Australian Housing Outlook 2018-2021

For the 17th year running the QBE Insurance company has partnered with BIS Oxford Economics on a in-depth analysis of Australia’s residential housing market, including a three year outlook.

What you’ll find included this year:

•    Update and forecasts on capital city markets 
•    Analysis of regional centres
•    Where will Millennials live as they move into their next life stage?
•    Deep dive into demand and supply
•    What’s the future of the cash rate?

Click here to visit the QBE Australian Housing Outlook landing page to find out more and download the report to get the full property story.

House price movement from QBE 2018 report.jpg


QBE is one of the world’s leading insurers and reinsurers, with operations in 37 countries and a presence in all of the key global insurance markets.

Why you need to know your Living Expenses

For anyone that had been through the home loan process in the past, it is unlikely you were ever asked about your monthly living expenses, outside current financial commitments such as loans, credit cards etc This is because up until recently,  mortgage lenders all used an assigned minimum monthly living expense amount, based on statistical data compiled by companies like Moody's or Standard & Poor's. These companies compiled data on the 'average' cost of living for different applicant types such as a single person, a couple with no kids and families of almost any size.

However, in 2016 the Australian Prudential Regulator (APRA) started working with lenders to have each applicant(s) self-declare their own living expenses. This was based on the fact that people with the same family status don't all spend the exact same amount on their day to day lives. 

In the early stages of this new concept, it was what we'd call a 'soft roll out'. Clients were asked to declare a figure for their monthly living expenses, but little to no verification of the accuracy of the figures was really completed. However, things have started to ramp up and the banks are now really cracking down on the figures declared and how these figures compare to a new reference point, known as HEM (Household Expenditure Measure).

HEM differs from the old figures that the banks used in that they vary based on where people live, and increases as an applicant's taxable income rises. For example, prior to the use of HEM, the minimum monthly living expenses used to assess a single person living in a rural town earning $50,000 per annum was the same as say, a young lawyer, working in Sydney earning $165,000. The HEM is also updated more regularly and adjusted for inflation. 

How does this affect you?

If you are planning on applying for a home loan now, or in the future, you will be asked to declare your household living expenses in up to thirteen categories. These are

Rates & Utility expenses for your own home
Rates & Utility expenses for your investment property/s (if applicable)
Telecommunications expenses
Pay Television expenses (if applicable)
Groceries
Recreation & Entertainment
Clothing & Personal Care
Medical & Health Costs (excluding Health insurance premiums)
Transport
Education (if applicable)
Childcare (if applicable)
Insurance
Other expenses not associated in any of the above categories

Once you have provided your figures for all the applicable categories, the bank will use the higher of the two if you declare a total figure that is below the assigned HEM value for you. 

However, we are currently experiencing a number of issues with certain lenders when applicants declare their monthly living expenses are a noticeably lower figure than the assigned HEM figure. Where the lender feels the declared figure is 'too low' they are requesting further investigation into the figures and in some cases are going through clients bank statements, line by line, to compare each and every expense against the declared values. This is becoming time-consuming and in many cases means loan amounts are reduced, or the loan applied for cannot even be proceeded with.

Of course, if you declare your expenses at a higher figure than your assigned HEM value, this reduces your uncommitted monthly income, reducing your total borrowing power.

The current process is not without a number of issues though but like many large changes in a long-term process, issues arise and are smoothed out as time goes on. The parts of this that we'd personally like to see handled a little differently are the way in which discretionary spending is looked at. For example, a newlywed couple may spend more than usual in the year or two leading up to their wedding but once married and living together it is expected that total living expenses for the couple would fall.

Also, where an applicant genuinely spends less than their assigned HEM and can even prove it, the bank will still use the higher of the two figures!

 

What are the benefits?

While clients and brokers alike currently deal with this new requirement, that for the time being, adds complexity, time and some frustration to the loan application process, the long-term benefits are that customers are made aware of their true living expenses and borrow appropriately. In many cases, we are seeing clients genuinely learn that they are spending more than they thought, which can lead to positive changes in their spending habits in the medium to long-term.

 

 


 

 

 

 

The different types of Mortgage Rates explained

When most people think of 'Mortgage Rates',  they think solely about the interest rate applied to their loan, which is logical as this is what will ultimately determine the repayment amount. However, there are so many different types of rates that are involved in the world of Mortgage Lending that we thought we'd break them down and do our best to explain what they are and how they impact you.

Assessment Rate

The Assessment Rate is the rate of interest that the lender will use to 'assess' your loan application. This rate is currently mandated in Australia to no less than 7% and at the time of writing this post, the lowest assessment rate we can find is 7.10% and the highest 8.49%. 

While not advertised or publically available, the assessment rate is actually of significant importance as it has a big impact on your over borrowing capacity. Most people would think if the bank is charging them a rate of say 4.29% per annum, then that is the rate being used to assess their ability to repay the loan, but this is not the case. In fact, your being approved for a loan with a built-in buffer well above what you will actually pay.

Standard Variable Rate

The Standard Variable Rate (SVR) is a rate set by the individual banks/lenders that represents their 'standard' rate for a variable interest rate loan. In the real world, almost no customer will, nor should pay the Standard Variable Rate as all banks have several ways of obtaining discounts below this rate. 

Each time the Reserve Bank of Australia announces a change to the official cash rate, banks and mortgage lenders will eventually move their Standard Variable Rates as well, but not always by the same amounts. This leads to what we call a bit of interest rate 'musical chairs' as the lenders seem to take turns from being slightly more expensive, to having the 'cheapest' SVR. We suggest paying little attention to the Standard Variable Rate when in comes to mortgage lender comparisons.

Discounted Variable Rate

The Discounted Variable Rate is ultimately the rate that is applied to your loan and helps determine what your repayment will be, along with the amount and term of the loan.

Lenders discount their Standard Variable Rate is many different ways and will often vary the discounts to either increase the flow of business they receive, or decrease the flow of business.

A quick guide to how discounts to the SVR are often applied is below

  • Loan Size - The more you borrow the greater discount you can expect to receive
  • Loan to Value Ratio - The lower the Loan to Value Ratio (LVR) the great the discount you can expect to receive
  • Loan Purpose - Owner Occupied loans will often be given a greater discount than Investment Loans
  • Repayment Type - Principle & Interest loans will in most cases receive a larger discount than loans on Interest Only repayments

The size of the discount can vary heavily and as a rough guide is going to be between 0.50% and 1.50% below the Standard Variable Rate set by each lender.

Fixed Rate

A Fixed Interest rate is one that is set over a particular term that most commonly ranges from 1-5 years, but can include terms as long as up to 10 years in Australia. Fixed Rates provide certainty of repayment during their term but often carry certain restrictions that can (but not always) include the lack of an offset account feature, restrictions to making additional repayments, lack of a redraw facility and come with break costs if the loan is paid out before the maternity date. 

Comparison Rate

A Comparison Rate, also referred to as a 'True Rate', is an attempt by regulators to assist consumers compare loans effectively. The Comparison Rate is calculated by taking into account not only the interest rate charged on the amount borrowed, but also the fee's charged on that loan. This is because a variation in fees charged by a mortgage lender could make a loan with a seemingly low rate of interest actually cost more than a loan with higher interest but little to no fees.

The area of concern we have though is that Comparison Rates only need to use a loan amount of $150,000 over a 25 loan term. While this may be fine for some, the overwhelming majority of our clients borrow much more than $150,000 and often over the maximum allowable term of 30 years. Increasing the amount borrowed and the term has a noticeable impact on the comparison rate.

Luckily, we have a calculator that you can use to calculate the Comparison Rate on any loan amount or term, thus allowing you to conduct accurate loan comparison researched based on your personal circumstances. This calculator is available via our Calculators page or just click here!

 

 

What is a Reverse Mortgage

A Reverse Mortgage is a specialised home loan product that was introduced to assist asset-backed but often cash/superannuation poor retirees live better in retirement without the need to sell their home. It allows the reverse mortgage provider to advance funds to a homeowner to use as they wish, with no ongoing repayments needing to be made, as the interest compounds over time and is paid back via a single payment upon the sale of the home. This most often occurs when the borrower moves into an aged care facility or passes away.

The main advantages of a reverse mortgage are that no income is required to qualify for the loan and that no repayments are made on an ongoing basis. Another positive aspect is that the Australian Government put in place  'negative equity protection' for all consumers. This means that no matter how long the interest on the facility compounds for, the lender can only ever access the proceeds of the sale of the property the loan is secured against. In the event that the loan balance actually exceeded this, as could be the case if the lifespan of the borrower was beyond the average, then the lender cannot go after any other assets within the estate and would ultimately have to where a loss on the total interest compounded.

The main risks with reverse mortgages are, as in the above scenario, that they can end up eroding away any equity in the property, leading to a reduction in the total value of the borrower's estate and a reduction in any inheritance being passed onto to beneficiaries of that estate. The main risk that concerns most potential applicants though is the potential negative effects it can have on government pensions being received. 

There are other factors to consider but the two points discussed above are why our Experts see the vast majority of inquiries for reverse mortgages fail to proceed. Family members often get involved to protect their inheritance, or the loss of government pension deters the person considering this from proceeding.

In all cases it is essential that anyone considering a reverse mortgage seek independant legal and financial advice. 

 

 

 

 

You don't have to be a doctor to have Mortgage Insurance waived!

In our last post, we talked about Lenders Mortgage Insurance, which is applicable in nearly all cases where the deposit/equity being put up by the applicant(s) is less than 20% of the value of the security being offered. However, in some circumstances, some lenders are willing to take on the risk of not insuring certain loans and this can lead to a waiver of mortgage insurance for the applicant(s).

The most common example of this is what is commonly referred to as a 'Medico Package', which allows people with a degree in Medicine and practising in a range of related fields, can have the Mortgage Insurance Fee waived with a deposit as little as 10%, instead of the usual 20%. There are some additional qualifying criteria that can vary lender to lender so for further information please contact us.

However, you don't have to be in the Medical profession to necessarily qualify for LMI waivers as there are some unique offerings from two lenders in particular that we have outlined below

Borrow up to 85% and pay NO LMI on purchasers in Major Cities for High Income earners

Borrow up to 90% and pay NO LMI for qualify applicants who work in the following fields

  • Accounting Professionals
  • Legal Professionals
  • Professionals working in Mining, Energy or other Resrouces
  • Professional Sports people
  • Professional Entertainers 

In both these cases Conditions Apply, so if you believe you may qualify for a waiver of lenders mortgage insurance, get in touch with our experts today!

 

What is Mortgage Insurance (LMI) ?

If you were not yet aware, in nearly all cases where you are looking to borrow more than 80% of a properties value, you will have to pay what is called Lenders Mortgage Insurance (LMI).

This insurance, however, doesn't actually cover you (the borrower) for anything! It is an insurance policy the mortgagee (The lender) takes out to cover themselves against any possible loss should they have to foreclose on the property and are unable to sell the property for more than the loan that was taken against it. Without mortgage insurers offering such insurance, nearly all lenders in Australia would likely require a minimum deposit of 20%!

The cost of this insurance premium has many variables that include:-

  • The amount borrowed
  • The percentage of deposit you are able to contribute
  • The lender you apply with
  • The lender's mortgage insurer

Mortgage insurance should not be confused with Mortgage Protection Insurance, which is a separate product, most commonly pushed by BankWest but readily available from a number of companies. Mortgage Protection Insurance is a separate product that will cover you for the cost of your mortgage repayments in the event you are unable to pay your mortgage for a set of approved reasons.

Australia has two main Mortgage Insurance companies in Genworth and QBE. Most lenders will use only one insurer and each insurer can have different acceptable lending guidelines. In some circumstances, a loan application may be declined by a lender who uses one insurer but accepted by another lender that uses the other. Some smaller lenders may even not even have the ability to approve an application without the approval of their insurance provider, whereas the larger lenders and major banks can often approve loans they know are within the guidelines and do not need to seek a second opinion from their insurance provider.

There are some exceptions to where borrowers can borrow more than 80% of the total value of a property or properties. We will explore these options in further posts, so check back with us here soon!

Home Loan Calculators

Did you know that one of the most searched for terms on Google relating to mortgages is consumers looking for Home Loan Calculators!

At My Loan Expert, we have a comprehensive selection of easy to use calculators that can help you research a wide range of things like;

Mortgage Repayments
Stamp Duty Calculators (for all States and Territories in Australia)
Home Loan Comparisons
The benefits of making additional repayments
Home Loan Offset Accounts
Property Selling Costs
Fortnightly Repayments
Renting vs, Buying

To access these calculators and many more simply click here

 

How to obtain your Free Credit Score

In general, most Australian residents will have a credit file that contains information about the financial institutions an individual, or company has dealt with previously. In the past few years, this file has also started to include a US-style scoring system, with files given a score ranging from 0 - 1200 in an attempt to rate your credit strength. 

These files and their management are currently undertaken by a company called Equifax (formerly known as Veda), who will provide you with a copy of your credit file for free if you are happy to wait up to 10 days. However, the free report does NOT include your credit score!

Equifax provides several other options at different price points that you can view here

However, My Loan Expert is happy to provide its clients with a FREE copy of their Equifax report, including the Credit Score.

All you need to do to learn more about how to obtain your free report is to get in touch with us here

 

New Website

My Loan Expert would like to introduce our new website. We've give it a general overhaul and included a news feed. We will be posting current news, articles, information and anything interesting that will help you in keeping you up to date.

We have also included a chat now feature so you can message us in realtime. Any queries you have we will be happy to help anytime you need.