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Finance

Home Loan Trends Show the Rise of Owner Occupiers, First Home Buyers

Home Loan Trends

The volume of finance secured for the purchase of property experienced a strong rebound in the September quarter, following the initial shock to demand the trends in a home loan in the first two months of the June quarter.

The latest ABS housing finance data shows the volume of finance lent for the purchase of property increased 5.9 percent in the month of September, taking the quarterly increase to 20 percent, the highest quarterly growth rate on record.

It follows a 10.9 percent contraction in housing finance through the June quarter, when strict social distancing restrictions, such as a ban on open home inspections and on-site auctions, resulted in a sharp drop in transactions.

Rolling quarterly growth in housing finance

home loan trends

Housing finance for the purchase of property totaled $62.7 billion in the September quarter.

This is the highest level since the March 2018 quarter and is just 6.6 percent below the peak of the lending series in the three months to May 2017.

The uptick is a result of eased social distancing restrictions across the country, which have coincided with historically accommodative monetary policy, which sees mortgage rates at a record low.

As with the strong bounce-back in many economic indicators over the September quarter, eased social distancing led to a rise in consumer sentiment and an increase in sales and listings volumes.

Corelogic estimates that sales volumes increased around 27.7 percent in the quarter, despite renewed restrictions across Victoria.

The CoreLogic Residential Mortgage index (RMI) indicates further increases in housing finance over October and November.

The RMI tracks changes in valuation activity across CoreLogic platforms for the purpose of dwelling purchases.

In the 28 days ending 8th of November, the Corelogic RMI rose 26.9 percent.

As can be seen in the chart below, the RMI is a leading indicator of monthly ABS housing finance commitments in the owner-occupier segment.

Queensland leads growth in housing finance

Of the states and territories, Queensland accounted for most of the increase in lending for the purchase of property.

The value of housing finance commitments (excluding refinancing) increased 40.2 percent in Queensland over the September quarter, accounting for around 31 percent of the uplift in finance nationally.

This was followed by NSW, which contributed 30% to the uplift nationally, as the state saw a 16.7 percent increase.

Western Australia had the largest increase in housing finance for the purchase of property over the September quarter, rising over 55 percent.

This further supports the view that the WA and Perth dwelling markets are resuming an upswing following the disruption of Covid-19.

Despite extended restrictions on the transaction of property across Victoria for much of the quarter, the state still saw a 4 percent uplift in the value of finance for the purchase of property, which was entirely fuelled by owner-occupier purchases.

Finance secured for the purpose of investment property purchase fell -4.3 percent across the state in September.

ABS data suggests external refinancing came down 9.6 percent over the quarter, after an unprecedented peak in May. However, the value of external refinancing is still elevated and is 30.4% higher than in the September quarter of 2019.

As the RBA handed down a further reduction in bank funding costs over November, and mortgage rates continued to fall, refinancing should remain elevated.

But it is worth noting the vast majority of discounted funding costs for banks are being passed through to fixed-rate loan products.

The exit fees that can be associated with fixed-rate home loan arrangements may constrain refinance activity down the line, once a portion of the current wave of borrowers are locked into fixed-rate arrangements.

In the near term, CoreLogic estimates lending for the purchase of a property will continue to remain elevated due to loose monetary policy.

However, the steep increases in finance seen in recent months are unlikely to maintain such a strong trajectory, and quarterly growth rates in housing finance volumes are likely to slow as pent-up demand runs out of steam.

Owner-occupiers continue to dominate lending

Investor participation in the housing market has been trending down since a national property market downturn in 2017.

The= retreat of investors and the rise of FHBs has only been exacerbated by Covid-19, as a risk in investor-grade stock became elevated, and government stimulus targeted the construction of new homes and grants for FHBs.

FHB purchases may be limited late next year, as temporary grants and concessions wind down, and house prices rise off the back of low mortgage rate settings.

In contrast, we could see a lift in investor participation as prospects for capital gains solidify, providing a further incentive for investors, along with more properties returning a positive cash flow thanks to such extremely low-interest rates.

 

The post “Home Loan Trends Show the Rise of Owner Occupiers, First Home Buyers” by Eliza Owen appeared first on the theurbandeveloper.com Blog

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Finance

Mortgage Prisoners: Most Aussie homeowners want to refinance but can’t

Mortgage Prisoners

A whopping 83% of mortgage holders would like to change lenders, but can’t and are therefore “mortgage prisoners” according to a new report by Mozo.

Here’s the problem: while 38% of people intend to make the switch, 45% are unable to due to limited earnings and therefore paying a premium to own their property.

Quick facts from the report:

  • 29% of mortgage holders who opted for repayment holiday recently lost their job and 16% experienced a pay cut.
  • 40% of those on a mortgage holiday were confident they could resume principal and interest repayments while 29% felt they could make interest only.
  • A further 27% felt it would be ‘touch and go’ to make either principal and interest or just interest-only payments, while 3% stated they could not afford to make repayments.
  • 62% of mortgage holders have concerns about selling their home or foreclosure
  • 83% of mortgage holders would like to change lenders.
  • 38% of people intend to make the switch, 45% are unable to due to limited earnings.
  • One in ten mortgage holders admitted they didn’t shop around when obtaining a loan.
  • By switching from the average to best rate on the market borrowers can save $2631 per year on average.

Captives of cost

The Mortgage Prisoner Report from Mozo found that many Australians are paying a premium to own their property and for a growing number that high cost has become a bridge too far.

In fact, research from the Australian Prudential Regulation Authority in August shows there is $229 billion worth of loans in Australia on temporary repayment deferrals, accounting for around 8.5% of total outstanding loans.

In a year when the economy has been upended, the reasons are simple.

Mozo surveyed 3,270 property owners for its latest study and found that 29% of mortgage holders who opted for repayment holiday had recently lost their job and 16% experienced a pay cut.

While there’s a portion of mortgagees who remain unaffected by the economic downturn to this point, it seems the majority of people want to make a home loan switch and refinance.

Mozo has found that a whopping 83% of mortgage holders would like to change lenders.

Here’s the problem: while 38% of people intend to make the switch, 45% are unable to due to limited earnings.

On the precipice: 27% say paying off their home loan is touch and go

According to the Australian Prudential Regulation Authority (APRA), around 8.5% of all loans in Australia – approximately $229 billion worth – have been put on hold.

But the uneven impacts of the economic crisis mean some mortgage holders are better placed to resume repayments than others.

A recent survey conducted by Mozo found that among those who have paused their mortgage repayments, 29% had lost their job and 16% had experienced a decrease in pay.

A majority, however, had remained unaffected by the downturn.

When asked about restarting their mortgage, 40% of respondents said they were confident they could make principal and interest repayments, while 29% felt they could just afford to make interest only repayments.

Meanwhile, 27% believed paying off their loan would be ‘touch and go’, and 3% said they would not be able to service their loan at all.

For perspective, a 3% default rate across paused mortgages would equate to nearly $7 billion in loans.

mortgage prisoners repaying

These worries have come front and centre as banks contact mortgage deferers to discuss restarting repayments.

Depending on their financial situation, borrowers will have to either resume P&I repayments, restructure their loan, extend their mortgage holiday for an additional four months, or sell their property.

Trapped: Defining the mortgage prisoner

So who are Australia’s mortgage prisoners?

These are homeowners who are stuck with their current home loan and unable to refinance to a lower rate and make use of the savings that could provide.

This is not down to a lack of desire. In a recent Mozo survey a considerable 83% of mortgage holders said that they would like to change lenders, however, as in many parts of life, COVID-19 has had a devastating impact on the incomes of many Australians.

Here’s how: 29% of survey respondents reported having recently lost a job, while 16% said that they had experienced a pay cut.

As a result, 45% of all of the mortgage holders surveyed are currently unable to switch home loans because of limited earnings.

And therein lies the problem, and the first reason that some homeowners find themselves in ‘mortgage prison’ – a significant drop in income.

mortgage-prisoner locked in

Refinancing is simply taking out a new loan.

But lenders need to adhere to responsible lending standards too, so during the process of vetting a new loan application they need to make sure that borrowers can prove that a) they have the income to meet their repayments and b) they’ve got a history of meeting those repayments.

Without being able to meet those requirements, mortgage holders will find it very difficult to refinance.

Another issue which could be born out of the pandemic is a fall in property values, with 66% of mortgage holders admitting that they are worried about a housing equity plummet in the next year.

mortgage-prisoner locked in

Why homeowners fear market plunges

Given the slower real estate market of 2020, Aussie mortgage holders are also worried (66%) about a housing equity plummet in the next year, which could propel a potential mortgage prisoners crisis.

Equity is the difference between the current value of your property and the amount you owe on it (if you have a loan), so negative equity occurs when the amount you owe is greater than your house’s value.

Falling equity can be an issue for borrowers looking to refinance, particularly if their loan-to-value ratio (LVR) becomes higher. In most cases as LVRs increase, so do the rates on offer. In a situation where the LVR goes above 80%, borrowers may be forced to take out lenders mortgage insurance – an additional expense which can cost thousands of dollars.

Among the mortgage holders surveyed by Mozo, 73% believed property prices would plummet (though 39% of that group anticipated a bounce back).

Conversely, 21% felt housing prices would remain stable, while a meagre 5% predicted a property price upswing.

Mozo Director Kirsty Lamont says a price plummet could tip some property owners into mortgage prisoner territory, or deepen their inability to switch.

“For mortgage holders seriously concerned about making repayments, it’s only natural that they’d be nervously eyeing the housing market and hoping things don’t slide. The double whammy of foreclosure and plummeting home value is a real concern for many,” said Kirsty Lamont, Mozo Director.

mortgage-prisoner australia

As the figures above show, around two-thirds of mortgage holders in most states reported being concerned about the possibility of falling property prices and the flow on effect that could have on home equity.

That’s particularly true for homeowners in New South Wales (71%) and South Australia (70%), though slightly less so for residents in Western Australia (54%).

Refinance strategy: Tips for property owners

Mozzo recommends that if refinancing seems like a tall order, the first thing you should do is research what’s on offer elsewhere, along with what your lender is offering new customers, and try to negotiate your current rate down.

If your lender won’t budge, consider ways you can become more appealing to another one.

One thing to keep in mind is that when lenders assess refinance applications, they pay close attention to a borrower’s recent repayment history.

So if your mortgage has been on pause for several months, lenders won’t have much to go by when determining your ability to service a loan.

To get around this problem, would-be refinancers will have to get a few months’ worth of repayments under their belt with their current lender before shopping around.

For some, especially those whose financial situations have stabilised since March, this won’t be such a large hurdle.

Beyond this, it’s also a good idea to lower your day to day expenses and focus on tackling any other debt you might have.

And when it comes time to find another lender, avoid making inquiries with too many as this might affect your credit score. Instead, do your research upfront and narrow down your options to a select few.

A final note from Mozzo’s report is that most homeowners don’t shop around on home loans.

As such, they might not even realise the savings that can be had by doing the right research.

For this report, Mozo found that:

  • One in ten mortgage holders didn’t shop around when obtaining a loan.
  • By switching from the average to best rate on the market borrowers can save $2631 per year on average.

So, if you can get yourself into a stable financial position, there are excellent long term savings to be had by switching your home loan.

In summary, here are some questions to ask yourself:

  • How does my current rate compare to the rest of the market?
  • What’s being offered to new customers by other lenders?
  • Does my recent repayment history look reasonable to a lender?
  • Can I also lower my current day to day expenses?
  • And, can I lower my overall debt?
  • Have I pinpointed just a select few lenders to approach about refinancing?

Now is the time to take action and set yourself for the opportunities that will present themselves as the market moves on

mortgage prisoners

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The post “Mortgage Prisoners: Most Aussie homeowners want to refinance but can’t” by Rita Thomas appeared first on the propertyupdate.com.au Blog

 

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Finance

NAB Scraps House Price Call

House Price Call

NAB has revised forecasts for a pandemic-linked 15 per cent decline in house prices and says a jump in sentiment based on stimulus measures and record-low interest rates could now see prices grow by 5 per cent next year.

Bank economists now expect strong growth next year, followed by further 6 per cent lift in 2022.

Promising results from two separate vaccine trials have incited optimism as well as the return of owner-occupier buyers to the market—particularly first homeowners—is now likely to limit the peak-to-trough decline in home values that started in April.

NAB chief economist Alan Oster said the rapidly improving conditions led the bank to substantially upgrade its forecasts for next year.

“This change in NAB’s housing market outlook comes after substantial upgrades to our forecasts for near-term activity and unemployment, as well as the fact that activity in the housing market has held up substantially better than we initially expected.

“We expect that lower interest rates for an extended period will be a key support to the housing market over the next couple of years, seeing a boost to prices across the country.”

Oster warned that the sharp slowdown in population growth, due to border closures, remained the central risk to house prices, particularly in Sydney and Melbourne.

Oster also said that house price growth would likely to be stronger than the apartment segment over the next 24 months.

NAB said Melbourne’s house prices are projected to grow by 3.6 per cent over 2021, while Sydney’s will nudge up 4.4 per cent.

Further gains in 2022 are expected with Sydney house prices to rise six per cent and Melbourne 5.4 per cent.

Earlier in the year, NAB had predicted prices in Sydney to decline -4.9 per cent and -6.5 per cent in Melbourne in 2021, following 2020 declines of -4.7 per cent in Sydney and -7.3 per cent in Melbourne.

“While the deterioration in the labour market would normally weigh on prices, the significant government support has mitigated the rise in unemployment and hit to household incomes,” Oster said.

The bank advised that housing market sentiment had returned in the third quarter of the year, but remains weak, noting the deterioration in Victoria amid stage four lockdown in Melbourne and a modest improvement in New South Wales.

Victoria was the only state to go backwards in the NAB Residential Property Index, which recovered to -7 points from a survey low of -33 points in the second quarter. Victoria fell -3 points to a new survey low -53.

This offset sharply higher sentiment in other states, particularly Western Australia and South Australia.

NAB’s latest projection follows a revision last month by Commonwealth Bank, the country’s largest mortgage lender, of its expected peak-to-trough decline from between 10 and 12 per cent to just 6 per cent.

ANZ also expects strong growth next year with house prices in Perth expected to lift by 12 per cent, Brisbane 9.5 per cent and Hobart 9.4 per cent.

ANZ has also forecast Sydney prices to rise 8.8 per cent—close to the national average—while Melbourne prices will grow by 7.8 per cent.

 

The post “NAB Scraps House Price Call” by Ted Tabet appeared first on the theurbandeveloper.com Blog

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Brisbane

Trends in housing finance show the continued rise of owner occupiers and first home buyers, led by Queensland

Trends housing finance

The volume trends of finance secured for the purchase of property experienced a strong rebound in the September quarter, following the initial shock to demand housing in the first two months of the June quarter.

The latest ABS housing finance data shows the volume of finance lent for the purchase of property increased 5.9% in the month of September, taking the quarterly increase to 20.0%, the highest quarterly growth rate on record.

It follows a 10.9% contraction in housing finance through the June quarter, when strict social distancing restrictions, such as a ban on open home inspections and on-site auctions, resulted in a sharp drop in transactions.

Trends housing finance

 

Housing finance for the purchase of property totaled $62.7 billion in the September quarter.

This is the highest level since the March 2018 quarter and is just 6.6% below the peak of the lending series in the three months to May 2017.

The uptick is a result of eased social distancing restrictions across the country, which have coincided with historically accommodative monetary policy, which sees mortgage rates at a record low.

As with the strong bounce-back in many economic indicators over the September quarter, eased social distancing led to a rise in consumer sentiment and an increase in sales and listings volumes. CoreLogic estimates that sales volumes increased around 27.7% in the quarter, despite renewed restrictions across Victoria.

The CoreLogic Residential Mortgage index (RMI) indicates further increases in housing finance over October and November.

The RMI tracks changes in valuation activity across CoreLogic platforms for the purpose of dwelling purchases.

In the 28 days ending 8th of November, the CoreLogic RMI rose 26.9%.

As can be seen in the chart below, the RMI is a leading indicator of monthly ABS housing finance commitments in the owner-occupier segment.

Trends housing finance

Queensland leads growth in housing finance

Of the states and territories, Queensland accounted for most of the increase in lending for the purchase of property.

The value of housing finance commitments (excluding refinancing) increased 40.2% in Queensland over the September quarter, accounting for around 31% of the uplift in finance nationally.

This was followed by NSW, which contributed 30% to the uplift nationally, as the state saw a 16.7% increase.

Western Australia had the largest increase in housing finance for the purchase of property over the September quarter, rising over 55%.

This further supports the view that the WA and Perth dwelling markets are resuming an upswing following the disruption of COVID-19.

Trends housing finance

 

 

The post “Trends in housing finance show the continued rise of owner occupiers and first home buyers, led by Queensland” by Eliza Owen appeared first on the propertyupdate.com.au Blog

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