After spurring loan and housing boom, Homebuilder is being wound down

After spurring loan and housing boom, Homebuilder is being wound down

A government grant has been widely credited with helping right the economy following the pandemic, leading to surges in home loan applications and construction projects, but it’s being whittled down in the near future.

The value of home loan commitments has reached its highest level in recorded history, according to October data from the Australian Bureau of Statistics (ABS), and building approvals for private housing reached a level not seen in two decades.

All of this has happened against a backdrop of ‘doom and gloom’, where a once-in-a-century pandemic resulted in a recession that drew comparisons to The Great Depression.

The economy’s recovery -- the most recent quarter posted gains of 3.3 per cent following a 7 per cent drop -- is the culmination of a series of relief measures.

But in the banking and construction industry, one of these measures has been doing the majority of the heavy lifting: Homebuilder, a $25,000 grant for residential renovation and construction projects.

“The value of construction loan commitments has risen by 65.6 per cent since July, which coincides with the June 2020 implementation of the Government’s HomeBuilder grant in response to COVID-19”, Amanda Seneviratne said, head of finance and wealth at the ABS.

“(The) feedback from lenders was that there has been a large increase in first home buyers applying for these construction loans over the last few months.”

23,500 applications and counting

The government’s Homebuilder scheme was due to expire at the end of the year, but the Prime Minister announced it has been extended for three more months -- only, at 60 per cent of the original value.

“We’re keeping people in jobs and putting Australians’ dream homes within reach,” Mr Morrison said, at the time. “It’s critical we keep the momentum up for Australia’s economic recovery.”

From next year, applicants spending from $150,000 to $750,000 on renovating or building a home will be eligible for a $15,000 grant -- unless they’re in Sydney or Melbourne, where the maximum caps are $950,000 and $850,000 respectively.

The federal government revealed 23,877 homebuilder grants had been applied for as of November 20, and it’s anticipated a further 15,500 people will apply during the three month extension.

The scheme, budgeted to cost taxpayers $921 million in total, is intended to keep home loan commitments and the construction industry afloat, the latter generating $100 billion a year and contributing 5 per cent of Australia’s gross domestic product.

Most buildings approved by councils in 20-years

Record low interest rates coupled with incentives, including Homebuilder, have led to a frenzy of people signing up for mortgages to build homes.

Following a dip due to COVID-19, the number of people building residential houses has shot up for four straight months to October, according to the ABS, reaching a record not seen since February 2000.

"The continued strong demand for detached housing follows the relaxation of COVID-19 restrictions in most states and territories,” Daniel Rossi said, director of construction statistics at the ABS.

Record low interest rates and a range of Federal and state-based incentives are also providing support for the housing sector.”

Rises were recorded across all building types in October, Mr Rossi said, resulting in a seasonally adjusted lift of 3.8 per cent.

The stellar performance has been atypical of a recession and a result of the government’s subsidies, Craig James said, chief economist at CommSec.

“It has been a most unusual recession,” he said.

“Home prices are at record highs in many regions, profits are at record highs and house approvals are at 20-year highs …

“The ride could still be bumpy over the next year, but Australia’s success at suppressing the virus gives us more options and more upside potential than many other advanced economies.”

A surge in first home buyers

The number of people signing owner-occupier mortgages lifted by 0.8 per cent in October to $17.4 billion, the ABS said, resulting in a 31.2 per cent lift when compared to the same period a year earlier.

And Homebuilder is not likely to be the only government stimulus behind the surge.

The number of first home buyers increased by 3.4 per cent to 13,481, more than 30 per cent higher than any month since 2009, when the first home owner grant was temporarily tripled as part of a government stimulus package in response to the global financial crisis.

The government’s first home loan deposit scheme is expected to be behind the push, allowing people to enter the market with just 5 per cent deposit and no lenders mortgage insurance.

A second tranche of 10,000 spots was made available as part of the government’s federal budget, but the only homes that can be bought must be new or newly built.

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

Advertisement

RateCity

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.com.au Privacy & Cookies Policy and Terms of Use, Disclaimer & Privacy Policy

Advertisement

Learn more about home loans

How long does Bankwest take to approve home loans?

Full approval for a home loan usually involves a property valuation, which, Bankwest suggests, can take “a week or two”. As a result, getting your home loan approved may take longer. However, you may get full approval within this time if you applied for and received conditional approval, sometimes called a pre-approval, from Bankwest before finalising the home you want to buy.  

Another way of speeding up approvals can be by completing, signing, and submitting your home loan application digitally. Essentially, you give the bank or your mortgage broker a copy of your home’s sale contract and then complete the rest of the steps online. Bankwest has claimed this cuts the approval time to less than four days, although this may only happen if your income and credit history can be verified easily, or if your home’s valuation doesn’t take time.

Can I apply for an ANZ non-resident home loan? 

You may be eligible to apply for an ANZ non-resident home loan only if you meet the following two conditions:

  1. You hold a Temporary Skill Shortage (TSS) visa or its predecessor, the Temporary Skilled Work (subclass 457) visa.
  2. Your job is included in the Australian government’s Medium and Long Term Strategic Skills List. 

However, non-resident home loan applications may need Foreign Investment Review Board (FIRB) approval in addition to meeting ANZ’s Mortgage Credit Requirements. Also, they may not be eligible for loans that require paying for Lender’s Mortgage Insurance (LMI). As a result, you may not be able to borrow more than 80 per cent of your home’s value. However, you can apply as a co-borrower with your spouse if they are a citizen of either Australia or New Zealand, or are a permanent resident.

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).

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 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).

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.

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.

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.

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.

Can I get a NAB home loan on casual employment?

While many lenders consider casual employees as high-risk borrowers because of their fluctuating incomes, there are a few specialist lenders, such as NAB, which may provide home loans to individuals employed on a casual basis. A NAB home loan for casual employment is essentially a low doc home loan specifically designed to help casually employed individuals who may be unable to provide standard financial documents. However, since such loans are deemed high risk compared to regular home loans, you could be charged higher rates and receive lower maximum LVRs (Loan to Value Ratio, which is the loan amount you can borrow against the value of the property).

While applying for a home loan as a casual employee, you will likely be asked to demonstrate that you've been working steadily and might need to provide group certificates for the last two years. It is at the lender’s discretion to pick either of the two group certificates and consider that to be your income. If you’ve not had the same job for several years, providing proof of income could be a bit of a challenge for you. In this scenario, some lenders may rely on your year to date (YTD) income, and instead calculate your yearly income from that.

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.

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.