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

Location Median house price Deposit (20%) Time taken to save based on weekly deposit of $200 Time taken to save based on weekly deposit of $400
Combined Capitals $641,671

$128,334

11 years 3 months 5 years 11 months
Combined regional $394,570

$78,914

7 years 2 months 3 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?

Advertisement

RateCity

The money talks which you don't need to avoid any more

Subscribe to our newsletter so we can send you awesome offers and discounts

Advertisement

Learn more about home loans

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 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 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.

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.

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.

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 do I know if I have to pay LMI?

Each lender has its own policies, but as a general rule you will have to pay lender’s mortgage insurance (LMI) if your loan-to-value ratio (LVR) exceeds 80 per cent. This applies whether you’re taking out a new home loan or you’re refinancing.

If you’re looking to buy a property, you can use this LMI calculator to work out how much you’re likely to be charged in LMI.

What happens to my home loan when interest rates rise?

If you are on a variable rate home loan, every so often your rate will be subject to increases and decreases. Rate changes are determined by your lender, not the Reserve Bank of Australia, however often when the RBA changes the cash rate, a number of banks will follow suit, at least to some extent. You can use RateCity cash rate to check how the latest interest rate change affected your mortgage interest rate.

When your rate rises, you will be required to pay your bank more each month in mortgage repayments. Similarly, if your interest rate is cut, then your monthly repayments will decrease. Your lender will notify you of what your new repayments will be, although you can do the calculations yourself, and compare other home loan rates using our mortgage calculator.

There is no way of conclusively predicting when interest rates will go up or down on home loans so if you prefer a more stable approach consider opting for a fixed rate loan.

What happens when you default on your mortgage?

A mortgage default occurs when you are 90 days or more behind on your mortgage repayments. Late repayments will often incur a late fee on top of the amount owed which will continue to gather interest along with the remaining principal amount.

If you do default on a mortgage repayment you should try and catch up in next month’s payment. If this isn’t possible, and missing payments is going to become a regular issue, you need to contact your lender as soon as possible to organise an alternative payment schedule and discuss further options.

You may also want to talk to a financial counsellor. 

How personalised is my rating?

Real Time Ratings produces instant scores for loan products and updates them based what you tell us about what you’re looking for in a loan. In that sense, we believe the ratings are as close as you get to personalised; the more you tell us, the more we customise to ratings to your needs. Some borrowers value flexibility, while others want the lowest cost loan. Your preferences will be reflected in the rating. 

We also take a shorter term, more realistic view of how long borrowers hold onto their loan, which gives you a better idea about the true borrowing costs. We take your loan details and calculate how much each of the relevent loans would cost you on average each month over the next five years. We assess the overall flexibility of each loan and give you an easy indication of which ones are likely to adjust to your needs over time. 

How often is your data updated?

We work closely with lenders to get updates as quick as possible, with updates made the same day wherever possible.

How can I get a home loan with no deposit?

Following the Global Financial Crisis, no-deposit loans, as they once used to be known, have largely been removed from the market. Now, if you wish to enter the market with no deposit, you will require a property of your own to secure a loan against or the assistance of a guarantor.

How much of the RBA rate cut do lenders pass on to borrowers?

When the Reserve Bank of Australia cuts its official cash rate, there is no guarantee lenders will then pass that cut on to lenders by way of lower interest rates. 

Sometimes lenders pass on the cut in full, sometimes they partially pass on the cut, sometimes they don’t at all. When they don’t, they often defend the decision by saying they need to balance the needs of their shareholders with the needs of their borrowers. 

As the attached graph shows, more recent cuts have seen less lenders passing on the full RBA interest rate cut; the average lender was more likely to pass on about two-thirds of the 25 basis points cut to its borrowers.  image002