First home buyers who bought into the market using the federal government’s 5% deposit scheme have racked up $82,000 in home equity on average, new data shows.

It’s been three years since the First Home Loan Deposit Scheme was launched, and while it’s known today as the Home Guarantee Scheme (HGS), it’s still helping first home buyers get into the market with just a 5% deposit and no lenders’ mortgage insurance (LMI).

The HGS attracted criticism from some circles – some pundits pointed to the low deposit as a stumbling block that could land homeowners in trouble if property values fell or interest rates rose.

It turns out both have happened, yet first homeowners haven’t let it hold them back.

From $35,000 deposit to $82,000 home equity

New data from the National Housing Finance and Investment Corporation (NHFIC), which runs the HGS, shows that first buyers who tapped into the 5% deposit scheme are now sitting on impressive piles of equity.

On average, these first-time homeowners have racked up $82,000 in home equity.

It’s a great result, especially when you consider that the average first home deposit across the scheme was just $35,200 in 2020, rising to $36,400 in mid-2023.

Compare that to the average deposit of $159,000 across the broader first-home buyer market, and it’s easy to see how the 5% deposit scheme gives first-home buyers a valuable leg-up into the market sooner.

What is the Home Guarantee Scheme?

Getting a deposit together can be a massive hurdle when buying a home.

Research by Finder shows it can take 12 years for a young Australian to save a deposit for an average-priced apartment, or 16 years to accumulate the deposit for a house.

But if your deposit is lower than 20%, you can get stung with LMI, which can cost you anywhere between $4,000 and $35,000, depending on the property price and your deposit amount.

But through the NHFIC, the federal government has three low deposit, no LMI schemes – all under the HGS umbrella.

The first two, the First Home Guarantee and Regional First Home Buyer Guarantee, support eligible buyers to purchase a home with a low 5% deposit and no LMI.

The Family Home Guarantee, meanwhile, assists eligible single parents and guardians to buy a home with a deposit of just 2% and no LMI.

Want to crack the market sooner?

Along with the HGS, there can be other options such as family pledge loans, or the use of a guarantor, that could slash the time it takes to buy a home of your own.

So if you want to crack the property market sooner rather than later, call us today to find out if you’re eligible to buy a first home with just a 5% deposit.

You could be in a place of your own by Christmas!

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

The highly anticipated Help to Buy Scheme will kick off next year, giving more Aussies a chance to score their dream home. Today we’ll unpack how the new federal government scheme will work, who it’ll benefit, and the fine print you need to know.

A key election promise of the Albanese government, Help to Buy is a shared equity scheme aimed at helping 40,000 low and middle-income earners buy a place of their own (10,000 allocations per year).

The scheme involves the government making an equity contribution worth up to 40% of the value of a new home, or 30% of the value of an established home.

But that doesn’t mean Anthony Albanese will be rocking up unannounced to claim the guest bedroom, as we’ll explain further below.

Homebuyers need a minimum 2% deposit, and must be able to qualify for a home loan with a participating lender to fund the balance of the purchase. No lenders mortgage insurance is payable.

Homebuyers can choose to boost their stake in the property at any time, and the government won’t charge rent on its share of the home.

Who is eligible for Help to Buy?

Help to Buy is not limited to first homebuyers.

You do need to be an Australian citizen, and you can’t currently own your home or have a share in a residential home.

Income limits apply too. Singles can earn up to $90,000 annually, or up to $120,000 for couples.

Help to Buy property price limits

Property price limits apply for Help to Buy across state capitals, regional centres and ‘rest of state’ areas. The price caps are shown below.

NSW capital city and regional centres: $950,000
Rest of state: $600,000

VIC capital city and regional centres: $850,000
Rest of state: $550,000

QLD capital city and regional centres: $650,000
Rest of state: $500,000

WA capital city and regional centres: $550,000
Rest of state: $400,000

SA capital city and regional centres: $550,000
Rest of state: $400,000

TAS capital city and regional centres: $550,000
Rest of state: $400,000

ACT: $600,000

NT: $550,000

Regional centres are Newcastle and Lake Macquarie, Illawarra, Central Coast, North Coast of NSW, Geelong, Gold Coast and Sunshine Coast.

How much can I save with Help to Buy?

Under Help to Buy, homebuyers can take out a much smaller home loan. This provides valuable savings in loan repayments and interest costs.

The federal government estimates homebuyers can save up to $380,000 on a new home purchased through the scheme, or as much as $285,000 on an established home.

The fine print to be aware of

For low and middle-income earners struggling to buy a home, Help to Buy may be a game-changer.

But before you rush in, bear in mind that the scheme will see you share a stake in your home with the government.

So if or when you decide to sell the property, the federal government will put its hand out for a slice of the sale proceeds.

In this way, you won’t get the full benefit of the property’s long-term price growth, but rather a share of the profits in line with the proportion of ownership you hold.

Now’s the time to start planning

With Help to Buy due to launch next year, now’s the time to start planning.

If it’s something you might be interested in, don’t delay reaching out to us to find out more – it’s bound to be popular, and places are limited, so you’ll want to start preparing now.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

An avalanche of rate hikes over the past 18 months has supersized home loan repayments. But savvy homeowners aren’t panicking. In fact, more mortgage holders than ever before are reaching out to brokers for expert help.

A recent survey by the Mortgage & Finance Association of Australia (MFAA) shows 95% of mortgage brokers are meeting with homeowners who have never used a broker before.

And it’s a move that’s paying off.

The MFAA reports nine out of ten brokers have successfully secured a rate discount for their clients this year.

And more than eight out of ten have helped their clients refinance to a new lender.

It just goes to show that if you’re struggling with mortgage repayments, you don’t have to go it alone.

How much could you slash from your home loan?

Part of a broker’s service involves contacting your current lender to negotiate a lower rate.

But if they don’t come to the party, real savings action can lie in refinancing.

Mozo has done the sums on the savings potential of switching from the average variable rates (6.60% for owner-occupiers; 6.96% for investors) to one of the lowest rate loans on the market.

They found that homeowners and investors in capital cities across the country who switch to a new lender can slash their repayments by $474 per month, on average

That’s as much as $5,691 annually.

Now, the lowest rate loan might not be available to you in your situation (we’d have to help you check), but it does highlight that there are big savings to be made if you can refinance to a lower rate.

What if you have a fixed-rate home loan?

You’ve probably heard about the ‘mortgage cliff’ – it’s a term used to describe the financial shock that homeowners can face when their super-low fixed rate comes to an end.

And we’re not out of the woods (or away from the cliff) just yet.

The Reserve Bank of Australia says around one million borrowers will come off a fixed rate over the next 18 months.

Crazy thing is, a Finder survey shows more than one in ten people with a fixed rate home loan are in the dark about when their fixed rate will end.

That matters because skyrocketing interest rates mean the average mortgage holder farewelling a fixed rate could face a $1,677 hike in their monthly loan repayments.

So if you’re on a fixed-rate home loan, it might be worth checking when the fixed rate period is due to end, and if it’s soon, what options are available to you.

Time to call in the experts

No matter whether you’re feeling the pressure of higher rates, thinking of refinancing, or unsure about what’s happening with your fixed rate, it’s important to reach out for expert help.

Give us a call today for a helping hand with your home loan.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

The Reserve Bank (RBA) may have kept the cash rate on hold but that hasn’t stopped some lenders from hiking their variable home loan rates. Here’s how borrowers are fighting back.

Home owners may be celebrating two months of the RBA cash rate staying on hold. But don’t pop the champagne cork just yet.

Mozo reports that some lenders have sneakily hiked their variable home loan rates in July despite the cash rate holding firm.

These hikes, known as ‘out-of-cycle’ rate rises, can fly under the radar.

So it’s important to keep an eye on what your lender is doing.

Who’s hiking rates?

Mozo says ANZ, Commonwealth Bank, Macquarie, Easy Street and Great Southern Bank are among the lenders that have topped up their variable loan rates even though the cash rate has stayed on hold.

In some cases the upticks may be as little as 0.03% – but some lenders have lifted their variable rates by as much as 0.15%.

On a $500,000 loan that could mean paying an extra $750 each year.

And right now every penny counts.

As a result, some home owners are taking matters into their own hands to help stay afloat.

One in two have changed their loan payments

Research by Canstar shows almost half of Australian mortgage holders are navigating higher rates by doing the following:

– 35% are reducing extra repayments,
– 29% are stopping extra loan repayments altogether,
– 26% are tapping into redraw or offset funds to help with repayments,
– 22% are refinancing to a lower rate loan, and
– 12% are extending their loan term.

Other changes involve switching to interest-only repayments, as well as more drastic moves such as selling a home or investment property.

Be warned though, altering repayment strategies can come at a cost

While the above strategies can help get you through a tough time, it would be remiss of us not to mention that some of them can come at a cost over the long term.

Reducing or stopping extra payments, for example, means you’ll likely have your home loan longer and therefore pay more interest.

Likewise, if you tap into your redraw or offset funds, you’ll pay more interest each month.

Last but certainly not least, by extending the term of a $500,000 loan at 6.73% from 20 to 25 years you could cut your monthly repayments by $348. But according to Canstar calculations, it could also mean paying a whopping $123,464 in extra interest over the life of the loan.

What can you do?

Those sneaky out-of-cycle rate hikes aren’t just annoying. They can leave you out of pocket while beefing up your lender’s profits.

But you don’t just have to wear the cost.

The first step is knowing the rate you’re paying.

Check your loan statements, or ask us to investigate for you.

If you’re not happy with the rate, we can help ask your current lender for a discount.

And if they don’t come to the party, we can help you weigh up the possible costs of making a switch.

We can help you crunch the numbers to reveal which strategy will help you save today – and tomorrow.

So give us a call to find out if your lender is quietly lifting your loan rate and what you can do about it.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Mortgage holders rejoice – the Reserve Bank of Australia (RBA) kept the cash rate on hold in August for the second month in a row. So have we finally reached calmer waters? Or is there one last rate rise wave headed our way? 

In what many will see as better news than a Matildas’ World Cup win, the RBA held interest rates steady in August for the second month in a row.

After a relentless string of rate hikes (12 since April 2022), homeowners may be sceptical about what’s happening.

So is the RBA board finally satisfied we’ve endured enough rate hikes? Or is RBA Governor Philip Lowe saving one last rate hike for mortgage holders as a parting gift before he vacates his position next month?

Let’s take a closer look at some of the underlying data.

Inflation pressures are easing

The RBA has made it clear that it has been hiking rates to help lower inflation.

So it was welcome news this week when the Australian Bureau of Statistics announced that annual inflation has dropped to 6.0%.

It’s fair to say most of us wouldn’t normally celebrate goods and services prices rising 6% over the past year.

However, it’s a sign that inflation is still falling from its peak of 7.8%, and that’s exactly what the RBA has been aiming for.

Why the rate pause?

The RBA knows it’s treading a fine line with interest rate decisions. At its August board meeting the central bank explained why it kept interest rates in a holding pattern:

– It can take time for the economy to respond to previous rate hikes.

– The outlook for household spending is uncertain. Many households are experiencing a squeeze on their finances. Others are benefiting from rising housing prices and higher interest income.

– Consumer spending has slowed “substantially” due to cost-of-living pressures and higher interest rates.

The tide might be turning, but is one last rate rise wave coming?

Inflation is down. Rates are steady.

So far, so good.

But we may not be in calmer waters just yet.

As this diagram shows, inflation is still well above the RBA’s target range of 2-3%.

So the RBA has left the door open for further rate hikes depending on how the economy is tracking, and of course, what happens with inflation.

Indeed, the RBA said as much in its latest rate announcement: “Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe”.

So … what’s the rate outlook?

As mentioned earlier, RBA Governor Philip Lowe will vacate the top job on September 17 and be replaced by his deputy, Michele Bullock.

Thus, one might think that if any more rate rises were planned in the short term, they’d take place before that transition occurs to help give Ms Bullock a clean slate to work from (assuming inflation data continues on a downward trend). And there’s only one RBA board meeting between then and now – on September 5.

Indeed, Westpac has made a bold call, saying we could be heading into a lengthy period of stable rates ahead of a rate cut, possibly in the second half of 2024.

So, with any luck, we could be through the thick of it.

Then again, all things considered, interest rates are now much higher than they were 18 months ago and will likely remain so for some time.

So if it’s been a while since you last looked at your home loan and current interest rate, call us today to make sure you’re paying a competitive rate on a loan that’s well-suited to your needs.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

With plenty of pundits tipping interest rates will start to fall in the next 12 months, we look at why the big banks are hiking their fixed rates – and unpack what it means for the rate outlook.

The past few months have seen interest rates on fixed home loans deliver more ups and downs than a rollercoaster.

As recently as April 2023, a number of lenders were starting to cut their fixed rates.

Fast forward to July, and the major banks – NAB, Westpac, ANZ and the Commonwealth Bank – have all upped their fixed rates in the past fortnight.

Now you won’t find a fixed rate below 6% among the big four banks.

But aren’t interest rates expected to fall?

Home owners battling high rates are generally being urged to “hang in there” because interest rates are expected to slide down from their current highs over the next 18 months.

Westpac is predicting the Reserve Bank’s cash rate will drop to 3.85% by the end of next year.

Better still, NAB is anticipating the cash rate could dip to 3.10% by late 2024.

So … why are fixed rates rising then?

Some lenders are stepping up their fixed rates because they believe rates may go higher before they trend lower.

NAB and Westpac are both tipping the cash rate, currently sitting at 4.10%, could go as high as 4.60% by the end of the year.

Over at the Commonwealth Bank, the expectation is for one more rate hike, taking the cash rate to 4.35%, with a chance the cash rate may ratchet up to 4.60%.

This can all be confusing. The main point is that the prospect of rates heading higher before they head south again is a key factor driving some fixed rates higher.

What should I do?

The first step is to bear in mind that forecasts are just that – predictions. Not even the banks have foolproof crystal balls.

And the recent news that inflation slowed in the June 2023 quarter, with quarterly price rises being the lowest since September 2021, could see the Reserve Bank ease back on the interest rate dial. It could even bring fixed rates back down.

It’s also worth pointing out that not every lender is lifting their fixed rates.

A number of smaller lenders have trimmed their fixed rates, with some still offering rates below 6.0%.

That’s why it’s so important to get in touch so we can help you explore a wide range of lenders and loan products.

Your next step

Locking in your loan rate can bring certainty to your budget, and eliminate the stress of the rollercoaster rate ride.

If you’re not sure whether to go variable or fixed – or a combination of both – get in touch to see how the numbers stack up for your situation.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Australians are showering their homes with $1 billion worth of love each month as home improvement spending ramps up. We look at the cost of popular renovations – and how to foot the bill.

Belts may be tightening but not, it seems, for renovators.

The latest figures from the ABS show Australians spent a whopping $1,044 million on home renovations in May 2023 alone. That’s up 4.3% on the previous month.

Our passion for renovating may stem from binge-watching home improvement shows through the pandemic. But there could be another factor at play.

It can simply be a lot cheaper to renovate your home than to sell up and buy elsewhere.

If you’re thinking of a few home improvements, here’s what to consider.

What are the most popular renovations?

The 2022 Houzz & Home Report reveals which rooms Australians have targeted for home improvements.

The kitchen comes up trumps, accounting for almost one in four (23%) renovations.

Other top contenders were living room, bathroom and bedroom makeovers (each 20%).

How much will a renovation cost?

A key step in planning a renovation is crunching the numbers to know the likely cost. This is a must-do before you start collecting colour charts and carpet samples.

Smaller renovations can be affordable do-it-yourself projects. For any structural or specialist work it pays to call in the tradies – and that’s when the cost can start to escalate.

The latest Archicentre Cost Guide sets out typical costs for popular home improvements.

As a guide, you can expect to pay:

– $75-$120 per square metre to polish timber floorboards;
– up to $35 per square metre for interior painting;
– up to $4,600 for an extension; and
– up to $48,000 for a new kitchen (excluding appliances).

While home improvements may not come cheap, quality renovations can boost your lifestyle and your home’s value.

They can also be a money-saver – ‘green’ improvements such as installing rooftop solar panels can put money back in your hip pocket through lower utility bills.

How to pay for renovations

Working out how you’ll pay for a renovation is an essential part of the planning process.

You need to be sure you can comfortably afford the improvements, and avoid the not-so-exciting prospect of running out of funds mid-way through a project.

Using cash savings or a personal loan may be suitable for smaller projects – the shorter term of a personal loan (usually less than five years) can help keep a lid on the interest cost.

For more expensive projects, a home loan top-up can be a quick and easy solution, though it can hinge on you having sufficient home equity to qualify for additional funds.

At the top end of the scale, a dedicated renovation or construction loan is another option.

These can work by drip-feeding funds as different stages of the project are ticked off. You generally only pay interest on funds drawn down, making the cost more manageable.

Get started on your renovation

If a renovation is on your bucket list, call us to discover the options available to fund your project – and the costs involved.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Buying a home for the first time can be challenging, especially with house prices soaring in recent years. So could switching from house hunting to unit searching be the way forward for you?

There’s no denying that getting into the property market in today’s economic climate ain’t easy.

The average Australian house price is now $725,000 – that’s 30% more expensive than the average national unit price.

Compare the price gap to September 2021, when the national median house price was $570,000 – just 9.6% higher than the median unit price of $520,000.

But is opting for a unit the right move for you?

Today we’ll look into the pros and cons of buying an apartment for your first home.

Affordability, lifestyle and location

First the pros: units are usually more affordable than houses.

Median capital city house prices have grown 31.6% in the past five years, while units have only increased by 9.8%.

Lower prices can not only make it quicker for you to save a deposit for an apartment, they could also make you eligible for better stamp duty concessions (either reducing your stamp duty bill or eliminating it entirely, depending on your state or territory).

And while a unit may not always have space to accommodate future expansions to your life and family, they are often located in thriving local community hubs with amenities, shops, and transport on your doorstep – great for young families still wanting to be in the thick of the action.

Potential for investment

Admittedly, owning a house can have advantages over owning a unit.

For starters, you don’t have to fork out for body corporate fees. And the capital growth you can gain from owning the plot of land your abode sits on often makes house ownership more attractive.

But buying a unit – rather than holding off until you can afford a house – also offers investment potential.

By purchasing a unit, you’re investing and building up your own equity, rather than paying off someone else’s mortgage if you’re renting.

So while you may not be able to buy the house just yet, an apartment can provide a valuable stepping stone to reaching that goal.

And should you be in a position to hang onto your unit when you upgrade to a home, you may get some decent rental income – if you buy in the right spot.

On top of this, unit upkeep can be easier because those body corporate or strata fees go towards various maintenance activities.

Other affordable options

All that said, if apartment living isn’t for you, there are other cost-effective options for you to explore.

You could consider searching slightly further afield, with recent research identifying “sister suburbs” that are up to 200% cheaper than their in-demand neighbouring suburbs.

Rent-to-own arrangements could also make it easier for you to crack the market. These arrangements enable tenants to buy the property they’ve been renting once the lease ends, at a previously agreed price.

And whether you’re in the market for a house or a unit, there are government schemes that can help you fast-track home ownership and save.

The federal government has three low deposit, no lenders mortgage insurance (LMI) schemes available for eligible first-home buyers, regional first-home buyers, and single parents.

Eligible buyers can purchase a home with a deposit as little as 5% through the First Home Guarantee and Regional First Home Guarantee. While the Family Home Guarantee assists eligible single parents and guardians to buy with a 2% deposit.

Not paying LMI can save you anywhere between $4,000 and $35,000 – depending on the property price and your deposit amount.

The good news is that eligible first-home buyers can bundle the federal home guarantee schemes with other state government first-home buyer grants and stamp duty concessions for major savings.

Get in touch

If you’d like to give renting the big swerve and get a place of your own, give us a call.

Not only can we help you find a suitable loan and help organise your finances, we know the government schemes you may be eligible for to help get you into your first home sooner.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Phew! The Reserve Bank of Australia (RBA) has today decided to put the official cash rate on hold. So is the end of this rate hike cycle finally in sight?

The decision to keep the official cash rate at 4.10% will be welcomed by homeowners around the country after monthly repayments increased by about $1,135 per $500,000 loaned (for a 25-year loan) since 1 May 2022.

RBA Governor Philip said as interest rates had been increased by 4% since May last year, the Board decided to hold interest rates steady this month to provide some time to assess the impact of the increases.

“The higher interest rates are working to establish a more sustainable balance between supply and demand in the economy,” he said.

However, Governor Lowe kept the door open for potential rate rises in the months to come.

“Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon how the economy and inflation evolve,” he said.

“In making its decisions, the Board will continue to pay close attention to developments in the global economy, trends in household spending, and the forecasts for inflation and the labour market.

How much could your repayments increase if the cash rate is increased?

Let’s say you’re an owner-occupier with a 25-year loan of $500,000 paying principal and interest.

If the RBA increases the cash rate by another 25 basis points, and your bank follows suit, your monthly repayments could increase by another $76 a month. That’s an extra $1,211 a month on your mortgage compared to 1 May 2022.

If you have a $750,000 loan, repayments would likely increase by about $114 a month, up $1,816 from 1 May 2022.

Meanwhile, a $1 million loan would increase by about $152 a month, up about $2,422 from 1 May 2022.

Concerned about your mortgage? Get in touch

Are you starting to feel the pinch? You’re not alone. Many households around the country are feeling the pain of all the rate rises over the past 15 months.

There are also lots of people on fixed-rate home loans wondering what options will be available to them once their fixed-rate period ends.

Some options we can help you explore include refinancing (which could involve increasing the length of your loan and decreasing monthly repayments), debt consolidation, or building up a bit of a buffer in an offset account ahead of more rate hikes.

So if you’re worried about how you might meet your repayments going forward, give us a call today. The earlier we sit down with you and help you make a plan, the better we can help you manage any further rate hikes.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Have you been keen to refinance but told you can’t? You’re not alone. Many Australian households are currently locked into their home loans due to rising interest rates. But some banks have recently started to lower their serviceability thresholds. 

As interest rates have climbed, Australians have refinanced in unprecedented numbers.

In fact, a record high of $21.3 billion in refinancing took place in March 2023, according to ABS statistics – 14.2% higher compared to a year ago.

But some people are now unable to refinance and take advantage of potential savings because they don’t meet lender requirements.

They’re locked into what’s called “mortgage prison”.

What’s mortgage prison?

You see, prudential regulator APRA has guidance in place that requires lenders to stress-test all new mortgage applications at 3% above the interest rate the borrower applies for – even when refinancing.

And since the RBA’s official cash rate has increased from 0.10% to 4.10% in just 13 short months, many mortgage holders are now unable to refinance because they can no longer meet the 3% mortgage serviceability buffer.

But, there is an “exceptions to policy” in APRA’s guidance that states lenders can override the 3% buffer for exceptional or complex credit applications, if done prudently and on a case-by-case basis.

So recently some big players – including Westpac and Commonwealth Bank (CBA) – reduced their refinancing serviceability buffers to as low as 1%, if borrowers meet certain circumstances (more on that below).

Other smaller lenders are making similar moves, including Westpac subsidiaries St George, Bank of Melbourne and BankSA.

Many in the industry hope this will reduce mortgage stress and defaulted loans, given the current financial climate of rising rates and inflation.

What are the eligibility requirements?

They differ from lender to lender.

But for CBA you’ll need to have a loan-to-value ratio of at least 80%, a squeaky clean record of meeting all your debt repayments over the past year, and be refinancing to a principal and interest loan of a similar or lower value.

You’ll need to meet the 1% mortgage serviceability buffer, too.

For Westpac’s new “streamlined refinance”, you must have a credit score of more than 650.

You’ll also need a good track record of paying down all existing debts over the past 12 months, be refinancing to a loan that has lower monthly repayments than your existing one, and meet the 1% buffer test too, of course.

What’s the catch?

Ok, so under CBA’s new policy, for example, borrowers must extend their loan term out to 30 years.

Obviously this can cost you quite a lot in interest over the long run.

For example, RateCity research shows that if you took out a $500,000 loan with a Big Four bank three years ago, and if you applied for CBA’s refinancing offer today, your mortgage repayments could drop by as much as $235 a month.

But over the long run, you could pay up to an extra $32,117 in interest because you’d be extending your loan by an additional three years.

So while this option could help alleviate some financial stress now, you may have to pay for it over the long run – there’s a bit to weigh up.

Are the recent serviceability changes right for you?

Give us a call today to find out more about refinancing and successfully navigating serviceability thresholds.

We can guide you on ways to improve your chances of refinancing success and help you escape “mortgage prison”.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Despite the soaring cost of living and successive interest rate hikes, homebuying intentions have climbed, latest data shows. So why are so many people still chasing the great Australian dream? And what can you do to make your own dream a reality?

Despite a flurry of rate rises, new data this month shows homeownership is once again a top priority for many Australians, with the number of house hunters increasing.

Commonwealth Bank’s Household Spending Intentions Index showed a strong 14.4% increase in homebuying intentions in May, after dropping in April.

May also saw new home sales increase across Australia for the second month in a row.

So what’s driving this appetite for property when finances are increasingly tight for many? And how can you boost your own chances of cracking the market sooner?

Rental squeeze

Across capital cities and major regional areas, there have been historic rental price increases and low vacancies.

Rental vacancies reached an all-time low of 1.1% in April, with the median price for renting a unit only $39 a week cheaper than renting a house.

Rising overseas migration has contributed to stiff competition in the rental space too – in the March quarter there was a 124% jump in rental enquiries year-on-year from one overseas country alone.

Understandably, many are looking to escape renting and grab their spot on the property market.

But with rate hikes and inflation, saving a deposit is no easy feat for many Australians.

So here are some ways to take the pressure off.

Schemes and grants to save time and money

There are many government schemes and grants designed to help you get into the market. And all can be used simultaneously, which can really bring in the savings!

Through the National Housing Finance and Investment Corporation, the federal government has three low deposit, no lenders mortgage insurance (LMI) schemes available for eligible first-home buyers, regional first-home buyers and single parents.

The First Home Guarantee and Regional First Home Guarantee support eligible buyers to purchase a home with a 5% deposit. And the Family Home Guarantee assists eligible single parents to buy with a 2% deposit.

Not paying LMI can save you anywhere between $4,000 and $35,000 – depending on the property price and your deposit amount – which can fast-track your first home-buying goal by four to five years.

Another home-buying cost that can have a real sting in its tail is stamp duty.

Fortunately for first-home buyers though, state governments have stamp duty concessions available – including South Australia, which announced last week that it was scrapping the tax for first-home buyers on new homes valued up to $650,000.

Meanwhile, Victoria, New South Wales, Queensland, Western Australia, Tasmania, the ACT, and the Northern Territory also offer stamp duty concessions. This can either eliminate or reduce the cost of stamp duty, if eligible.

Most state governments also offer first homeowner grants to help you get the keys to your own home.

Victoria, New South Wales, Queensland, Western Australia, Tasmania, Northern Territory, and South Australia all offer first homeowner grants.

If eligible, you could receive a grant of between $10,000 and $30,000 depending on your state and other eligibility criteria.

Give us a call

It’s important to note that spots for some of these schemes, such as the federal government’s first home guarantee, are limited.

And they’re popular, so it’s best to get in quick.

So if you’d like to kick renting to the curb, get in touch with us today.

We’ll help you work out your borrowing power, your loan options, and factor in what schemes you may be eligible for.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Mortgage serviceability can feel like a frustrating hurdle to clear. But it’s an important safeguard against borrowing too much, particularly in the current interest rate landscape. 

It’s in the best interests of all parties involved if your mortgage is chugging along with regular repayments being made.

Borrowing an amount you don’t have a hope in hell of repaying can mean heartache for you, and can land your lender and broker in hot water.

Enter mortgage serviceability.

Before approving your loan application your lender will take a good look at your finances to see if you can meet repayments.

We’ll break down just what to expect with a mortgage serviceability test, and how you can improve your chances of gaining home loan approval.

What is mortgage serviceability?

Lenders and brokers have a duty of care to ensure you’re not provided with a loan that’s beyond your means.

In fact, the National Consumer Credit Protection Act (2009) is in place to ensure lenders and brokers are following responsible lending practices (here’s that hot water we were talking about earlier).

While this protects consumers from landing in financial dire straits, (which doesn’t have anything to do with getting money for nothin’, unfortunately) … it means that lenders and brokers are serious about checking serviceability, which can create some strict hoops for you to jump through.

So how is serviceability calculated?

Your serviceability is calculated by looking at your income and subtracting your expenses and debt repayments (including your new home loan repayment amount).

We then need to work out what portion of your monthly income can go toward repayments. This is called your debt service ratio.

It’s also important to calculate your debt-to-income ratio, which is a measurement used to compare your total debt to your gross household income.

Your credit card limit will also be taken into account and you may need to prove that you have the means to pay off the limit within three years, even if the balance is $0.

Finally, a serviceability buffer is applied to the current interest rate to see if you’ll be able to continue repayments should interest rates rise.

In 2021, the Australian Prudential Regulation Authority (APRA) raised the serviceability buffer from 2.5% to 3%.

This buffer amount has been the topic of much discussion, with some arguing it’s making it tough for people to pass the assessment and refinance to a lower-rate loan. But APRA is remaining firm at 3% given the current state of interest rates.

How to increase your serviceability

Here are our top tips for increasing your serviceability score and improving your chances of home loan approval:

– Pay down your debts to improve your debt-to-income ratio.
– Reduce your expenses by cutting out non-essentials and looking for better deals on utilities.
– Reduce your credit limits or cancel credit cards you’re not using, if appropriate.
– Increase your income by starting a side hustle, asking for a raise, landing a higher-paying job, or even a second one (which we fully acknowledge is not possible for many families).

Other ways you can increase your chances of home loan approval:

– Improve your credit score. Lenders will delve into your credit history to see if you’re good at making repayments.
– Look at spending habits. Lavish overspending on non-essentials could raise a lender’s eyebrows.
– Make savings. Showing that you can put away money on a regular basis will look good on your application.

How much can you safely borrow?

Buying a home is an exciting prospect, but you don’t want to stretch yourself beyond your means.

This is especially important given the recent RBA interest rate hikes over the past year.

But we’re here to help you crunch the numbers and find a loan that will work for you, not against you.
If you’d like to find out your borrowing power and what loan options are available, give us a bell.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.