The latest home loans data from the Australian Bureau of Statistics has revealed three key trends.
Contact me if you’re thinking about buying a property. I can get you a home loan pre-approval and, if you’re interested, introduce you to a good buyer’s agent.
When you apply for a mortgage, the lender uses a series of criteria to assess how likely you’d be to repay the loan. As part of this process, the lender also considers whether you’d be able to continue making your repayments if interest rates were to rise.
Generally, lenders will apply a buffer of at least 3.00 percentage points – so if you applied for a loan with an interest rate of 6.50%, this would mean calculating whether you’d be able to make repayments at 9.50%. This ‘mortgage serviceability buffer’, as it’s known, is mandated by APRA, Australia’s banking regulator. Partly, it’s designed to prevent lenders from issuing risky loans; because if a large number of borrowers defaulted on their loans, that would undermine the banking system. And, partly, it’s designed to protect borrowers from taking on loans they might not be able to afford. The serviceability buffer can make it harder for borrowers to qualify for loans, but is ultimately designed to be in their best interests. Property investors have enjoyed a golden run over the past five years, during which the national median rent increased 39.7%. However, in July, rents increased just 0.1%, which was the slowest growth since 2020, according to CoreLogic. At the same time, annual rental growth has been trending down over the past few months. Between February and July, rental growth fell from 9.7% to 8.0% in the combined capitals, although it rose from 5.4% to 7.1% in the combined regions. The big cities appear to be close to their rental affordability limit, while the regions, which have had less rental growth, might have more capacity to absorb higher rents. Despite the slowdown of the national rental market, CoreLogic economist Kaitlyn Ezzy said rents were likely to keep increasing.
“Low supply will likely continue to put upward pressure on rents, albeit at a slower pace,” she said. “With dwelling approvals and commencements at historic lows, providing sufficient new housing will not be a quick fix and remains a genuine challenge for policymakers, the property industry and, of course, tenants.” In other words, while rents are likely to keep rising, tenants are likely to get some relief and investors shouldn’t budget for the double-digit-percentage increases of previous years. Home loan volumes have significantly increased over the past year, especially among investors. Investors committed to $10.67 billion of mortgages in May, according to the latest data from the Australian Bureau of Statistics. That was 29.5% higher than the year before. At the same time, owner-occupier borrowing activity rose 12.2%, to $18.13 billion. Investors were responsible for 37.1% of the home loans that were issued in May. Despite the surge, that's only slightly higher than the long-term average (in records dating back to 2002) of 35.9%. By way of comparison, investors' share of home loan activity bottomed out at 22.4% in 2021 and peaked at 45.9% in 2015, while owner-occupiers’ share reached a low of 54.1% in 2015 and a high of 77.6% in 2021.
If you’re thinking about applying for a home loan, here are three important tips to make yourself more creditworthy in the eyes of lenders:
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AuthorRachael Bland – Founder & CEO Archives
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