Three trends that could impact your home loan in 2020

Three trends that could impact your home loan in 2020

As we move closer to Christmas and the New Year break, we can begin to look back on the financial news that really mattered in 2019 and start to predict what we could see in the year ahead

#1 FHBs may surge as the First Home Loan Deposit Scheme launches

First Home Buyer (FHB) demand could increase in the first half of 2020 as the First Home Loan Deposit Scheme (FHLDS) rolls out.

The government scheme gives Australians the opportunity to have the government act as “guarantor” on their loan with a deposit as little as 5 per cent. This allows FHBs to avoid the costly Lenders Mortgage Insurance (LMI) fee that typically comes with deposits under 20 per cent.

The two approved non-major lenders, Commonwealth Bank of Australia and National Australia Bank, will start offering guaranteed loans from 1 January 2020, whilst the 25 non-major lenders will start on 1 February 2020.

The FHLDS will offer 10,000 FHBs the chance to secure their dream home and avoid LMI which can be thousands of dollars. This opportunity could see FHB numbers for owner occupier home loans surge, as Australians previously unable to afford a home, get a foot on the property ladder.

How will this impact you?

If you’re an FHB, this could be music to your ears if you are able to get your application approved by one of the 27 lenders and enter the FHLDS early next year.

If you’re an investor, you may see that house prices rise due to the influx of FHB demand, which could see you increase equity in your existing properties.

If you’re a homeowner waiting to sell, you may see an opportunity to capitalise on the demand that the FHLDS may bring, which could see you making a higher profit on your sale.

#2 RBA cuts could push home loan interest rates even lower

Story rba

In 2019, rates starting with 2 became common in the non-major lending space. The three RBA cash rate cuts, although not passed on in full by all lenders, saw home loan lending lift.

Sally Tindall, RateCity Research Director, sees the rate cuts as having a positive impact on both new buyers and homeowners looking to reduce their mortgage repayments.

“Our research shows that the average Australian mortgage holder is now saving an estimated $127 a month thanks to the three RBA cuts this year,” she said.

Tindall also believes that refinancers could see the benefit of lower rates if they are willing to shop around.

“Our research also shows that while the average owner-occupier rate has dropped 0.57 per cent in the last year, the lowest rate has dropped by 0.75 per cent.”

However, the rate cuts and savings may not stop there. Governor Philip Lowe of the RBA, in his November statement, suggested that there could be more cash rate cuts on the cards in the future, which could see home loan rates drop even lower.

“Due to both global and domestic factors, it [is] reasonable to expect that an extended period of low interest rates will be required in Australia to reach full employment and achieve the inflation target,” Lowe said.

How will this impact you?

If you’re looking to refinance, 2020 could be the year to save thousands on your mortgage. Consider shopping around with smaller lenders to capitalise on lower interest rates that could result from more RBA rate cuts.

If you’re in the market for your first home, lower interest rates could see you able to borrow thousands more than you previously could.

If you’re an investor, you could either refinance your home to decrease your mortgage repayments. Or, potentially you could secure a new investment to take advantage of historically low interest rates, just ensure you compare any fees and refinancing costs before switching.

#3 Housing prices could continue to increase in early 2020

The latter half of 2019 saw housing prices skyrocket across the country, with Corelogic’s National Index entering positive growth territory for the first time since April 2018.

According to Tim Lawless, Research Director at Corelogic, five months of consistent growth was paired with the largest monthly gain in the national index since 2003.

“Sydney and Melbourne continued to drive the rapid recovery, with values up by 2.7% and 2.2% respectively over the month,” he said.

“The synergy of a 75 basis points rate cut from the Reserve Bank, a loosening in loan serviceability policy from APRA, and the removal of uncertainty around taxation reform following the federal election outcome, are central to this recovery.”

This focus on Sydney and Melbourne and their growth, however, is something that Propertyology Head of Research, Simon Pressley, believes is a short-sighted approach. Instead, Pressley predicts a wider trend that will see housing prices increase across the nation.

“Propertyology forecasts growth in median dwelling prices over the next five years to be superior to the last five years and more widespread, as opposed to being concentrated on a select few locations,” said Pressley.

How will this impact you?

For homeowners who have been waiting for the market to recover before they sell, 2020 could see you getting a higher return on your sale, or see you increase your equity in the property you already own. This increase in equity could provide the funds for retirement you have been looking for, or potentially enable you to purchase an investment property.

For first home buyers, this could mean that better access to the property market due to the fact that lower interest rates could be counteracted by higher house prices.

For investors, rising house prices may see you increase the equity in your property and could encourage you to refinance to lenders with lower rates. Switching to lenders with lower rates could also improve your overall cash flow from your investment, as younger buyers could struggle to afford to buy and may instead choose to rent.

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What is a specialist lender?

Specialist lenders, also known as non-conforming lenders, are lenders that offer mortgages to ‘non-vanilla’ borrowers who struggle to get finance at mainstream banks.

That includes people with bad credit, as well as borrowers who are self-employed, in casual employment or are new to Australia.

Specialist lenders take a much more flexible approach to assessing mortgage applications than mainstream banks.

What is bridging finance?

A loan of shorter duration taken to buy a new property before a borrower sells an existing property, usually taken to cover the financial gap that occurs while buying a new property without first selling an older one.

Usually, these loans have higher interest rates and a shorter repayment duration.

How does a redraw facility work?

A redraw facility attached to your loan allows you to borrow back any additional repayments that you have already paid on your loan. This can be a beneficial feature because, by paying down the principal with additional repayments, you will be charged less interest. However you will still be able to access the extra money when needed.

What is the flexibility score?

Today’s home loans often try to lure borrowers with a range of flexible features, including offset accounts, redraw facilities, repayment frequency options, repayment holidays, split loan options and portability. Real Time Ratings™ weights each of these features based on popularity and gives loans a ‘flexibility score’ based on how much they cater to borrowers’ needs over time. The aim is to give a higher score to loans which give borrowers more features and options.

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That’s where Real Time RatingsTM can help. Our system automatically filters out loans that don’t fit your requirements and ranks the remaining loans based on your individual loan requirements and preferences.

Best of all, the ratings are calculated in real time so you know you’re getting the most current information.

What does going guarantor' mean?

Going guarantor means a person offers up the equity in their home as security for your loan. This is a serious commitment which can have major repercussions if the person is not able to make their repayments and defaults on their loan. In this scenario, the bank will legally be able to the guarantor until the debt is settled.

Not everyone can be a guarantor. Lenders will generally only allow immediate family members to act as a guarantor but this can sometimes be stretched to include extended family depending on the circumstances.

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