A nationally representative survey conducted by Savvy has shown that 26% of more than 1000 respondents have cited mortgage repayments as a significant cost of living concern. Extrapolated to the general adult population, this means more than 5 million Australians may be worried about keeping up with mortgage repayments in the coming months.
38% of 25-to-34 year-olds and 3-to-44 year-olds said that mortgage repayment increases are a significant concern when it comes to their ability to keep up with the cost of living. Other age groups expressed a lower level of concern about mortgage repayments.
According to the survey, 43.86% of mortgage holders spend between $251 and $500 on repayments each week, while 23% spend between $501 and $750. A further 18% claimed to pay $751 and over per week to cover their mortgage.
The survey identified 42% of respondents as having a mortgage, which would be 8.1 million Australians when extrapolated.
Mortgage stress imminent
“If that twenty-three percent who said they have mortgage repayments $500 to $750 per week were single income households, they would be in real trouble,” says Bill Tsouvalas, CEO of Savvy. “The COVID mortgage holidays are over and for some families, there may not be much left in the tank when it comes to covering mortgage repayments.”
When asked to choose their top three responses to mortgage repayment increases resulting from an interest rate rise, 53% of respondents said they would try to cut down on other expenditure to prioritise their mortgage. 28% of mortgage holders said they will absorb the increase, while 26% said they will simply grit their teeth and experience mortgage stress.
20% said they’re prepared to change lenders or refinance; 13% will lock in a fixed rate with their current lender.
“If you can refinance on a lower rate – lock it in now,” Bill says. “0.85% is still a record low, so get around to refinancing or fixing your rate as a first priority.”
Before you set off for a pre-approval from a lender for that all-exciting (and somewhat stressful) home loan, you need to get your bank accounts in order to give yourself the best chance of having your home loan approved.
Think of applying for a home loan the same way you would approach a job interview – you need to tidy yourself/bank accounts up and present the best version of yourself/bank accounts you can.
As a mortgage broker I have seen so many clients that I wish I had met six to 12 months prior, so I could have helped them clean up their accounts so they present their finances in the best version of themselves to the banks.
The following are my top tips to help you clean up your accounts in preparation for applying for a home loan.
Cancel your credit cards
Whilst paying your card balance off every month is sound money management, most lenders see a credit limit rather than a balance as the amount you have easy access to. If you’ve never used a card with a $10,000 limit, the lender will still use the $10,000 rather than $0 in their assumptions. If you’re looking to maximise your borrowing capacity, look to close or reduce these limits as much as you can and get letters or evidence from the card provider.
No more Afterpay
Whilst having a ‘buy now pay later’ liability such as Afterpay or ZipPay can be handy for purchases, they do need to be declared. If you’re not using them, decide whether you’re comfortable in cancelling the facilities.
Also, if you have a few buy now pay later transactions coming out of your bank account each month, these can be viewed by lenders as expenses, which will affect your borrowing ability. Whilst not explicitly stated by most lenders, the opinion can sometimes be that using this type of credit rather than cash for these types of purchases can suggest a borrower that might not be perfect at managing money.
Save!
This element of presenting your accounts in the best version they can be goes without saying. However, as we all know saving money is not easy and takes discipline and work.
One task I recommend you undertake is to list down all of your monthly subscriptions that automatically come out of your bank account each month and then cancel or cut back all the ones that aren’t aligned with applying for your home loan. Do you really need that Spotify Premium account and do you really need both Stan and Netflix for these few months? Reducing your monthly expenses as much as possible will help you immensely in obtaining that home loan.
Saving a deposit vs Lenders Mortgage Insurance
So how much deposit should you be aiming for? Obviously, the more money you save for your deposit, the less money you need to borrow from the bank and in an ideal situation you may be wishing to save at least 20% deposit so you don’t have to pay for Lenders Mortgage Insurance (LMI). This can be a difficult task, especially for first home buyers. For example, if you are looking at purchasing a $650,000 home, you’re looking at needing a minimum $130,000 deposit, plus upfront costs.
What is LMI? Lenders Mortgage Insurance (LMI) is a one-off, generally non-refundable, non-transferrable premium that is added to your home loan. It is calculated based on the size of your deposit and how much you borrow. The more you contribute to the purchase price of your property, the lower the cost will be. LMI is there to provide comfort to the lender, against any loss they may incur if you are unable to repay your loan. If you default on your obligations, the bank may sell the property, and if they can’t repay the outstanding loan, LMI may be utilised.
The cost of LMI varies as it scalable to the size of your home loan and also how much deposit you have. The higher the deposit and the lower the home loan, the less your LMI will be. If you would like to avoid LMI altogether, you will need to have a minimum 20% deposit.
If you are a first home buyer, check if you qualify for the Australian Government’s First Home Loan Deposit Scheme, which will save you paying LMI. The First Home Loan Deposit Scheme (FHLDS) is an Australian Government initiative to support eligible first home buyers to build or purchase a new home sooner.
Under the Scheme, eligible first home buyers can purchase or build a new home with a deposit of as little as 5% (lenders criteria apply). This is because the National Housing Finance and Investment Corporation (who administer the scheme) guarantees to a participating lender up to 15% of the value of the property purchased that is financed by an eligible first home buyer’s home loan.
LMI should not be viewed as a total negative though, paying LMI generally allows you to enter the property market sooner and the cost of LMI will be more than recouped when your property increases in value. Also, by having LMI, you won’t need to rely on a guarantor to supply additional security to secure your home loan.
Speak to a professional
My final piece of advice is to speak with a mortgage broker at the start of your journey – don’t wait six to 12 months down the track of your savings plan. A mortgage broker has the experience and expertise to guide you on your savings plan and assist you in developing good saving and spending habits to help you save that deposit!
–Marcus Roberts is a mortgage broker and property finance expert at Brighter Finance.
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Many metro-dwellers across the country have flirted with the idea of a sea change or tree change at some stage or another. The dream of escaping the rat race, the grind of the commute, the crushing mortgage and just slowing down sounds wonderful doesn’t it?
Mortgage broker Rebecca Jarrett-Dalton says think carefully before selling up and moving to the coast/country.
I too hear the calling and would love nothing more than to relocate to the coast one day, but I do have some real estate decisions for you to consider before packing up everything you own and setting off.
I know that look: the one where your eyes widen at the value for money your real estate dollars will get you in your new regional community. As appealing as the property prices might be, before you jump in and purchase have you considered renting where you want to call home first?
By renting a property in your new suburb you are allowing for some flexibility if you find the town is just not right for you. I’m not necessarily saying that this means you want to move back to the city, but you might have realised that a suburb a couple of kilometres down the road would have been better for you.
By renting, you are giving yourself the benefit of flexibility until you really find where you want to settle down. It’s also important to consider that the real estate market may be slower in your new region, meaning your property could remain on the market for an extended period of time before it sells should you choose to re-list it.
For Sydneysiders, we have the honour of calling Australia’s most expensive city to live in home. Our property prices are on average, the highest nationwide. For the potential sea changers, it might sound like an absolute winner to sell up while pricing is at a peak and then settle into a new neighbourhood for a fraction of the cost.
Be really honest with yourself though. What if you don’t like where you move to and isn’t as simple as just moving back? With property prices in our capital cities considerably more expensive than our regional counterparts, you don’t want to see yourself priced out of the option to return to the metropolitan life if you want to.
My suggestion is, if possible, try to hold onto a base that you can come back to. There are a couple of ways you could tackle this: if feasible, why don’t you consider renting out the property you currently own? By offering the property out to rent rather than selling it outright, you are ensuring you have a foot in the door should your situation change and you need to return to the big smoke.
If keeping your current property isn’t an option, maybe you can sell what you have and then purchase an investment property still within your current capital city? OK, if you do it this way it’s not your whole foot in the door, but it is still creating a footprint and allowing yourself an exit strategy if you need it. You don’t want to see yourself with very limited options if you change your mind because you can’t afford to buy back into the city real estate market.
I definitely think there are some major advantages to taking on a sea or tree change, but just take the time to consider all your real estate options before you jump in. By making informed decisions and leaving yourself some wriggle room if you can, you’re ensuring that you get the outcome you want, rather than having to compromise because you are tied in or priced out of the alternatives.
–Rebecca Jarrett-Dalton runs mortgage brokers Two Red Shoes.
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As someone who has rented many homes and bought three, I can tell you that there are a lot of differences between buying and renting — some good, some bad! Either way, it’s best to do your homework and make sure you’re prepared for some of the bigger changes ahead when you become a homeowner. And for the purposes of this post, we’re talking about buying a new build (although many of these things will apply to buying an older home too).
You’ll have a mortgage!
While it’s of course important to pay your landlord, and on time, when you buy a house, it’s even more important to pay the bank every month. So make sure you know how much is due and by when, especially that first payment! These days, it’s more than likely that your mortgage will be more than your rent was for a similar home, so make sure you budget accordingly. However, unlike rent, you will eventually pay off a mortgage (with a lot of interest, let’s be honest!), and with rent, you’ll have nothing to show for your money. Before you buy, make sure you find out if you’re eligible for any government grants for first-time buyers, especially if you’re buying a new home.
New payments
As a homeowner, I’m afraid there are now some costs (what I call boring, grown-up expenses!) which are your responsibility (which previously were your landlord’s). These include council rates, fixed charges (as well as usage) for water, and of course maintenance. It’s a good idea to have a budget set aside for little surprises that creep in, like the dishwasher breaking or your back fence falling down in the wind.
You now need to insure the home itself as well as its contents and you should definitely consider getting life insurance. You also need to factor in the cost (and/or time required) of maintaining your home, from mowing the lawn to clearing the gutters and so on. On the plus side, if you buy a new home, those maintenance costs should me much less than say, buying a home with a roof that could need replacing before you know it. Scary stuff!
Flexibility
When you buy a home, you’re hopefully in it for the long haul, as the costs of buying a home (stamp duty, removals etc) are substantial. If you decide you fancy a different suburb, state or even country a year down the line, it’s definitely a lot harder to simply move. But if you’re building a brand new home, I’m pretty sure you’re excited about putting down roots, making it your own.
Stability
On the other side of the coin, buying a home means you have confidence you’ll be in the same place for a long time. This becomes more important if you start a family and want to plan for schools, putting your kids’ names on wait lists, making sure you’re in the right catchment area for that great public school, and so on. As a mum, the feeling that I may be in my current home for as long as a decade, is amazing. It is a real mindset shift! I love knowing that it’s worth my while putting in the effort to become part of the local community, befriend the neighbours and get involved with local activities.
As a renter, at the end of the day, you never know when your landlord might want their house back, which is not a nice feeling if you’re looking to settle down.
Total choice and control
When you buy a home, it is absolutely up to you how it looks and what you do with it (subject to council approval if necessary and of course, budget). And if you’re building your home, you get to choose what kitchen, floor, paint colour and landscaping you’ll get. There is no better way to get control over what your dream home will be like than building from scratch! No more having to live with someone else’s bad taste or dated fixtures and fittings. Oh, that blank canvas excitement! Not to mention you can put as many holes in the walls and hang as many pictures as you like!
Risk
There is of course a lot of risk involved in borrowing what is, in most cases, the largest amount of money you’ll ever borrow. So make sure you get good financial advice before doing so to ensure that you can continue to make the repayments and that you have some left over as an emergency fund.
