First home buyer tips: Planning for your mortgage

First home buyer tips: Planning for your mortgage

If you’re thinking about buying your first home, it can pay to start thinking about applying for a loan early. Here are tips to help with the process.

Congratulations on planning on buying your first home! As they say, forewarned is to be forearmed and, with most things, the more you plan the better the outcome. This is no different when it comes to applying for your first mortgage. The more planning and preparation you do, the better the outcome and less stressful the home loan application process is likely to be. I recommend planning for your mortgage at least six months in advance. Here are my tips to help you with the planning process.

Understand what the banks look for

When assessing your eligibility, banks look at a number of factors including income, employment, security and your credit history.

Income and employment

Lenders want applicants in stable roles, meaning either employed or running their own (profitable) business. If employed, salaried positions are treated as very stable and if you’re no longer on probation, generally lenders consider all of your salary.

Variable type income sources such as bonuses and commission income, though, are often shaded back by 20% or so. To demonstrate this income, salary payslips and matching credits to your bank accounts are often requested.

Don’t stress if you’re not employed in a full-time position, though, as many lenders will lend money to those in casual employment. In this situation, a lender will generally want to see a stable history over a period of a few months to ensure it’s consistent and likely to continue.

If you’re self-employed, having had the business for at least two years and it’s profitable will provide most lenders comfort. In this situation, lenders will want to see your tax returns, financial statements, and individual tax returns for a consecutive two-year period. This means you will need to ensure your books are up-to-date and accurate. There are some options, though, for business owners where these documents or timeframes aren’t available.

If you receive a pension, carers payment, family tax benefit or other government benefits, these can often assist with your assessment if you provide relevant documentation.

Security

The level of security lenders will be looking for will depend on how much you are borrowing against either a purchase price or valuation. For standard residential homes, units and townhouses, most lenders will see these types of properties favourably and lend at a higher loan-to-value ratio (LVR). LVR is how lenders describe the amount you need to borrow to buy a particular property. In a nutshell, it’s the amount you need to borrow, calculated as a percentage of the property’s lender-assessed value.

Unusual or non-standard type properties can generally still be financed, but often come with a lower LVR. Examples may be rural property, bedsitter/studio apartments, units in high-density postcodes, company title properties and luxury residential properties.

Credit history

Your credit history plays a large role in your application, either through a credit score, manual assessment based on your credit history, or internal scoring. If you have been bankrupt, had defaults, missed a number of repayments, been late with repayments etc, speak to your mortgage broker about this before putting in an application to ensure your suitability for a specific lender.

Similarly, having a number of unused credit cards or facilities can work against your borrowing capacity. 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. Even 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.

How to clean up your accounts

It is a good idea to clean up your accounts so that you can be in the best position for your application. Firstly, go through your transaction and credit card statements over a period of three months to see what you’re spending your money on, what subscriptions are in place, and any unnecessary or one-off type transactions.

Secondly, set yourself a budget based on your desired loan repayment amount and stick to it. This will assist you in knowing if you can afford the loan you desire and start to demonstrate a history of saving/spending habits. Budgets can be done manually, via apps, using spreadsheets, or even web-based tracking that can categorise all of your spending to various categories.

Be ruthless with what is necessary and what is ‘nice to have’ with your expenses a number of months prior to any application. 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.

Prove you can afford your repayments

One thing I advise to those looking to apply for a home loan, is to work out what size loan you will need. Then set a placeholder of 4%-5% interest rate to allow for any interest rate rises in the months or years ahead.

You can find many online calculators where you set the term of the loan, the size of the loan, and the interest rate to give you an estimated monthly repayment amount. This can give you an indication of what your repayments would be, not just now, but if rates rise in the months ahead.

For example, if you are renting and your loan repayments are likely to be an extra $500 per month, set up a bank account for this $500 to go in to as soon as you’re paid to ensure that you have enough left in your other accounts by the time your next monthly paycheque arrives. Think of this as a trial run. It will also help make you look good to lenders.

Set goals

Goal setting can be really helpful in getting ready for your loan application, as well as for building savings. Setting a realistic figure that provides you the flexibility to enjoy life, while also keeping money aside for the likely monthly repayments, will ensure that you are ready when you’ve been approved and are paying your home loan those first two to three months.

Setting yourself a budget and working to a particular financial scenario for a few months will give you a realistic expectation of what your lifestyle will be like once you have a mortgage – just don’t forget to add in your other monthly bills.

 


Marcus Roberts

About Marcus Roberts

Marcus Roberts is the founder of Brighter Finance. He has close to 20 years experience in banking and financial services and also works as a director, podcaster and speaker. He is a member of MFAA and Property Investment Professionals of Australia (PIPA).

 

 

 

Marcus Roberts, Canstar, 31 May 2021
https://www.canstar.com.au/home-loans/planning-for-mortgage/

 

Post-crisis conditions a recipe for investor confidence

Post-crisis conditions a recipe for investor confidence

While the Australian economy continues to recover from the pandemic, more than 70 per cent of property investors believe it is already a good time to buy.

New research suggests that rather than being rattled by the last twelve months, Australian property investors are more confident than ever.

In a mid-May survey conducted by the Property Investment Professionals of Australia (PIPA) and the Property Investors Council of Australia (PICA), 80 per cent of property investors said their investment intentions for the next six to 12 months were not affected by the coronavirus crisis.

Nearly 60 per cent of respondents indicated that the pandemic had not made them change their investment plans over the next six months, with a further 18 per cent saying the crisis had actually made it more likely they would purchase a property over that timeframe, PIPA Chairman Peter Koulizos said.

The survey found that while 36 per cent of investors had experienced a loss of income during the pandemic, 91 per cent did not apply to pause their mortgage repayments.

Of the 1877 investors surveyed by the PIPA and PICA, only 5 per cent said the pandemic made it more likely for them to sell a property over the next six to 12 months.

“What’s more telling is that more than 30 per cent said they were less likely to sell over the same period because of the pandemic, with 63 per cent indicating no change at all to their plans,” PICA Chairman Ben Kingsley said.

According to Koulizos, “It’s clear that record low-interest rates, as well as the resilient nature of property during turbulent times, are inspiring investors to continue with their plans.”

“Investors are confident about the times ahead, with many intending to purchase over the next year to take advantage of the burgeoning buyer’s market.”

 

Fergus Halliday, Smart Property Investment, 31 May 2021
https://www.smartpropertyinvestment.com.au/research/22748-post-crisis-conditions-a-recipe-for-investor-confidence

Investment pros react as NAB slashes 30 points off interest rate

Investment pros react as NAB slashes 30 points off interest rate

NAB has dropped investor rates by 30 basis points, making their new rate the lowest that they have ever advertised.

The rate change comes as property investors make a strong comeback into the market, with anecdotal evidence claiming that they have overtaken First Home Buyers as the major driver in the market, particularly in Regional Australia.

As of now, NAB’s Investor Base Variable Rate (BVR) Special offer will be reduced 30 basis points to 2.79% for new BVR loans with P&I and less than 80% loan to value ratio and 2.99% for new BVR Investor only Loans at less than 80% LVR.

“This is a welcome initiative for property investors, because they’ve been in the background for the last 15 months with First Home Buyers taking advantage of grants and incentives from state and Federal governments,” said Peter Koulizos, Chairman of Property Investment Professionals of Australia (PIPA). “Now that First Home Buyers aren’t as active as they were, investors are moving back in and this will encourage them even further with the lowest interest rates on record”.

Investment professionals reacted well to the news.

“It’s a very positive step,” said Julian Fadini, Director at Prpty 360. “With investors leveling the playing field back in line with the rest of the purchasers in the market, it’s great.”

“We operate in regional markets for about 7 years now, and we believe we were ahead of this curve and could see all that the regional areas had to offer. Being from a property investment place, it didn’t seem right that investors had to pay a premium, and it’s positive that that is starting to level out now. It’s good to see investors getting back into the market.”

“If we cast our minds back a few years ago, we were potentially facing the abolition of negative gearing and then we had the banking royal commission. For a while there, it wasn’t as attractive for investors. Now, with the different pricing and interest rates, it’s changed. It’s a very positive sign to see investors getting back into the market and the banks supporting them with this move.”

 

Mike Wood, Australian Broker, 28 May 2021
https://www.brokernews.com.au/news/breaking-news/investment-pros-react-as-nab-slashes-30-points-off-interest-rate-277118.aspx

 

Renters are now moving further afield to find homes

Renters are now moving further afield to find homes

Lending restrictions that came into force four years ago are partly to blame for the critical undersupply of rental properties in many locations around the nation, according to the Property Investment Professionals of Australia (PIPA).

Some smaller capital cities are struggling with undersupplies of available rental properties, with vacancy rates often at record lows – but the pandemic is not totally to blame.

PIPA Chairman Peter Koulizos said the restrictions on investment lending that began in March 2017 saw a drastic reduction in investor activity, which slashed the usual supply of rental stock being added to the market.

Property investor activity reached a 20-year low in May last year, according to the Australian Bureau of Statistics.

“Investor activity dropped about 50 per cent from March 2017 to May 2020 because of the lending restrictions that were applied carte blanche to investors around the nation four years ago,” he said.

“Back then, the restrictions came into effect because of the strong property price growth in Sydney, but investors everywhere were also blocked from securing finance even in markets with benign market conditions at the time, such as Perth, Adelaide and Brisbane.”

The vacancy rate industry standard for a balanced rental market is three per cent with any percentage below that figure considered to reflect a market with more demand than supply, according to PIPA.

Mr Koulizos said several capital cities and regional locations have vacancy rates of less than one per cent.

“Vacancy rates in inner-city Sydney and Melbourne have spiked over the past year due to the loss of international students and overseas migrants, but even many suburbs in these cities are also experiencing an undersupply of rental properties,” he said.

According to SQM Research, the national asking rent for houses has increased 15.9 per cent over the past year and the asking rent for units has risen by 7.6 per cent over the same period.

Mr Koulizos said the pandemic had added more pressure to the already dwindling rental supply in regional areas in particular due to the increased migration of people into lifestyle areas.

“Demand for rental properties in many regional locations – such as the Sunshine Coast in Queensland, the Central Coast of New South Wales, and the South West of Western Australia – is far outweighing supply with rental prices skyrocketing over the past year,” he said.

“This critical situation is forcing some renters to move further afield because they can no longer afford to live in a region that they have sometimes called home for decades.”

Mr Koulizos said it was imperative that policy-makers don’t make the same mistake again with investor activity still well below what is needed to improve the supply of rental properties around the nation.

“Unfortunately, the critical undersupply of rental properties is not a situation that will change overnight – just like it wasn’t a situation that happened over a short time either,” he said.

“It is the industry’s belief that market cycles need to be allowed to run their course without any type of outside intervention because they will always move through their peaks and troughs of their own accord.

“Instigating policies to solve a supposed short-term problem can have long-term ramifications, which is the drastic situation that tens of thousands of tenants are now experiencing.”

# Demand for rental properties in many regional locations is far outweighing supply with rental prices skyrocketing over the past year Peter Koulizos

 

Ballarat Courier, Ballarat, Page 6, 22 May 2021

Lending restrictions to blame for undersupply

Lending restrictions to blame for undersupply

The current rental undersupply was years in the making – a result of the lending restrictions that were implemented in 2017, according to one property expert.

Many capital city markets have been hitting record-low vacancy rates, with the quick absorption of properties ultimately leading to a critical undersupply.

While this trend appears to have emerged as the property market rebounds from COVID-19, the pandemic may not be entirely to blame, Property Investment Professionals of Australia (PIPA) chairman Peter Koulizos said.

According to Mr Koulizos, the lending restrictions that kicked off in March 2017 saw a significant decline in investor activity, which has resulted in a limited supply of rental stock coming into the market.

Fast forward to May 2020, the Australian Bureau of Statistics (ABS) revealed that investor activity has now reached a 20-year low.

“Investor activity dropped about 50 per cent from March 2017 to May 2020 because of the lending restrictions that were applied carte blanche to investors around the nation four years ago,” Ms Koulizos said.

“Back then, the restrictions came into effect because of the strong property price growth in Sydney, but investors everywhere were also blocked from securing finance even in markets with benign market conditions at the time, such as PerthAdelaide and Brisbane.”

Regional locations, in particular, are experiencing more pressure due to an increase in migration towards lifestyle areas, Mr Koulizos said.

“Demand for rental properties in many regional locations – such as the Sunshine Coast in Queensland, the Central Coast of New South Wales, and the South West of Western Australia – is far outweighing supply with rental prices skyrocketing over the past year,” the chairman continued.

“This critical situation is forcing some renters to move further afield because they can no longer afford to live in a region that they have sometimes called home for decades.”

With investor activity yet to catch up and rebalance rental supply and demand, Mr Koulizos called on policymakers to avoid making the same mistake again and refrain from intervening in the market cycles.

According to him, the critical undersupply will definitely not change overnight, but nevertheless, the market “will always move through their peaks and troughs of their own accord”.

Allowing the natural market cycle to take place will ultimately save Australians from avoidable long-term repercussions, the chairman said.

“Instigating policies to solve a supposed short-term problem can have long-term ramifications, which is the drastic situation that tens of thousands of tenants are now experiencing,” Mr Koulizos concluded.

 

Bianca Dabu, Smart Property Investment, 10 May 2021
https://www.smartpropertyinvestment.com.au/research/22671-lending-restrictions-to-blame-for-undersupply-pipa