Interested in interest-only loans?

In your quest to buy smartly, you may run into interest-only (IO) home loans.

What are they and why could they be of interest?

Read on to find out more.

What are IO loans?

As the name suggests, IO home loans are loans that require you to pay only the interest in lender repayments.

By that we mean, just the interest on your principal, or the amount you borrowed.

In comparison, your average loan is a principal and interest (PI) one, which comprises repayments on your principal as well as the required interest on this sum.

But there’s more to IO loans than first meets the eye.

What are the ins and outs of IO loans?

These loans ensure new homeowners and property investors initially enjoy smaller loan repayments.

However,  as with all good things, IO loans too must come to an end.

Lenders usually only offer an IO option for up to five years before your “real” PI loan begins.

And most importantly, those PI repayments will be higher than they would have been had you begun with a PI loan and stayed with it.

Why?

By only making repayments towards the interest alone which is owed on the principal loan amount, IO mortgage holders aren’t reducing the loan of that principal – and this does need to be paid back to the lender at some point.

Adding to these higher repayments is a potentially higher interest rate on IO loans, compared to their PI cousins.

Could IO loans work for me?

There’s little doubt paying less on your mortgage sounds extremely tempting, especially for uncertain first-home buyers.

As well, IO loans are attractive to those struggling to come up with the cash goods on early mortgage difficulties such as unlooked-for repairs or a lower income.

But if you’re confident you have money in the bank to repay a PI loan, do so.

However, if you believe you need to take advantage of an IO loan, prepare for the higher long-term repayments by ensuring you know what these will be after the IO period ends.

Don’t forget interest rates may also rise during the IO period, which will, in turn, affect your repayments.

Finally, be prepared well in advance of this period’s expiration for repayments to rise.

What’s next?

Easy!

Come to Lending Loop with any questions you have regarding IO loans as well as PI possibilities and similar property purchase questions including refinancing.

We always enjoy having your back and giving you the many competitive rates we can offer from more than 40 of Australia’s biggest banks and specialist lenders, along with plenty of great loan advice and tips.

So, give us a call today at Lending Loop.

Upfront costs to buying a home

This year could be the year you buy your very first property or perhaps it’s time to upsize or downsize.

Whatever your property plans are for 2022, don’t leave yourself financially floundering but instead, know your upfront costs beforehand.

These costs can nullify the continuing record low interest rates of 0.1%, and the recent rush to snap up a potentially great mortgage loan.

Here are some hidden costs to watch out for:

Stamp duty

One of the most hated property costs in the country, stamp duty – also known as transfer duty – is a state and territory government tax that can cost tens of thousands of dollars.

What you’ll have to pay depends on the purchase price of your property but also which state or territory you live in, ensuring stamp duty monies differ widely depending on where you live.

Other factors such as being a first-home buyer or investor will also change what you pay with first-home buyers in Victoria, New South Wales and Queensland not needing to pay stamp duty.

Lender’s Mortgage Insurance (LMI)

You can avoid this cost altogether by having a house deposit of at least 20% but we know that skyrocketing property and rent prices increasingly mean this figure is a dream to many.

As well, you officially only need a 5%-10% deposit to buy a home.

But if you’re one of the many people who decide to purchase in this way, be prepared to pay LMI, a one-off fee that protects your lender against potential loan defaults.

This fee will depend on your lender and the size of your deposit and it will be higher if you can only afford a  small one.

In the end, it can often be cheaper to wait and save until you have your 20% deposit, or at least a higher one, than pay LMI.

Legal fees

The complicated legal requirements involved in buying a property ensure a solicitor or conveyancer is a must-have so fees for their assistance should not be overlooked.

These licenced lawyers are essentially the mediator between you, the bank and the vendor and will prepare and clarify all the paperwork involved in the property transaction, including contracts.

Conveyancers are usually cheaper than solicitors and deal only with real estate laws and details.

They can be very helpful with background research such as property and title searches and can also walk you through the settlement process and give you good advice on rates and taxes.

Building and pest inspections

It may seem like an unneeded financial drag to organise an inspection for every property you’re planning to buy – but such inspections are crucial.

What looks like a dream property might actually have damp and cracked walls, termite infestations and other structural issues which if they go unchecked, could cost you thousands later on in finances and headaches.

For those buying an apartment, ensure you organise a strata report inspection which will reveal any work done on the property as well as any that’s needed in the future.

Home loan fees

Lastly, there’s a wide range of home loan fees, all of which change according to which state you live in.

These monies can include mortgage registration fees, title transfer fees, loan application or establishment fees, and valuation fees.

Don’t forget that many of these fees have different names depending on the state and your lender.

First-home buyers in particular can find these fees and their differing names bewildering but mortgage brokers and conveyancers can assist.

We’re here to help.

We know this is a lot to take in with these points possibly bursting your property bubble but rest assured, you’re not alone in this bewildering puzzle! So, don’t despair. Whether you’re a first-home buyer or investor, we have your back.

The same goes for unhappy home loaners considering refinancing. Lending Loop can give you competitive rates from more than 40 of Australia’s biggest banks and specialist lenders along with plenty of great loan advice and tips.

Give us a call today at Lending Loop.

No time like the present to scratch your itch

With interest rates still incredibly low and 2022 a very new year as yet, there’s no better time to start from scratch – and by scratch, we mean those itching to get into the market but who have continually held back.

You may have great reasons for this hesitation, not the least of which are the difficulties that a global pandemic has wrought on your everyday life.

But to quote some of our own favourite words, why not “be confident and go forth”  this year?

Should I wait to buy?

As we mentioned earlier, the Reserve Bank of Australia (RBA)’s record low cash rate of 0.1% is now into its 15th consecutive month with effectively no increase in sight.

However, there’s been plenty of rumours about when this will occur and some bank lenders are already accelerating their fixed interest rates in preparation for this moment.

But bear in mind that even if the RBA raises the cash rate in March, the change won’t change property prices or affect mortgage loans overnight.

In answer to this month’s RBA cash rate announcement, CoreLogic research director Tim Lawless said a strengthening economy, tightening labour market and open international borders could offset a significant downturn in the property market as the result of a cash rate increase.

However, few industry experts believe an increased cash rate will not affect the property market in any way, with many now planning for a triple rate hike in this year alone.

Fool’s gold

Bottom line: your hard-earned cash is worth more in the property market right now than it will be when interest rates rise – and they will rise at some point.

There’ll be a downturn in buyers but you’ll also be able to borrow less – and buy less – than you would now.

So, get in ASAP and make your money work for you while the going’s still good!

And don’t forget….

As we mentioned last week, there are ways to beat the frenzied crowd to a great affordable home.

First-home buyers can also pick up a one-off First Home Owner Grant (FHOG).

While not every state offers FHOGs, many do, or they provide similar exemptions, reductions or concessions such as not needing to pay stamp duty, so this is an option worth considering.

Where to now?

We’ve given you a lot of things to think about, so feel free to scratch your head and ponder where all this information leaves you, as a first-home buyer.

For starters, another RBA cash rate announcement is due on Tuesday afternoon so make a note of that date.

But whether you’re planning to buy, or already hold a mortgage loan, we’re here to make your property journey an easy one.

Lending Loop can give you competitive rates from more than 40 of Australia’s biggest banks and specialist lenders, help you refinance or find an investment possibility and basically, hold your hand throughout the entire property process.

We have plenty more great loan advice and tips to give you as well so give us a call today at Lending Loop.

Regional property continues country mile growth

The city to country COVID migration and its ensuing hike in regional property values is continuing to hold sway in 2022 but take heart!

There’s a good chance this growth may settle soon.

CoreLogic’s quarterly Regional Market Update released on Monday confirmed Australia’s 25 largest non-capital city regions were continuing to enjoy extraordinary growth.

Twenty-four of these regions’ houses can boast an annual double-digit growth while 18 regions have experienced gains of over 20%.

And that’s not all.

Australia’s combined regional areas’ median dwelling values trumped that of its capital cities counterpart, skyrocketing 26.1% in the year to January 2022 compared to the latter’s 21.3% figure.

Why are regional properties still outperforming the city?

CoreLogic’s head of research Eliza Owen admitted last year was a highly unusual one when it came to the standard pattern performance between capital cities and regions.

“It’s common for these two markets to roughly perform in line with each other,” she said.

“But what was unique about the end of last year was that this pattern changed.

“Regional price growth instead accelerated toward the end of the year, while capital city dwelling price growth continued to slow.”

Should I still buy or sell a regional property? 

Both regional and suburban property growth has soared in the past two years with residential property prices overall jumping 21.7% in the 12 months to September 2021, according to the Australian Bureau of Statistics (ABS)’ Residential Property Price Indexes report.

This is the strongest annual growth recorded since this series commenced in 2003.

Escape to the country-ites keen for a budget-priced property should definitely not move to the Southern Highlands and Shoalhaven areas in NSW.

In the country’s highest annual regional house value growth, properties in these regions soared 38.2% in the 12 months to January 2022.

Second in line for extraordinary house value growth is Queensland’s Gold Coast (36.3%) and the Sunshine Coast (35.4%).

However, if you’re thinking of selling up this year, you can count yourself doubly lucky if you’re on the Sunshine Coast, where homes boast the quickest selling time in the country of just 15 days.

Close behind the Sunshine Coast with a median time on the market of only 16 days is Launceston and north-east Tasmania, the Gold Coast and Toowoomba.

What’s next for regional property?

Everything’s not lost with Ms Owen expecting regional growth rates to start slowing early this year.

“The expectation is there will ultimately be few regions that can avoid a downswing over the next few years,” she stated.

“Key drivers for performance in the regions will come down to higher interest rates and affordability constraints, the same headwinds capital city markets are facing.”

However, Ms Owen advised potential country buyers that there could still be some regional property growth this year, particularly if interest rates rise.

She added that the possibility of a return to “normality” could also be a challenge, rather than a great expectation, for the regional property market, as this could result in a refocus on cities.

However, this was unlikely, she said, with Australians now prioritising their current housing needs to align with their desired lifestyle.

What does this mean for my property plans?

Simple: don’t stop believing in them!

This information and statistics are crucial for you to consider but at the same time, don’t give up on your plans to buy, sell or invest in property, regardless of where that property is. Sign up to Listing Loop to get first access to pre-market, off-market and secret property listings.

If you’re concerned about how much you can afford to borrow, check out our mortgage calculator, or if you’re rethinking your loan, you may want to consider refinancing.

We have plenty more great loan advice and tips to give you as well so give us a call today at Lending Loop.

How to keep cheap when buying

You don’t have to be a real estate expert to know that property and rent prices are skyrocketing at the moment, with the latter area also experiencing plunging rental vacancies.

Then there’s our 15th consecutive month of 0.1% record low interest rates and an inflation rate of 3.5% over the year to December,  with the recently released trimmed mean figure of the last quarter at  2.6%, according to CoreLogic.

This highly interesting – to say the least! – situation has plenty of potential home-buyers wondering if they can afford even a shabby shack in Timbuktu.

Can I afford to buy a nice home?

We at Lending Loop have been pondering this question a lot lately but it was some recent words from Reserve Bank of Australia’s (RBA) governor, Dr Phillip Lowe, which made us think differently on this issue.

In an address to the National Press Club last Wednesday, Dr Lowe commented that most people were now choosing to live in “fabulous cities on the coast (and) we want large blocks of land”.

While these words didn’t impress a lot of people, Lending Loop saw it as a good chance to bring some positive hope to those disillusioned by current economic and real estate figures.

Basically, yes, living in a fabulous coastal city on a mega block of land – or even in a nice suburb with some greenery – may not be possible anymore.

But you don’t have to ditch your house dreams altogether because guess what?

Everything’s not lost

We suggest first-home buyers, experienced owner-occupiers and property investors all think outside the box when it comes to buying.

Be prepared to make some sacrifices and accept some imperfections to find that great property.

Here are our favourite unconventional and creative ways to beat today’s difficult economic figures:

1. Look for places near large parks, playgrounds etc

We’ve all seen those rather bland properties with little character or space to spare, if at all.

But look beyond the tiny bland and aim for a place within walking distance – or a short drive to – parks, sports fields, playgrounds, or walking and cycling trails.

For families, in particular, having spacious play areas nearby will make a big difference.

2. Tiny houses or townhouses

They’re all the rage now and it’s easy to see why: tiny houses cost far less than the average house and can enable you to live on a big block of land or even travel in style.

Another, similar but larger option, is to buy a townhouse with a courtyard or a small, private garden.

This way, you, your kids and your pets can still enjoy some outdoor space.

3. Move outwards

While not a new idea, moving to an outer suburb is a particularly pertinent plan for first-home buyers.

These suburbs may not be uber-rich and fashionable and living there may mean a longer commute to work.

But many many of these places are swiftly gentrifying and are often closer to regional and rural areas that make great places for you to visit on weekends and holidays.

Your outer suburb property doesn’t have to be your forever home either.

4.  Rentvesting

An increasingly popular idea, rentvesting effectively allows keen buyers with limited funds to enjoy the best of both worlds.

The concept means you can rent your current home for its preferred, yet expensive, location and lifestyle while buying an investment property in a cheaper suburb.

In this way you can live where you want to live, even though this means you’re still renting, while also enjoying the benefits of property investment.

Any profits from your investment can be used to pay your rent and the concept can also give you tax benefits.

Cheers to cheaper!

Wherever you are in the property race, we encourage you to be confident and go forth, particularly now that we’ve hopefully given you new ideas and encouragement to do so – and if nothing else but to defeat depressing figures!

We have plenty more great loan advice and tips to give you as well from refinancing to calculating your budget and more.

So, give us a call today at Lending Loop.

Want to switch home loans? Here are some top tips for refinancing

More and more mortgage holders are looking for a better deal on their home loan.

According to ABS data, the total number of home loan customers who switched providers in 2020 increased by 27% – from 143,664 in 2019 to 182,016 in 2020.

And it is estimated that a further 200,000 Australian families switched lenders to save in 2021.

But there’s switching lenders the wrong way, and switching lenders the right way.

Fortunately, Laura Higgins, ASIC’s Senior Executive Leader Consumer Insights and Communication, recently shared some important tips with ABC radio, which we’ve compiled for you below.

 

1. See if your current lender can cut you a better deal

Here’s the thing about the big banks and home loans: customer loyalty is rarely rewarded.

In fact, the RBA found that for loans written four years ago, borrowers were charged an average of 40 basis points higher interest than new loans.

For a loan balance of $250,000, that could cost you an extra $1,000 in interest payments per year.

“Many times, new customers are offered a better deal than existing borrowers, so if you have a home loan that is a few years old you could potentially get a better deal that saves you thousands of dollars over time,” explains Ms Higgins.

“Even if you’re happy with your current lender, it’s worth checking you’re not paying for features or add-ons you’re not using.”

 

2. Don’t jump at the easy money: do the maths

There are a lot of incentives out there to entice you to switch mortgages quickly, such as cashback offers or very low-interest rates.

But Ms Higgins urges borrowers to closely compare these offers with the long term costs.

“For example, it’s worth doing the maths to ensure a cashback offer still puts you ahead over the long term when considered against other aspects of the loan, like interest rates and fees,” she explains.

“If you decide to switch lenders, you may end up with a longer-term loan.

It’s also important to consider whether lenders mortgage insurance or other costs, like discharge and loan arrangement fees, may be payable.

“These additional costs can outweigh the benefit of a lower interest rate,” she adds.

“A mortgage broker can also help you compare loans and decide whether to switch.”

Which is very true, if we do say so ourselves!

 

3. Consider switching to an offset account or redraw facility option

With interest rates so low, many borrowers are aiming to pay off their mortgage faster by making extra repayments.

“Interest rates may be low now, but probably won’t be this low forever. Making some extra repayments now can benefit customers in the long term,” says Ms Higgins.

But if you’re worried about tying up all your funds in your home loan, then you can consider switching to a mortgage redraw facility or offset account, which can allow you to make extra repayments but withdraw them if you need to.

“Either of these options might work for you depending on your goals,” Ms Higgins adds.

“Not all home loans can be linked to an offset account, and often those that can may have a fee charged or a slightly higher interest rate, so it’s worth making sure you’d be saving enough in there to warrant any extra costs.”

 

4. To fix the rate or not? Or both?

Last but not least, a refinancing tip that we think is worth considering in this climate of record-low interest rates (which probably won’t be around forever).

One of the most common ‘big decision’ questions we get asked when it comes to refinancing is: should I fix my home loan rate or not?

But did you know a third option exists?

Yep, you can fix the rate on some of your mortgage, but not all of it.

This allows you to lock in a low rate for a portion of your home loan, while also taking advantage of some of the flexibility that a variable rate can offer, such as the ability to make extensive additional payments.

If you’d like to know more about it – or any of the other refinancing tips in this article – then get in touch today.

We’d be more than happy to help you refinance your home loan, whether that be renegotiating with your current lender or exploring your options elsewhere.

 

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.

Netflix and too chill: house hunters cutting corners on inspections

 

We get it. You see a house you like and you immediately want to buy it, warts and all.

But take a breath, as FOMO can be costly – with a third of recent purchasers admitting to “buyers regret”.

Not doing your due diligence on a property can also have implications when applying for finance if the lender’s valuation doesn’t come in at what you expected.

And it turns out that a lot of house hunters are leaping before they look right now.

A recent survey of 1,000 property owners by lender ME revealed that 55% of house hunters spent less than 60 minutes checking out the property they eventually purchased, despite it being one of the biggest purchases of their lifetime.

That’s about the length of a standard 55 minute Netflix episode.

 

The impact of COVID-19

Turns out we haven’t just become better at bingeing during COVID-19.

COVID-19 has also reduced the time buyers have to check out properties.

But it’s not always the purchaser’s fault.

About two-thirds (65%) of recent buyers said “real estate restrictions impacted their ability to inspect and purchase their property”.

And surprisingly, almost half (45%) of buyers restricted by lockdowns admitted to doorknocking vendors to ask for an inspection on the sly, as well as looking at photos and/or videos of the property.

 

Hidden issues

The lack of inspection time led to around 61% of Australian home buyers discovering issues with their property after moving in.

Around 40% of this group said they missed picking up the issues because they “lacked the skill or experience in inspecting the property”, while 33% simply “fell in love with the property and overlooked them”, and 18% were “impatient and concerned by rising prices”.

Overall, the top post-purchase problems included construction quality (32%), paintwork (28%), gardens and fences (23%), fittings and chattels (21%) and neighbours (17%).

Among owners who identified issues:

– 34% experienced a degree of “buyers regret” following the purchase.
– 58% would have paid less for the property had they discovered the problems earlier.
– 84% spent money fixing, replacing or improving the issues identified, or have plans to do so.

The moral of the story? Emotions are always involved when purchasing a home, which can cloud your judgement.

“Give weight to any niggling hunches that give you cause for concern and get a professional property inspector to do the looking for you,” says ME General Manager John Powell.

“It is also important to know your borrowing capacity in advance so you can buy your home with full confidence knowing you’ve got solid financial backing.”

 

Get in touch to find out your borrowing capacity

As mentioned above, it’s important to know your borrowing capacity before you start house hunting so you don’t stretch yourself beyond your limits.

So if you’d like to find out what you can borrow – get in touch today. We’d be more than happy to sit down with you, take a breath, and help you work it all out.

 

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.

 

Seismic shift: two major banks hike fixed interest rates

 

Do you know how when one tectonic plate shifts, others around it soon follow?

Well, in the past week, the Commonwealth Bank (CBA) and then Westpac hiked the interest rates on their 2-, 3-, 4- and 5-year fixed-rate home loans by 0.1% (for owner-occupiers paying principal and interest).

Meanwhile, ING also lifted its fixed rates on 2- to 5-year terms by 0.05% to 0.2%.

For mortgage-holders, it’s a clear ol’ rumbling sign that the days of super-low fixed interest rates are coming to an end.

 

So why are banks increasing fixed interest rates?

The Reserve Bank of Australia (RBA) has repeatedly insisted the official cash rate isn’t likely to rise until 2024 at the earliest.

But it seems the banks don’t believe them. The banks think it’ll happen sooner.

CBA, for example, is currently predicting the RBA will increase the official cash rate in May 2023, while Westpac is predicting a rate hike in March 2023 – both well before the RBA’s 2024 timeline.

Given that’s about 18 months away, the major banks are now adjusting the fixed rates on fixed terms of 2-years and longer, in order to head off the expected rise in their funding costs.

“Lenders are scrambling to lift fixed rates before they start to feel the margin squeeze,” explains Canstar finance expert Steve Mickenbecker.

“Borrowers shouldn’t be so complacent as they must expect rises inside two years, and the closer they get to that point, the less attractive the fixed rates alternative will be.

“They may want to consider fixing their interest rate for three years or longer, while the going is still good.”

 

Variable interest rates cut

Interestingly, a number of the banks – including CBA and ING – simultaneously slashed interest rates on some of their variable-rate home loans this week.

And CBA even cut their 1-year fixed rate by 0.1% (for owner-occupiers paying principal and interest).

So why did they do this when (longer-term) fixed rates are going up?

Well, aggressively competing for customers on variable-rate mortgages (and 1-year fixed) makes sense for lenders when a cash rate hike is predicted to be at least 18 months away.

They can always increase their variable rates when needed, but they can’t do the same for borrowers locked in on longer-term fixed-rate mortgages.

 

So what’s next?

As mentioned above, when the big banks make a move, it’s not uncommon for other lenders to follow suit – as seen with ING this week.

So if you’ve been on the fence about fixing your rate, it’s definitely worth getting in touch with us sooner rather than later.

We can run you through a number of different options, including fixing your interest rate for two, three, four or five years, or just fixing a part of your mortgage (but not all of it).

If you’d like to know more about this – or any other topics raised in this article – then please get in touch today.

 

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.

Make the most of increased caps and move into your dream home sooner

With caps increased from July 1, more and more first home buyers are now able to make good use of the Federal Government’s 5 per cent no Lenders Mortgage Insurance (LMI) scheme.

Since 2020, The First Home Loan Deposit Scheme (FHLDS) has helped thousands of budding home owners get into the property market sooner.

This year, the good news is that single parents with dependent children can also look to benefit from higher price caps, which also applies to the government’s new Family Home Guarantee scheme.

Below you can see a summary of how much money you can spend while still remaining eligible to qualify for the FHLDS and Family Home Guarantee Scheme (FHGS).

  • New South Wales: $800,000 (Sydney, Newcastle/Lake Macquarie, Illawarra) and $600,000 (rest of the state).
  • Victoria: $700,000 (Melbourne and Geelong) and $500,000 (rest of the state).
  • Queensland: $600,000 (Brisbane, Gold Coast, Sunshine Coast) and $450,000 (rest of the state).
  • Western Australia: $500,000 (Perth) and $400,000 (rest of the state).
  • South Australia: $500,000 (Adelaide) and $350,000 (rest of the state).
  • Tasmania: $500,000 (Hobart) and $400,000 (rest of the state).
  • ACT: $500,000.
  • Northern Territory: $500,000.

More detail about increased property price caps is available on the NHFIC website.

The First Home Deposit Scheme enables eligible first home buyers to purchase a residence with only a 5 per cent deposit and to avoid forking out for lender’s mortgage insurance (LMI). This can save buyers anywhere up to $35,000, depending on the property price and deposit amount.

Meanwhile, the new Family Home Guarantee Scheme allows eligible single parents to build or purchase a home with a deposit of just 2 per cent without paying LMI, regardless of whether or not this is their first home.

These schemes run alongside the New Home Guarantee Scheme, a new initiative that allows both eligible first home buyers to build or purchase a new build with a 5 per cent deposit. This scheme features even higher property price caps which accounts for the extra costs that come with building a new home.

THE TIME IS NOW:

With only 10,000 spots available under each of these schemes, it’s important to get in quick as previous rounds tell us they are going to go fast. And if you’ve been thinking about looking into your options but keep putting it off, consider this the reminder you need to take action and see how you can take advantage before the opportunity has passed by.

How 1-in-10 first home buyers cracked the market 4 years sooner

We love a feel-good news story around here.

And hearing that so many first home buyers got a leg up into the property market much sooner than they ever dreamed makes us feel pretty warm and fuzzy.

This week the federal government released figures on the popular First Home Loan Deposit Scheme (FHLDS) and New Home Guarantee (NHG) initiatives.

The data showed that the two initiatives supported 1-in-10 first-time homeowners during the 2020-21 financial year.

And on average, the schemes allowed those first home buyers to bring forward their home purchases by four (FHLDS) to 4.5 years (NHG).

 

Hold up, what are these first home buyer schemes?

The FHLDS allows eligible first home buyers with only a 5% deposit (rather than the typical 20% deposit) to purchase a property without forking out for lenders mortgage insurance (LMI).

This is because the federal government guarantees (to a participating lender) up to 15% of the value of the property purchased.

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

The NHG scheme is very similar but is only for new builds – such as house and land purchases or a land purchase with a contract to build.

Another key difference is that the NHG property price caps are higher (see here) to account for the extra expenses associated with building a new home.

 

So who’s using the schemes?

Mostly younger buyers!

According to the latest stats, 58% of all buyers under the schemes are aged under 30-years-old.

NSW (11,000 residents) and Queensland (9,000 residents) make up nearly two-thirds of the scheme’s recipients.

And it turns out that most first home buyers who secured a spot in one of the schemes used a mortgage broker (56%).

But for the NHG scheme specifically, brokers originated the vast majority of government guarantees (72%).

 

How to secure a spot

We’ve got good news. And a bit of not-so-good news.

The good news is that for the NHG, only 2,443 of the 10,000 spots had been secured as of October 6 – so there’s still the opportunity for eager first home buyers wanting a new build.

The not-so-good news is that spots in the FHLDS are almost full for the latest round released on July 1.

Figures show that 7,784 of the 10,000 spots have already been secured, and word is that participating lenders have waiting lists for many of the remaining spots.

That said, if you’re a single parent there’s a third, similar scheme called the Family Home Guarantee (FHG), which allows eligible single parents with dependants to build or purchase a home with a deposit of just 2% without paying LMI.

Only 1,023 of 10,000 spots have been secured in the FHG, for which you don’t need to be a first home buyer.

Last but not least, it’s worth noting that the FHLDS is an annual scheme with new spots expected to be available from July 2022 – and previously the federal government made a surprise announcement to release 10,000 additional spots in January.

So if any of the above schemes are of interest to you, get in touch with us today and we can run you through everything you need to know about them so that you’re ready to apply when the time comes.

 

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.