Mortgage Insights from International Markets
Announcements of the new COVID-19 vaccine releases have undoubtedly raised our collective hopes around the world. After every new update, we see rises in financial markets. These swings are telling signs that the economy is gradually emerging from recession.
When it comes to the property market, we’re seeing some trends around mortgage rates around the world. These trends vary based on the economic factors at work before the pandemic, and how well the country has contained the outbreak.
In this article, we’ll look at how COVID-19 has affected home loans and property markets around the world and what Australians can learn from the news.
Mortgage Approvals Hit 10-Year Record in the UK
In October, the UK saw 97,500 mortgages approved, a number that hasn’t been seen before since September 2007. This peak was unexpected given the pandemic, and it highlights the strength and resilience of the real estate market. Experts have credited this surge to new lifestyles, with more people working remotely and buyers looking for a property that gives them the space and amenities they need.
The Brits are not only benefiting from low mortgage rates but also the elimination of stamp duty. Now, a home buyer can buy property of up to a half-million pounds without having to pay stamp duty (saving buyers up to £15,000).
What Australia Can Learn from this: The country’s success story could lead Australia to see how a tapered ending of stamp duty can be a big help to ensuring the property market continues to run smoothly, providing support for both jobs and investment.
Limits to High-Risk Lending in New Zealand
The Reserve Bank New Zealand (RBNZ) is currently fearing a housing bubble, so it’s tightening up the coffers to ensure the market doesn’t burst. To boost the economy at the start of COVID-19, it had originally eliminated the loan-to-value restrictions at the start of the pandemic. The lending market responded with growth, including a rise in high-risk investor lending.
To offset the risks, RBNZ is likely to reinstate the restrictions. This would ensure that banks are limited to lending to those without a 20% property down payment. The bank is also delaying the increase of capital buffer until July 2022. The ultimate goal is to reduce housing lending and support business lending, lest there be a huge fall if unemployment rises. The bank is expected to keep interest rates steady and lower the borrowing costs for lenders.
What Australia Can Learn from this: Reducing high-risk lending can have a negative impact on Australians. With a tighter restraint on lending, it decreases the versatility of loans, shifting the power from the loanee to the lender. High-risk lending allows first home buyers to enter the market more easily. This is generally because first home buyers have a smaller size deposit available to them. High-risk lending provides the opportunity to access credit for a broader range of people and ultimately assists in keeping the market buoyant.
Mortgage Repayment Challenges in Japan
Since 2000, the country has seen growing financial pressure on the elderly. More and more people have been unable to pay their mortgages with standard pensions and savings. The average age a person paid off their mortgage used to be 68. In 20 years, that number has jumped to 73. It means that more Japanese citizens are forced to live on a pension while still being in debt.
What Australia Can Learn from this: From Japan, Australians can learn the value of planning ahead when it comes to their mortgage loans. The age of borrowers and the amount of money borrowed is going up, and it’s accompanied by longer loan terms. Having the right financial advisor can be critical to understanding what a homeowner will pay as they head into retirement.
Fixed or Variable Rates? Lessons from Canada
Consumer debt in Canada went up 3.8% in the third quarter of 2020. This $2.041 trillion increase was driven by the state of the housing market, with a 6.6% rise in mortgage balances and an 8.6% rise in the average mortgage loan. While variable rates are no doubt tempting to new homeowners, the potential rate hikes can be risky when compared to fixed-loans.
In fact, the fixed-rate loans right now are so low that just a quarter-point rise would mean that borrowers are paying more for variable rates than fixed over a 5-year term. This is true even if the rate hike comes 3 or 4 years from now.
What Australia Can Learn from this: Australians can learn the importance of thinking creatively when it comes to paying off their mortgage.
A variable-rate mortgage may still make the most sense, depending on how long the person plans to keep the property and whether they can pay off the mortgage early. A fixed-rate mortgage could also be the way to go for homeowners who don’t want to guess what their payments will be in the coming years.
Get Expert Mortgage Advice from Shore Financial
The pandemic hasn’t caused a collapse of the property markets as some people feared, but it has shed some light on the habits of banks and borrowers alike. These insights can help everyone from government officials to banks to Sydney property owners make smarter decisions.
Your residential property mortgage is likely the single most important financial decision that you can make, which is why it helps to talk to someone who knows the markets. Shore Financial has the expertise to find the best loan product for you.
We’re proud to be the biggest independent mortgage brokers in Australia, giving you the scale, strength, and experience to find the best rates for you. Our knowledge and connections make us property experts, but it’s our customer service that really sets us apart. While we make sure that you get the best loan that fits your needs, we also make sure that you get it on your terms. Contact us today for trusted mortgage loan advice.