Why Getting a Home Loan Is Easier Now than in the Past Two Years
Just two years ago, it was difficult for most first-home buyers to imagine taking out a home loan. Not only were home prices skyrocketing, but over-regulation was constraining credit growth. Loans were more expensive, there were fewer choices, and many had to relegate themselves to renting as their only option. With housing affordability further decreasing, the situation seemed to be bleak.
But today, getting a home loan is far easier. Interest rates are lower, loans are easier to qualify for, and there are new programs specifically for first-time homebuyers.
Read on to find out four reasons why taking out a home loan is easier than before.
APRA Loosened Its Assessment Rate
During the property boom, a financial stress test was initiated that meant that borrowers needed to be able to qualify for a loan at a higher interest rate than they would actually pay — usually 7% to 7.25%. This at the time decreased an average person’s chances of getting a mortgage, but with APRA changing this approach, qualifying is much easier than it was two years ago.
Even if the borrowers were able to comfortably repay the loan at lower rates, they also needed to qualify for those higher rates. This was intended to ensure that borrowers didn’t over-borrow and that they were able to pay for the properties even if the economy declined and rates increased.
Today, these assessment rates have been reduced, which means borrowers who previously could not qualify for a home loan may be able to qualify now.
Cash Rate Has Decreased
On 3 March, the RBA decreased the cash rate to 0.50%. This is great news for those who want to buy a home or those who are on Variable-rate mortgage and are looking to refinance their home. The cash rate is directly tied to home loan rates, and you can now achieve rates under 3%.
Lower rates mean easier qualifications, as lower rates reduce the total monthly repayment amount. That means that borrowers who didn’t qualify can qualify now. It also means that borrowers who previously qualified may be able to purchase more expensive homes. The cash rate may decrease even further (down to an extremely historically low 0.25%), but that’s presently unknown.
The Coalition Win Was a Win for First-Time Homebuyers
For first-time homebuyers, the Coalition win was a huge win for first-time homebuyers: it meant that they get to enjoy the First Home Loan Deposit Scheme.
Previously, when first-time homebuyers have saved less than 20% for deposit, they needed to purchase Lenders Mortgage Insurance (LMI) to qualify for a home loan. Under the new scheme, they don’t need to pay for LMI if they don’t have the full 20% deposit. The Federal Government will cover the insurance component that applies. This new program has been available as of January.
Having to put down a full deposit was holding many first-time homebuyers back, and having to pay high-risk mortgage insurance would cut into the amount that they could qualify for if they couldn’t put down a full deposit.
The First Home Loan Deposit Scheme made purchasing a home realistic for many borrowers who had previously been priced out of the market.
The Banking Royal Commission Aftermath: Consumer Trust in Non-Major Banks
Homebuyers haven’t just been avoiding bank loans because they don’t qualify. After the Banking Royal Commission, many consumers lost their confidence in the banking system.
With less confidence, people are less likely to look towards large expensive loans such as home loans, other factors notwithstanding.
But while very few people trusted non-major banks post–Royal Commission, there has been a rise in non-major banks. These non-major banks are still providing very competitive home loans and often with customer service that is perceived to be superior.
Non-major banks are perceived as being friendlier, more trustworthy, and able to give individualised customer service.
As non-major banks continue to increase in popularity, consumers are becoming more willing to invest in property. Non-major banks are very likely to lead directly to an increase in lending, especially with other factors now being so favourable. And because non-major banks often have reduced overhead compared to major banks, they are also often able to reduce their fees in a way that is ideal for a cost-conscious consumer.
The Easy Way to Get a Home Loan, Today
Have you been thinking about getting a home mortgage? Have you been wondering whether the time is right? It can be difficult to time the market, especially with a real estate industry and economy as complex as Australia.
However, with all things considered, now is likely the best time to get a home loan in recent history. Not only are the interest rates low, but there are also many beneficial programs available, and homes are (for once) becoming more affordable rather than less. With lower interest rates, homebuyers can qualify for and purchase larger properties.
Let us help you explore your financial options for the future today. Leave us a message below to get started.
Disclaimer: This is general information only and should not be taken as financial advice. Please speak to a Shore financial planning professional before making a decision on your home loan.