay. 

Why does Westpac charge an early termination fee for home loans?

The Westpac home loan early termination fee or break cost is applicable if you have a fixed rate home loan and repay part of or the whole outstanding amount before the fixed period ends. If you’re switching between products before the fixed period ends, you’ll pay a switching break cost and an administrative fee. 

The Westpac home loan early termination fee may not apply if you repay an amount below the prepayment threshold. The prepayment threshold is the amount Westpac allows you to repay during the fixed period outside your regular repayments.

Westpac charges this fee because when you take out a home loan, the bank borrows the funds with wholesale rates available to banks and lenders. Westpac will then work out your interest rate based on you making regular repayments for a fixed period. If you repay before this period ends, the lender may incur a loss if there is any change in the wholesale rate of interest.

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 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 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.

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).

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.

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.

Cash or mortgage – which is more suitable to buy an investment property?

Deciding whether to buy an investment property with cash or a mortgage is a matter or personal choice and will often depend on your financial situation. Using cash may seem logical if you have the money in reserve and it can allow you to later use the equity in your home. However, there may be other factors to think about, such as whether there are other debts to pay down and whether it will tie up all of your spare cash. Again, it’s a personal choice and may be worth seeking personal advice.

A mortgage is a popular option for people who don’t have enough cash in the bank to pay for an investment property. Sometimes when you take out a mortgage you can offset your loan interest against the rental income you may earn. The rental income can also help to pay down the loan.

How does Real Time Ratings work?

Real Time RatingsTM looks at your individual home loan requirements and uses this information to rank every applicable home loan in our database out of five.

This score is based on two main factors – cost and flexibility.

Cost is calculated by looking at the interest rates and fees over the first five years of the loan.

Flexibility is based on whether a loan offers features such as an offset account, redraw facility and extra repayments.

Real Time RatingsTM also includes the following assumptions:

  • Costs are calculated on the current variable rate however they could change in the future.
  • Loans are assumed to be principal and interest
  • Fixed-rate loans with terms greater than five years are still assessed on a five-year basis, so 10-year fixed loans are assessed as being only five years’ long.
  • Break costs are not included.

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