A good credit score can help you in your home loan journey

Why is it important to have a good credit score?

A good credit score equals a higher chance of getting a home loan.

While you can arrange a mortgage with a low credit score, you’d be making an already stressful financial period even harder for yourself.

So, let’s jump into the exciting fray of credit scores.

What is a good credit score?

A good credit score is a high score which basically means you’ve always paid your debts – including utility bills, personal loans and credit cards – on time, every time.

As such, you’re a low financial risk to lenders and they will see you as financially reliable and trustworthy with a big mortgage.

What are the benefits of a good credit score?

Lenders will love you so you’re more likely to enjoy – or at least, have a better chance of – the following:

  1. Faster mortgage approval
  2. Potentially lower interest rates
  3. Better loan terms and conditions
  4. More negotiating power
A good credit score helps you in your home loan journey
A good credit score equals a higher chance of getting a home loan. This can help with faster mortgage approval and lower interest rates.

How is a credit score calculated?

  • Repayment history including all loans and credit cards
  • Your ability to pay bills on time
  • Your credit card limit
  • How much you’ve borrowed in the past
  • Your credit applications – including those for raising your credit card limit and applying for mortgages
  • Bankruptcies and court judgments

You want the most accurate score possible so provide as much information as possible when checking your credit score (more on that later), even if it means providing unpleasant information such as that bill you paid late five years ago.

This information will most likely come to the fore at some stage of the mortgage game so it’s best to provide it now, rather than appear as if you’re trying to hide it.

What credit score should I be aiming for?

As we’ve noted, the higher your credit score, the better – but don’t expect much higher than 1,000 or at best 1,200 as that’s the highest you can go (depending on the credit agency or reporting body).

It’s pretty rare to score 100% but don’t be downcast if you receive around 850 as that’s generally considered to be an excellent figure while around 600 is also great and 500 ain’t too bad either.

How do I check my credit score?

Firstly, there are only three credit score companies in Australia:  Experian, Equifax, and Illion (formerly Dun and Bradstreet).

However, there are multiple online websites that can assist to find your score through these companies, and many of them are free to use.

Does checking my score affect my credit file or mortgage?

No, it won’t.

But other similar actions might, particularly multiple credit card or loan applications and especially if these are done in a short period of time.

Multiple pre-approvals also don’t look good on your credit file.

Lenders see such applications as risky financial behaviour ie you’re desperate for credit at short notice.

Raising your credit card limit is also frowned upon by lenders.

How can I improve my credit score?

Firstly, don’t despair if your credit score isn’t brilliant because everything’s definitely not lost.

There are some quick and easy ways to improve your credit score, or at the very least, have lenders like you more than they did before.

  1. Start early and stay ahead: if you’re planning to buy a house in the near future, start working on your credit health now.
  2. Ensure you’re keeping on top of your bills and if you have other personal loans, pay them off – or make extra payments – ASAP.
  3. While you’re organising your budget, think about setting up automatic account transfers towards both bill payments and your savings.
  4. Decrease your credit card limit to as low as it can go because regardless of whether you’ve ever reached your limit, your lender will always assume your limit is a potential debt. And if they’re already wary of your financial reliability, they won’t like a high credit limit.
    Ideally, cut up your card altogether.
    (NB: You may want to look at credit cards with fewer fees and lower rates but don’t be tempted into applying for several other cards at once.)
  5. Look at your income and savings again and do all you can to improve these points in some way, shape or form, even if it’s just going without a regular night out for awhile.

After you’ve ticked all these points, remember to stick with your healthy repayments and savings long-term so that when you check your credit score next, you’ll have no fears.

If you’ve never practised healthy finances before, this can be tricky but better to do it now than when you’ve got a large mortgage loan to repay over the next 25 years.

Even if you’re not thinking of buying a home, it can be a good idea to check your credit score every year just to see where and how you can improve your credit health.

We’re here to help

Whether it’s organising a better budget, or holding your hand while with the other, you cut up your credit card, your friendly Lending Loop team can help you.

We’ve got more than 40 of Australia’s biggest banks and specialist lenders at our fingertips and repayment and borrowing calculators, refinancing and property investing are our bread and butter too.

Give us a call today at Lending Loop.

If you are looking at expanding your property portfolio, we share some useful information on the best cities for property investors.

The Best Cities for Property Investors

The pandemic-induced residential property boom is slowing down.  Interest rates are on the rise. And it’s a difficult time to predict where and how housing prices will move in the months ahead.

So, what does all this mean for property investing in 2022? As investors should we tuck our dollars back into our savings accounts and wait for a better day?

Well the answer is – no. If you have a strategic property plan to achieve your financial goals, then any time is the right time to invest.

But once you decide that investing is right for you and your financial strategy, the next, very important step, is to decide where.

Let’s explore the best cities for property investors.

The Best Cities For Property Investors

The answer to this question is both totally unique to you and universal. After all, what makes an excellent investment property for you, could be different from your neighbour or friends or person on the street. Factors such as your budget, age, timeframe and investment objectives are directly relevant. But of course, there are objective considerations to factor in as well.

So before you start to look at potential locations, consider first the things that are unique to you:

  1. What are your goals and needs?
  2. What are potential renters and occupiers looking for?
  3. What does the market say?

What Are Your Goals and Needs?

First consider your goals from property investing. Are you looking for cash flow from the property? Capital growth? Or just a second home or somewhere to house family members while earning rental income?

The answer to these questions will give you some information about the best cities for you to purchase an investment property. After all, it doesn’t make much sense for you to buy a home in the Gold Coast for your mother-in-law to occupy, if your family lives in Sydney.

Talking to a financial advisor or investment loan specialist about the right move for you is also a great idea. This will help you to be fully informed and ready to go.

What Are Potential Renters Looking For?

According to SQM Research, national residential property rental vacancies fell to 1% in May, a 16-year low. In the smaller capitals of Brisbane, Perth, Adelaide, Canberra and Darwin, the vacancy is less than 1%.

For all of these potential renters, there has been an increased emphasis on liveability and lifestyle. Particularly after lockdowns triggered an assessment of work/life balance for so many.

So the next step, when you’re considering where to purchase an investment property,  understand whether it will appeal to your potential renters. To understand that you’ll have to take into account:

  • Security – is the property private, secure and safe for potential occupiers?
  • Lifestyle – what does the area offer in terms of good schools, shops, healthcare, outdoor recreation, and other amenities?
  • Transport – what are the commute and local roads like and is there access to reliable public transport?
  • Jobs – are there solid employment opportunities, or reliable high-speed internet for those able to work from home?

What Does the Market Say?

Now you’ve considered your own situation and what your potential tenants and occupiers are looking for. You should be in a better position to understand what you’re looking for in a city for investment purposes. Now it’s time to look at what the market says.

Canstar’s Rising Stars: Australia Property Market Report 2022 is a great place to start. It ranks 14 jurisdictions nationally – eight capital cities and six regional areas. It also lists 110 ‘Rising Star’ suburbs across Australia as the best cities for property investors for future growth potential.

Demographics of any location play a big role in it being an investment ‘hot spot’, so research is always important. Look for areas that have a proven history of strong capital growth – with many owner-occupiers – and where wages (and disposable income) continue to increase above average.

Cities to Watch in 2022

While the market is currently in flux, there are still a great many opportunities for property investing. Here are a few cities and regions to keep your eye on. And if the area you’re interested in isn’t mentioned, get in touch with us to talk through your property investing plans.

Queensland – Brisbane, Sunshine Coast and Gold Coast

By late 2021, Brisbane was recording a rapid rate of house price growth, due mostly to interstate pandemic migration, increased infrastructure spending and its success in navigating through the pandemic. The 2032 Olympics announcement has also seen increased investment interest across Brisbane, particularly the suburbs of Woolloongabba, Annerley and East Brisbane.

Despite the recent downturns Brisbane will likely remain one of the best performing property markets in Australia over the next few years. In fact, Westpac Bank recently updated its property forecasts, with Brisbane prices tipped to surge 20% between 2022 and 2023.

The lifestyle coasts to the north and south of Brisbane have also seen strong investment growth. They’re within an hour or two of Brisbane and are ideal for those seeking a sea-change while working from home or commuting.

Queensland – Toowoomba

Regionally, the Darling Downs city of Toowoomba has seen strong investment growth, thanks to increased spending on transport infrastructure. It’s only an hour from Brisbane, so is a great affordable lifestyle option while being close to capital city amenities.

New South Wales – Sydney

Residential areas close to the CBD will hold their value, particularly where the local amenities and lifestyle opportunities are high.

Suburbs such as Coogee, Kensington and Maroubra to the east and Neutral Bay on the northern side of the harbour are ones to watch.

When determining the best cities for property investors, it's always important to firstly consider what is best for you.
The best cities for property investors depends on factors such as security, lifestyle, transport and jobs.

Regional New South Wales

Regional areas such as Tamworth, the Hunter Valley, Wagga Wagga, Dubbo, Port Macquarie and Orange offer vibrant, growing economies and an affordable lifestyle. Many people who left regional areas earlier in their lives, are making the move back for the promise of a better life for themselves and their families.

The $15 billion investment in the Inland Rail link connecting Brisbane and Melbourne also means that regional areas along the route may see a surge in property value when the freight line is operational.

Victoria – Brimbank

Brimbank – which includes St Albans, Deer Park and the Sunshine suburbs – is enjoying an investment growth at the moment. It offers the promise of growth that infrastructure projects and urban renewal trends are driving. Houses are still relatively affordable as well.

South Australia – Adelaide & Onkaparinga

The South Australian economy has recovered well from the pandemic. Adelaide has historically shown a steady growth rate, across housing and units. While it’s never been a heavy hitter, with lifestyle choices being front and centre, Adelaide may finally have it’s time to shine, especially for savvy investors. In fact, CoreLogic figures published in December 2021 showed that Adelaide had the second fastest house price growth in the November quarter.

Onkaparinga is one to watch – an Adelaide seaside suburb that offers lifestyle and affordability all within striking distance of the capital city.

Talk to an expert

Investing in property is an experience unique to you and your circumstances, and the ‘perfect location’ varies from person to person. It doesn’t matter where you are on your property investment journey. Whether you’re a first time investor or savvy investor adding to your property portfolio, we can help you identify the best cities for property investors and support you every step of the way.

Not sure how to build your property portfolio? We offer practical tips and information

How to Build Your Property Portfolio

If you’re keen to get more than just a foot in the property market, investment is key. Read on for our best tips on how to build your property portfolio.

Australians have had a long love affair with property. The drive for home ownership seems to be part of our DNA, and many business-minded Australians are keen to develop their financial wealth by building a property portfolio.

But is it really possible?

Yes, it is. And while it’s quite a straightforward process, it’s not necessarily an easy one. However, with the right understanding and approach, it’s very possible to build a robust property portfolio in Australia.

What is a property portfolio?

First things first: what is a property portfolio? Put very simply, it is a collection of properties owned by either an individual or business. These properties can be residential, commercial, mixed-use or a combination of any of these.

In most situations, you will live in one property and own several more which earn rental monies for you. This could be in the form of long-term rentals, holiday homes or even commercial properties.

When it comes to how to build your property portfolio, don’t forget to think outside the box. Car parks, for example, can be an excellent investment – as are vacant lots.

What are the benefits of a property portfolio?

  • Diversification. Owning multiple properties will help to diversify your investments and spread out your financial risk.
  • Passive income. The passive income gained from renting out a property will of course be amplified with several properties in your portfolio.
  • Capital growth. Regardless of whether your properties are generating a positive cash flow (“positive gearing”) or a negative cash flow (“negative gearing”), the ultimate aim is likely to be building capital growth by generating equity in the properties.
  • Financial security. In general, a property portfolio can be a great long-term strategy for offering financial security in your future, particularly after retirement.
We offer helpful information on how to build your property portfolio.
When you know how to build your property portfolio you can benefit from diversification, passive income, capital growth and financial security.

How to build your property portfolio

Building your property portfolio takes commitment and sometimes sacrifice of the short-term for the long-term goals. But the results can lead to exponential financial growth. When it comes to how to build your property portfolio, here are the steps to take:

1. Assess your current situation

You may wish to conduct a Home Loan Health Check to see if there’s a way you can tweak or switch your current home loan/s to free up additional funds for more property purchases. If you’re just starting out on your portfolio-building journey, make sure you check out our tips on how to buy a second home. The equity available in your current property/ies may just be the stepping stone you need to build your portfolio.

2. Get clear on your financial goals and investment strategy

While ultimately most investors will want a balanced portfolio, figuring out your initial plan is crucial to help guide your purchasing decisions. For example, you may choose to focus on a positively-geared property (or one that generates more income than it costs in loan repayments and fees) that will generate a solid rental income as your first investment. Work out what best suits your individual circumstances, and go from there.

3. Know your risks

Of course any purchase or investment comes with inherent risks, and a property portfolio is no exception. Understand the costs involved, as well as any unexpected challenges such as house maintenance costs and time between tenants. Be sure to consult financial professionals and only purchase property you can reasonably afford.

4. Aim for balance

Creating a balanced portfolio can be a clever way to diversify your property investments. By this, we mean selecting properties that offer high rental yields, as well those that are in a good position to generate great capital growth. Choosing properties in a variety of different locations can also help create balance and reduce your risk.

5. Brainstorm ways to generate even more money

Your investment properties might also present extra potential to make even more money. Consider getting creative by adding a granny flat, converting into a duplex or renovating the property to attract higher rental yields and add equity to the property.

6. Stay involved

Building a property portfolio isn’t necessarily a set-and-forget investment. While an excellent property manager can do most of the heavy lifting for you, it’s important to regularly reassess your own financial situation. As part of that, you’ll also want to consider your loan features to understand if they are still serving you well. And you should frequently review your properties to see if your rental rates should be updated or raised.

7. Speak to an Expert

When it comes to how to build your property portfolio, it pays to speak to the experts. At Lending Loop, our team of experienced professionals can share their knowledge and wisdom to help advise you on your best next steps. Give us a call today at Lending Loop, and let’s see how we can help!

What are pre-approvals

A Guide To Home Loan Pre-Approvals

It’s a sunny world for you and your finances because after years of dithering, you’re going to buy your own home.

Firstly, congratulations and cheers to you!

Secondly, here’s a good place to start your new journey: pre-approvals.

Read on for our guide to home loan pre-approvals

What are home loan pre-approvals?

Pre-approvals are one of the most important points to consider when applying for a loan as they outline exactly how much a lender is prepared to give you to buy your dream home.

While it’s not a 100% guarantee that your actual mortgage application will be approved, pre-approvals are great indicators of how much you can borrow as compared to what you believe can.

And as they give you a much better idea of how much you can really, truly afford, pre-approvals mean you won’t waste time considering houses far above your financial reach.

In turn, you’ll be more confident when approaching affordable houses and their real estate agents and real estate agents themselves will be far more confident and respectful of you.

What are home loan pre-approvals?
Pre-approvals one of the most important points to consider when applying for a home loan as they outline exactly how much a lender is prepared to give you to buy your home.

Risk of applying for multiple pre-approvals

We considered whether to leave this point until later but we’d prefer to start with it as buyers often don’t know about it, which can have major negative consequences for you.

While we are a great fan of pre-approvals and getting one ASAP, we also want you to know that it’s crucial to get only one – not a stack.

You may think having a stack of pre-approvals from multiple lenders makes you look great to real estate agents but in fact, it’s actually the opposite.

Why?

Every time you apply for a pre-approval, a lender will check your credit score and file, as this will help them discover how financially risky you are.

The multiple “hard enquiries” of a credit score pre-approval check – especially if they’re done in quick succession – can indicate that you’re in financial dire straits and as such, are shopping around aiming to find a lender who can help you.

This can in turn quickly lower your score and make you look far riskier than you actually are.

And did we mention that hard enquiries can stay on your credit file for up to five years?

Trust us when we tell you that you want your credit score to be as un-risky as possible so bottom line: one is best when it comes to pre-approval applications.

How do I apply for a home loan pre-approval?

Firstly, shop around and don’t apply for a pre-approval until you’re 200% sure that your preferred mortgage broker or lender is A-OK for you and your real estate needs.

If you’re still only vaguely hoping to buy a property one day, hold off on pre-approvals for now and stick with online mortgage calculators and similar.

Remember too, that pre-approvals are only valid for around three to six months, although you can sometimes extend them (more about this point later).

Once you’re confident you’ve found your ideal lender opportunity, here’s what you’ll need to give them for your pre-approval application:

  1. Financial details

    Proof of income including recent payslips
    Loan statements (credit cards and other loans)
    Bank statements
    Australian Tax Office notice of assessments
    Liabilities, expenses, assets

  2. Personal identification

    Passport, driver’s licence or birth certificate

    Home loan pre-approval points to consider

    Again, we don’t wish to burst your bubble but there are some other points to think about even after you’ve applied for a pre-approval.

    What if my home loan pre-approval is rejected?

Sadly, this can happen but it doesn’t mean your real estate life is a complete disaster plus you’ll definitely know better if and when you try for a pre-approval again.

It may just be a matter of waiting a little longer so that you can save some more cash for your deposit or pump up your credit history.

Or you or your lender may be going through some big changes.

Whatever the rejection reason is, take heart!

No, it won’t look great on your credit score to have another pre-approval application but worse things have happened.

We recommend that before handing in your application, you talk to several people in your situation who’ve had experience with such details and ensure you’ve done everything right.

Can I extend my home loan pre-approval?

Yes!

As we mentioned above, pre-approvals usually only “last” for up to six months so you may well find you need an approval extension.

And even better: you won’t have to hand in all your financial and ID details this time as you’ve already recently done so (although the lender may need a few extra recent details).

But make sure you talk to your mortgage broker or lender about an extension before your current extension expires – otherwise, you will have to start all over again.

We’re here to help

From mortgage brokers to mortgage calculators, your friendly Lending Loop team can help you get the hang of pre-approvals and every other detail surrounding home buying – including refinancing or investing.

We’ve got more than 40 of Australia’s biggest banks and specialist lenders at our fingertips and best of all, we’re free!

So give us a call today at Lending Loop.

Have you considered refinancing your home loan?

A Guide To Refinancing A Home Loan

Considering refinancing? Here’s a guide to refinancing a home loan.

Refinancing is likely something you’ve heard about before. But you may not know precisely what it is – or, more importantly, how it could make a difference to your financial situation. But refinancing is an incredibly useful tool, especially when life changes.

There may be interest rate rises, you may be getting married or you may have a new job. Whatever the change, there may be a loan that’s better suited to your life now. Refinancing is a fantastic tool to help.

So, let’s learn what refinancing is and how it can help you.

What is refinancing a home loan

In the simplest terms, refinancing a home loan means moving your loan from one lending institution to another, or from one home loan product to another, after your mortgage is in place.

The process is also very straightforward. Once you’ve found the loan that suits you, you simply need to fill in your application forms, and the lender will take it from there. They will provide you with new loan documents to sign and will take care of organising the exchange of funds with your old lender.

When you refinance, your new lender considers it a whole new loan.

Reasons for refinancing a home loan

There are many reasons why you may consider refinancing a home loan. The terms of a new loan might be more financially attractive than your existing mortgage. Or it may have a better interest rate or more flexible features.

The most common reasons are:

  • to reduce your home loan interest rate.
  • to get features that your current home loan may be missing (such as an offset account).
  • because you are unhappy with your current lending institution.
  • to consolidate debt.
  • to fund a big expense such as a renovation, car purchase or travel.

Interest rate or home loan features

A lower interest rate on your home loan could save you thousands in interest repayments over the life of your home loan. The Australian Competition and Consumer Commission (ACCC) found that borrowers could save more than $17,000 in interest over the life of a home loan.

A lower interest rate could also reduce your home loan repayment amount.

Refinancing for a new home loan feature (such as flexible repayment options, redraw facilities or an offset account) is another reason why you may consider refinancing.

Consolidate debt

Refinancing your home loan to consolidate debt (such as a car loan and credit cards) into your mortgage is a great option. Mortgages offer comparatively low interest rates. So consolidating your loans in this way will reduce your monthly repayments and cut down the time and energy spent on managing multiple loans.

Be aware, however, that consolidating your debts through your mortgage can ultimately extend the term of your home loan. And that means you could be paying more interest over a longer period.

Use the equity in your home for lifestyle reasons

Equity is the dollar amount of ownership you have in a property minus the amount owed to the lending institution. For example, if your home is worth $800,000 and the balance of your home loan is $500,000, your equity in your property is $300,000.

You may wish to refinance to access the equity in your home loan. Often people use these equity funds for things like maintaining or renovating your home, as a deposit for another property, investing in shares, buying a new car or travel.

Why it's worthwhile refinancing your home loan
Refinancing could save more than $17,000 in interest over the life of a home loan.

Two Types of Refinancing

There are two main types of home loan refinancing:

  • Internal refinance, where you refinance your home loan with your existing lender.
  • External refinance, where you move your home loan to another lending institution.

You may choose to refinance with your existing lender (internal refinance) for many reasons. Perhaps they’re offering a new, better deal that you’d like to take advantage of. Perhaps your existing loan has a lot of bells and whistles you aren’t accessing or simply don’t need. Whatever the reasons, refinancing with your current lender can save you fees associated with changing lenders.

If you have a home loan that’s a few years old, talk to your current lending institution to see if there’s a better home loan product more suitable for your situation.

If you have found a better loan product from another lender, or are simply unhappy with your current lender for any reason, then you can consider external refinance as well. Take a look around and see what’s on offer in the current market.

Who Should Refinance

This is a question only you can answer, as your own situation is unique. What we can say though is that refinancing a home loan could be beneficial if you believe you are paying too much interest on your existing home loan, or if your personal circumstances have changed.

If your income has changed, your family situation has changed, such as through a new baby or divorce, you have recently retired or been made redundant – all of these are relevant reasons to.

Costs Associated With Refinancing a Home Loan

When comparing home loans for refinancing, it’s important to consider any costs involved. Some of these could include:

  • Exit fee

An exit fee may be charged by your existing home loan lender, if you have an older home loan taken out prior to 1 July 2011 (home loan exit fees on new home loans were banned under the Gillard government over ten years ago).

  • Application or establishment fee

Application or establishment fee may be charged by some lending institutions to cover the costs of setting up your home loan.

  • Valuation fee

Your new lender may require a valuation of your property before proceeding to refinance. The fee for this can depend on the particular lending institution and where your property is located. Fees tend to be higher in rural areas compared to urban areas. Many lending institutions don’t charge a valuation fee at all, so it’s best to find out.

How Long Does the Refinancing Process Take?

From start to finish, refinancing a home loan can take anywhere from a couple of days to a couple of months. In most cases, the process is completed within four to eight weeks. As the length of time can vary depending on the complexity of your home loan and personal circumstances, it’s important to allow more time than you think you will need.

It can help to have all your documentation ready to go, and also to seek pre-approval with the new lending institution.

Refinancing Checklist

There are many reasons to refinance, and a few steps involved and things to be aware of. Our mini checklist is to:

  1. Gather your paperwork. This is similar to what was required for your home loan in the first place, and includes proof of income, your current home loan statement, living expenses, current debts and assets.
  2. Seek pre-approval with the new lending institution.
  3. Work out the refinancing costs vs benefits. Write up a pros and cons list and work through it.
  4. Be clear on your own personal reasons for refinancing.

We’ve shared our top tips to consider when refinancing in an earlier post.

Speak to an Expert

When you’re ready to work through your refinancing checklist, we’re ready to help. Our expert team can talk to you about how to get refinancing ready, and do the legwork involved in comparing home loans and any relevant fees.

Give us a call today at Lending Loop, and let’s see how we can help!

Lending Loop looks at what raising the RBA cash rate by 50 basis points means

RBA cash rate soars to hefty 0.85%

The Reserve Bank of Australia (RBA) cash rate soars to a hefty 0.85%, accelerating it by 50 basis points (bps).

It’s the first time in 22 years that the RBA’s monthly cash rate has increased by more than 0.25% and follows the first increase in 18 months to 0.35% in May.

Last month’s decision was also the first interest rate hike in a decade.

As with the RBA’s May decision, today’s announcement was unsurprising but still a much higher than expected hike.

Economic experts’ opinions were mixed on how far the RBA would continue to increase cash rates this month, but general predictions were for an 0.25-0.4 percentage point hike.

Coupled with dramatic recent increases in petrol and energy prices, today’s decision is expected to make the already tough cost of living become even tougher.

Jumbo interest rate spike will be worth it

In today’s cash rate announcement, RBA governor, Dr Philip Lowe, didn’t shy away from the fact that inflation has increased significantly and is expected to increase further.

However, he maintained that today’s jumbo cash rate hike was necessary given current inflation pressures in the economy and the still very low level of interest rates.

He pointed to both global and domestic factors  as the RBA cash rate soars to 0.85%, including a tight labour market and higher energy and petrol prices.

Dr Lowe also acknowledged the pressure that greater inflation and interest rates would place on household living costs, with just how household spending would evolve being a “source of uncertainty about the economic outlook.”

But he was confident this pressure would be worth it in the long term with a “central scenario” for strong household consumption growth this year while he expected inflation to drop to around 2%-3% next year as global supply issues and commodity prices stabilised.

“Today’s increase in interest rates will assist with the return of inflation to target over time,” Dr Lowe explained.

“Housing prices have declined in some markets over recent months but remain more than 25 per cent higher than prior to the pandemic, supporting household wealth and spending.

“The household saving rate also remains higher than it was before the pandemic and many households have built up large financial buffers.”

Dr Lowe maintained his confidence in Australia’s resilient economy, which he said had grown by 0.8 per cent in the March quarter and 3.3 per cent over the year.

“Household and business balance sheets are generally in good shape, an upswing in business investment is underway and there is a large pipeline of construction work to be completed,” he said.

“The labour market is strong, employment has grown significantly and the unemployment rate is 3.9 per cent, which is the lowest rate in almost 50 years.”

Cash rate heavy lifting = tough double whammy

CoreLogic research director, Tim Lawless, concurred that the RBA would continue to increase interest rates throughout 2022 and into 2023 as underlying inflation moved sharply upwards to 3.5% over the year.

This hike would mean tough times for both prospective borrowers and mortgage holders, Mr Lawless said.

The former group will see their borrowing capacity lowered and their household savings and balance sheets tightening sharply, resulting in a negative effect on serviceability assessments.

Mortgage holders in the meantime should expect variable mortgage rates to increase over the coming week to around 3.16%.

“This will add approximately $200 per month in additional repayments on a $500,000 mortgage, compared with mortgage rates in April,” Mr Lawless explained.

Mr Lawless added that for already indebted or struggling households, today’s jumbo cash rate hike would add to financial woes.

“The additional cost of debt comes as non-discretionary inflation rises at more than twice the pace of prices for discretionary goods,” he said.

“Higher costs for food, fuel and finance are likely to see household savings continue to taper as families funnel more of their income towards servicing their mortgage and funding essential costs of living.”

However, there was some good – or not so bad – news from today’s RBA announcement.

Mr Lawless said the new 0.85% figure is only somewhat to blame for the softening property market.

“Home values were already easing well ahead of the rising cash rate,” he said.

“A combination of higher fixed mortgage rates, lower consumer sentiment, tighter credit conditions and worsening affordability have all played a role in the slowdown to date.”

Mr Lawless also maintained his opinion that the effect of rising rates on the property market would depend on how fast and how high interest rates move and normalise, along with the performance of the broader Australian economy and labour market.

“A stronger economy, along with the tightest labour market conditions in a generation, should help to ensure the ensuing housing downturn remains orderly,” he said.

We’re here to help

Regardless of if the RBA cash rate soars, we encourage you to contact your lender soon to check where your interest rates will trend from here, particularly if you have a variable rate home loan.

Whether you’re a first-home buyer or property investor, you may also want to consider refinancing your loan to achieve the best possible deal.

Rest assured, we’re your biggest supporter and we can find you the best possible deals from more than 40 of Australia’s biggest banks and specialist lenders.

So give us a call today at Lending Loop.

The RBA’s next monthly cash rate announcement will be on Tuesday, July 5 at 2.30pm AEDT.

 

All you need to know about guarantor home loans

Guarantor home loans: you’ve got a friend in me

We’ve all read or heard the news that man, is it hard to save even a 5% deposit for your first home!

Political parties are reaching out to assist first-home buyers, including not making them pay Lender’s Mortgage Insurance (LMI) – that less than 20% deposit necessity.

But now that the Reserve Bank of Australia (RBA) is pushing up the cash rate, finding your dream house at a perfect price has become more challenging.

Here’s where guarantor home loans may help you (and btw: these loans aren’t just for first-home buyers either but can be utilised by refinancers, investors and those considering house construction).

Read on to find out more.

What are guarantor home loans and how do they work?

As the name suggests, guarantor home loans are all about giving a lender a firm guarantee that you are a worthy loan-er.

How?

Your guarantor is a close family member such as a parent or sibling (although some lenders will allow for a friend or colleague) and their house.

Or, more specifically, the lender’s guarantee is a parent or sibling’s equity in their home.

This equity is the security a lender will usually ask from you – the borrower – and as it must cover 20% or more of your new house,  you don’t need to pay LMI.

As a result, this means you don’t need a deposit to buy a home.

Not bad, right?

How do I begin a guarantor home loan?

Firstly, consider who best can be your guarantor – and by this, we mean a family member who has the financial means and business savvy to be your monetary back-up in the long-term.

You may not be super BFF close to your guarantor but in the end, this may work in both people’s favour.

After all, a guarantor home loan is a binding business contract and transaction before anything else – and you know what they say about mixing business with pleasure!

Secondly, sit down with your preferred guarantor and discuss your situation with them.

Don’t be surprised if they immediately say no or express concern and uncertainty – and if they do,  don’t push them to say yes.

Remember your guarantor is putting everything they own – virtually literally – on the line just for you, and for at least the two-three years of the loan’s length, if not more.

Lots of things can go pear-shaped during this time.

So, give them as much information about yourself, your finances, and guarantor loans in general, as you can, plus details on who they can go to for expert legal advice.

What do my guarantor and I need to obtain a loan?

Once your guarantor has given you the green light, the fun really begins.

For starters, you’ll both want to bear in mind that these loans look risky to lenders.

As a result, they’ll come down harder on both of you – and be less inclined to say yes – than if you were merely applying for your average first home loan.

Guarantors, you’ll need to show proof of the following:

  • Very good property equity and assets
  • Ability to repay the borrower’s loan if need be

Borrowers,  here’s what you’ll need to show lenders:

  • Stable employment and income
  • Excellent credit rating and history
  • Ability to pay your entire loan on current income
We break down guarantor home loans
Your guarantor will need to show assets and you will need to provide proof of stable employment

Benefits and disadvantages of guarantor home loans

We don’t wish to burst your guarantor loan bubble, especially if you’ve made it this far, but a loan like this comes with a lot of risks – and benefits too.

Stay with us while we look at them.

Guarantor home loan considerations

  • You’re responsible for your own home’s financial needs as well as that of your guarantee’s
  • As such, you may be required to repay your guarantee’s entire loan including all fees and charges,  and you stand the risk of losing your own property
  • Until the loan is fully paid, you may not be able to borrow against your assets (depending on your lender)
  • As well, you may be unable to get a new home loan
  • Your friendship with your guarantee can be damaged or affected, especially if details go pear-shaped (ie they’re unable to repay the loan long-term)

Guarantee considerations

  • Bottom line: you can buy a home sooner
  • You won’t have to pay LMI
  • There’s added financial security from your guarantor, which could help you secure extra funds for your new home

How long does a guarantor stay on a mortgage?

Your guarantor is legally part of your real estate plans until you’ve repaid your loan or until your property has increased in value to the stage that the Loan to Value Ratio (LVR)  is at least 80%.

Think of it like this: the quicker you pay off your loan, the quicker you can be full-on friends with your guarantor, rather than meeting and talking with them solely about your home loan.

We recommend though that you continue to buy them coffees, to say nothing of wine and dinners, for a very long time to come!

And finally….

As a guarantee/borrower, it’s your responsibility to always make loan repayments on time and have the entire loan paid off ASAP.

On this note: aim to keep the relationship and business transactions between yourself and your guarantor cool, calm and collected.

Don’t allow friendship and loans to interfere with one another if at all possible.

If financial details start to look pear-shaped in any way – such as the chance of losing your job – head straight to your guarantor’s front door and discuss the situation with them.

Ideally, have plans set up for just such a situation before signing off on your guarantor loan.

We’re here to help

Even if you’re BFF with your guarantor, it’s often best to talk to someone objective about your home loan.

This is where your friendly Lending Loop team can help because guess what?

You can vent, worry and cry with us, and all for free!

Not much in the world of home buying and selling is easy, but this is – and so is the help and advice we can give you from more than 40 of Australia’s biggest banks and specialist lenders.

So give us a call to discuss today at Lending Loop.

We’ve always got your property back.

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RBA cash rate spikes to 0.35%

It’s been a long, long time coming but on Tuesday, it finally happened: an increase in Australia’s 18-month-long, 0.1% RBA cash rate to 0.35% and our first interest rate hike in a decade.

The jump of 25 basis points came as a nasty surprise to many with financial market expectations forecasting only a 0.15 point change this month.

The announcement just a few weeks before a federal election was also seen as a spanner in the economy’s financial works.

Australia’s share market slumped 0.5% almost immediately after the Reserve Bank of Australia (RBA)’s afternoon announcement.

“Appropriate” withdrawal of “extraordinary monetary support”

Since the RBA dropped its cash rate to 0.1% in November 2020, after an eight-month setting at 0.25%, RBA governor, Dr Philip Lowe, has determinedly remained cautious about increases.

However, with headline inflation now 5.1% – well beyond the RBA’s 2%-3% target range – Dr Lowe explained it was an appropriately right time to withdraw some of the “extraordinary monetary support” which had assisted the economy during COVID.

“The economy has proven to be resilient and inflation has picked up more quickly, and to a higher level, than was expected,” Dr Lowe said.

“There is also evidence that wages growth is picking up (and) given this, and the very low level of interest rates, it is appropriate to start the process of normalising monetary conditions.”

Dr Lowe said Australia’s economic growth outlook, including unemployment, and household and business balance sheets was positive.

“The central forecast for 2022 is for headline inflation of around 6% and underlying inflation of around 4.75% and by mid-2024, headline and underlying inflation are forecast to moderate to around 3%,” he said.

Dr Lowe added that the country’s labour force participation has increased to a record high while the unemployment rate had declined over recent months to 4%.

It is expected to decline to around 3.5% by early 2023 and remain around this level long-term.

“This would be the lowest rate of unemployment in almost 50 years,” Dr Lowe said.

rba-cash-rate-spikes-to-0-35
The RBA Governor said that now is the time to withdraw some of the “extraordinary monetary support”.

Good and bad news for already softening property market

The RBA cash rate increase is not a surprise to industry experts and commentators, who have been predicting such a change for months – and Dr Lowe has already predicted future increases in his bid to ensure inflation “returns to target over time”.

CoreLogic research director Tim Lawless said RBA’s spike in interest rates would add further downward pressure to housing growth rates, which were already losing steam as the industry expert’s national monthly Home Value Index (HVI) report this month, released just a day before the cash rate announcement, had noted.

“In the case of Sydney and Melbourne, the trend into negative territory is due to factors including affordability constraints, higher fixed term mortgage rates and lower levels of consumer sentiment,” Mr Lawless said.

He added that any downturn in the housing market would depend on how high and fast rates rise, as well as other factors such as employment.

“A higher  RBA cash rate implies higher variable mortgage rates, a reduction in borrowing capacity and tighter serviceability assessments for prospective borrowers,” Mr Lawless said.

“Under a 100 basis point lift in variable mortgage rates, a new borrower in Sydney could be facing a rise in monthly mortgage costs of $486, while under a 200 basis point rise, monthly mortgage costs could be $1,005 higher than current levels.”

However, Mr Lawless explained that the cash rate shift was not all bad news for current mortgage holders.

“As we enter a period of higher interest rates, borrowers are generally well ahead of their mortgage repayments,” he said.

“The recent rise in fixed-term mortgage lending is another factor helping to insulate homeowners from higher interest rates.

We’re here to help

As Mr Lawless recently explained, a cash rate rise doesn’t necessarily mean overnight changes to your mortgage repayments.

However, we encourage you to contact your lender soon to check where your interest rates will trend from here, particularly if you have a fixed rate home loan.

Whether you’re a first-home buyer or property investor, you may want to consider refinancing your loan to achieve the best possible deal.

Rest assured, we’re your biggest supporter and we can find you the best possible deals from more than 40 of Australia’s biggest banks and specialist lenders.

So give us a call today at Lending Loop.

The RBA’s next monthly cash rate announcement will be on Tuesday, June 7 at 2.30pm AEDT.

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5 Reasons It’s Important to Get Home Loan Pre-Approval

When you’re looking to buy your first home, every step towards that end goal is important. But a home loan pre-approval is one of the most important… and the most exciting. It’s this moment that gives you the green light, the go-ahead, the all-clear, to really begin looking for, negotiating and, ultimately, purchasing, the home of your dreams.

Of course, there are other reasons that getting a home loan pre-approval is important and it goes far beyond just achieving your own goals. Let’s check them out.

5 Reasons It’s Important to Get Home Loan Pre-Approval

Verify Your Buying Power

First and foremost, your home loan pre-approval (sometimes also called a ‘conditional approval’) verifies your buying power. Some buyers start off by relying on online calculators. But these are not customised to your situation and can only give you a general indication of what you might be able to borrow and spend.

On the other hand, pre-approval shows you exactly the amount that you can afford to spend on your new home. It takes into account your current living expenses and other financial commitments. And it gives you a clear spending limit, letting you focus your energies on homes that fit within your spending budget.

Outsmart the Competition

Buying a home can sometimes be a cut-throat competition. But your home loan pre-approval can help you outsmart the competition. You see, your pre-approval doesn’t just verify your buying power to you, but also to potential home sellers.

Your pre-approval lets you move fast when the market is hot and competitive. You know what you can spend and so you’re ready to make an offer quickly or even on the spot. You and the potential seller also have the confidence of knowing that you’ll be able to get your finances organised quickly. And this gives you a leg up on the competition and puts you in a strong negotiating position.

Close Faster

It generally takes about 50 days to close on a new home. And part of this delay can be attributed to waiting for mortgage approvals. But if you’ve already got your home loan pre-approval, you can ensure the entire process goes more quickly and smoothly. And that means you’ll potentially be in your new home more quickly as well.

Sometimes sellers are under pressure to move quickly themselves. Perhaps they’re looking to get into their dream home too, or need to liquidate their assets for other reasons. When you’ve got a home loan pre-approval you’re a far more attractive buyer to that category of seller because they know that you’re in a position and motivated to move quickly as well.

Home Loan Pre-Approval Saves You Time and Money

Time is money, but your home loan pre-approval can save you both. Too often buyers spend months (or even years) searching for the right property, only to find that they aren’t able to get the financing they need. This is a waste of your time, of course, and a significant opportunity cost when you aren’t able to get the home that you want.

Understanding your budget means you can laser focus your search, only spending time and resources on those homes that you want and can actually afford.

Home Loan Pre-Approval Protects Your Deposit

When you buy a home you’ll likely need (and want) a deposit. But you don’t want to hand over your hard earned money without being absolutely confident that you’ll be able to get the home loan you need to complete the purchase. If you aren’t able to get the financing you need, you could lose the full amount of that deposit.

This is particularly important if you’re buying at auction because in that situation your deposit is non-refundable.

Speak to an Expert

When you’re ready to begin your new home search, we’re ready to help. Our expert team can talk to you about how to get home loan ready,  and help you get started on the process of getting a home loan pre-approval, and getting into your dream home.

Give us a call today at Lending Loop, and let’s see how we can help!

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Equity home loans and how they can help you

We’ve talked about equity in our recent articles but we wanted to dive in and give you a full article of information on this point, especially for those still scratching their heads over this word.

So, grab a coffee – or tea, if you must! – and settle in for a superhighway of helpful facts and figures on one of our favourite words within real estate jargon.

What is equity home loans?

As we mentioned last week, equity is the difference between the current value of your first purchase and what you still owe on your loan.

Or in other words, equity is how much of your house you yourself actually own, rather than the lender.

Think of it like this:

Your house is worth $500,000 but you still owe your lender $300,000 so your equity – or how much of your house is undoubtedly yours – equals $200,000.

Lenders will see this $200,000 as your security or collateral against potential mortgage repayment failures on your behalf.

What can I use my equity for?

You name it, you can use it!

Think of house renovations or buying a car, starting a business or enjoying a holiday.

Investment properties are also often bought using home equity.

equity-home-loans-and-how-they-can-help-you
You can use equity for house renovations, buying a car, starting a business or enjoying a holiday.

What are equity home loans and how do they work?

Not surprisingly, home equity loans are often known as second mortgages as they enable buyers – both owner-occupiers and investors – to purchase a second home.

However, regardless of what you’re using your equity for, lenders will have different rules and regulations on how much you can borrow and how you can access your equity.

They’ll want to check the following, for a start:

  • your home’s current market value
  • how much you’ve paid on your mortgage
  • what you plan to use the equity for
  • current market conditions

How much home equity can I borrow?

As a general rule, lenders like to stick to the 20% ultimate security number, much as they do when they prefer a 20% mortgage deposit.

In the case of a home equity loan, lenders won’t be happy if you’re still to pay 80% or more on your property’s current value.

Remember, your equity is their security so offering lenders just 5% for this security ain’t likely to cut it with them.

Also, if you do have less than 20% equity, you will have to pay Lender’s Mortgage Insurance (LMI), just as you would if you only had this much as a home deposit.

How can I grow my equity?

But cheer up!

Everything’s not lost if you’re in the 5% box.

There’s one easy way to grow your equity and it requires virtually no hard work on your behalf.

Simply put, your property may have shot up in value since you bought it, meaning its current value is now sky-high, along with its equity possibilities.

In other words, the $200,000 equity opportunity you may have enjoyed a few years ago may now be even bigger, and all thanks to your home’s market value.

Also much larger is your new ‘real’ ownership of your house.

Not bad, hey!

And although this market value change won’t happen with every property, it’s certainly something to keep in mind.

Other great ways to grow your equity include:

  • saving more /putting extra cash towards your mortgage
    (NB: this may well mean less eating out and coffee catch-ups)
  • get a shorter home loan – it’s harsh but it will force you to save!
  • pay larger payments more regularly
  • put all bonuses including tax refunds into your mortgage
  • dedicate one partner’s income solely towards repayments – and live off the other’s income alone. This is an oldie but still a goodie, we think!
  • revamp or renovate some or all of your house to up its value stakes – but be very careful that your budget doesn’t go overboard
equity-home-loans-and-how-they-can-help-you
Take advantage of equity opportunities.

What are the benefits and risks of equity home loans?

Whether it’s buying an investment property or a much-needed car, utilising your home equity can be a game-changer for your finances.

But before you get too excited about using this cash, think about the following:

Risks

  • Higher overall debt = larger repayments and attendant interest rate factors
  • Extra fees and charges are needed when taking out an equity loan
  • More time is also needed to repay this loan
  • A risk of losing your first home if the loan is not repaid
  • The temptation to use equity for other purposes ie holidays
  • Can lead to spiralling debt

Benefits

  • Relatively easy source of funds
  • Ideal for those with steady source of income who know exactly how much they need to borrow
  • Interest rates on home equity loans can be lower than that of credit cards and similar

    We’re here to help

If you’re considering a home equity loan, chances are that even after reading this article, you still have questions about them.

That’s where Lending Loop can help out with our smart team of independent experts.

At the same time, they can find you the best possible deals from more than 40 of Australia’s biggest banks and specialist lenders.

So, whether you’re a brand new homeowner or an investor, come to Lending Loop!