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Ten years of value growth; how Australia's property market has transformed

Ten years of value growth; how Australia's property market has transformed

There has been a lot of talk about Australia’s “hot property market”, however there has actually been little value growth over the past decade outside of Sydney and Melbourne, with negative growth in some regions, according to research by CoreLogic. 

There have been several influential factors affecting value growth around Australia over the past decade, including:

  • The Global Financial Crisis (GFC)
  • Periods of rising and falling mortgage rates
  • Heightened levels of investment
  • Growing demand for housing from foreign investors

Change in dwelling values, 10 years to January 2018

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Source: CoreLogic

National dwelling value growth increased by 41.8 per cent over the 10 years leading to January 2018. This has mainly been driven by Sydney and Melbourne, which saw significant dwelling value growth over the decade.

Sydney dwelling values grew 79.3 per cent, followed by Melbourne dwelling values increasing by 72.4 per cent. Regional Victoria also saw strong growth levels (42.7 per cent), making these three regions the only places in Australia to see value growth in excess of the National figure.

Regional WA saw the largest decrease in dwelling value, falling by -29.5 per cent. This was followed by Perth (-6.9 per cent) and Regional QLD (-5.1 per cent). These areas were also hit hard during the GFC, and have struggled to climb out of negative numbers.

Decline in dwelling values during GFC (early 2008 to early 2009)

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Source: CoreLogic

CoreLogic Head Researcher, Cameron Kusher, has described the influence of the 2008 GFC as causing “dwelling values to begin to slide” but the housing market improved shortly after.

“Although the periods of decline varied across regions, generally values started to fall early in 2008 with value growth returning in early 2009.  The declines were fairly short and sharp.

“The declining housing market was reversed due to two main factors: a swift reduction in mortgage rates and the introduction of government stimulus including additional first home buyer incentives which helped stimulate growth in demand and subsequently values,” said Kusher.

Western Australia dwelling value growth suffered most significantly in this time, with Regional WA falling by -12.2 per cent, and Perth falling by -11 per cent.

Decline in dwelling values between 2010-2012

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Source: CoreLogic

CoreLogic data found that between June 2010 and February 2012, national dwelling values fell by -6.5 per cent.

During this period, QLD overtook WA in declining dwelling values across Australia. Regional QLD fell by -11.1 per cent and Brisbane fell by -10.6 per cent.

“Following the stimulus-led re-inflation of dwelling values post-GFC, as the stimulus was removed from the market values once again started to fall,” said Mr Kusher.

“First home buyer incentives were removed and the Reserve Bank started to lift interest rates from their generational lows.

“Between 2010 and 2012, although timing does vary somewhat across the regions, the national housing market once again experienced value declines,” said Mr Kusher.

Change in dwelling values from their historic market peak to January 2018

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Source: CoreLogic

CoreLogic has also charted the differences between dwelling values as of January 2018, and that areas historic peak. For most of Australia, current dwelling values are lower than their highest peak throughout the last decade.

Brisbane and Hobart are the only capital cities in which values were not lower than their previous peak over the ten year period. This was also seen in Regional NSW, Regional VIC and Regional Tas.

The most significant change over the ten year period was seen in Regional WA. Dwelling values in Regional WA for January 2018 are 29.5 per cent lower than when they were at last at peak ten years ago (January 2008).

In terms of capital cities, Darwin saw the most significant change in dwelling values as of January 2018 compared to its peak. Dwelling values in Darwin for January 2018 are 21.7 per cent lower than when they were at last at peak in May 2014.

According to CoreLogic Head Researcher, Cameron Kusher, this data highlights that “despite most regions of the country having seen dwelling values increase over the past decade, within that decade there have been periods in which values have fallen.” 

“The data presented also highlights how during the value growth periods, growth has very much been slanted towards the Sydney and Melbourne markets.

“With dwelling values now falling in a number of regions, it will be interesting to see how rapidly values, fall, what may or may not be done to slow the falls and how the market declines will compare to other periods of decline over the past decade,” said Mr Kusher.

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Fact Checked -

This article was reviewed by Property & Personal Finance Writer Nick Bendel before it was published as part of RateCity's Fact Check process.

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Learn more about home loans

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.

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.

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. 

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.

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.

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.

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).

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 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.

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.

How long can you fix a home loan rate for?

Most lenders should let you fix your interest rate for anywhere between one and five years. While rare, a few lenders may offer fixed rate terms for as long as 10 years.

Fixing your home loan interest rate for a longer term can keep your budgeting fairly straightforward, as you shouldn't have to factor in changes to your mortgage repayments if variable rates change, such as when the Reserve Bank of Australia (RBA) changes its rates at its monthly meeting. Additionally, if variable rates rise during your fixed rate term, you can continue to pay the lower fixed rate until the fixed term ends, potentially saving you some money.

Of course, a longer fixed term also means a longer length of time where you may have less flexibility in your home loan repayments. It’s also a longer period where you won’t be able to refinance your mortgage without paying break fees. If variable rates were to fall during this period, you may also be stuck paying a higher fixed rate for a longer period.

Can you borrow the deposit for a home loan?

Most lenders will want the majority of your home loan deposit to be made up of ‘genuine savings’ which is income earned from your job. While a small number of lenders may let you use a personal loan or a credit card to help cover the cost of your deposit, this may potentially cost you more in interest, and put your finances at higher risk.

If you haven’t saved a full deposit, it may be possible to effectively borrow the deposit for a mortgage with the help of a guarantor. This is usually a parent of other family member who guarantees your mortgage with the equity in their own property.

It may also be possible to borrow the money for a home loan deposit from a family member (e.g. the Bank of Mum & Dad) or a friend, provided you draw up a formal legal agreement to pay this money back, showing your mortgage lender that you’re taking responsibility.

How fast can you get a home equity loan?

Completing an application for a home equity loan may only take 20 to 30 minutes. It may take a lender anywhere from a day to a few weeks to process and approve your application. This may be affected by your financial situation, your level of equity, and whether or not your lender needs to organise an in-persona valuation of the property.

 Before you can apply for a home equity loan, you’ll need to build up some equity in your property. The more money you can put towards extra repayments to reduce your home loan principal, the faster you can increase your equity. Also, if property values in your area increase, this may help deliver an instant equity increase once your property has been valued.