More buyers now eligible for federal housing incentives
The federal government has expanded its support to first home buyers and single parents and has also released a new program for regional buyers.
The First Home Loan Deposit Scheme and New Home Guarantee, which currently support a combined 20,000 first home buyers per financial year, will now support 35,000 per year from July 1. The price caps for these programs, which differ from area to area, will also be increased, from anywhere between $50,000 to $250,000. Under these programs, eligible first home buyers can purchase properties with just a 5% deposit, without needing to pay lender’s mortgage insurance.
The Family Home Guarantee will now support 5,000 places per year, commencing July 2022 until June 2025. First announced in the 2021 federal budget, this program allows eligible single parents to buy a property with a deposit as low as 2% without having to pay LMI (lenders mortgage insurance).
The new Regional Home Guarantee will help 10,000 people per financial year (starting October 1) to buy a property in a regional area with just a 5% deposit. This program is open to first home buyers, people who have not owned a home for at least five years and permanent residents.
Let’s chat if you need a home loan.
Supply chain issues trigger sharp rise in home building costs
National residential construction costs increased 9.0% over the 12 months to March 2022, according to CoreLogic’s Cordell Construction Cost Index.
That was the highest annual growth rate on record apart from the introduction of the GST in 2001, and means Australians are having to pay significantly more to build or buy new homes.
“Timber costs continue to rise, with cladding, decking and other timber items affected,” according to CoreLogic construction cost estimation manager John Bennett.
“Steep rises in metal prices are also now flowing through to the market, with structural steel, fixings and metal components hit hard.”
“We continued to see volatility in the rest of the market, with imported products the most vulnerable due to elevated shipping costs. Rising fuel costs are also on the radar and we have continued to see further increases in the cost of other materials.”
Let’s chat if you need a construction loan.
Median repayment buffers double from 10 to 21 months
Most mortgage holders will be able to cope if and when interest rates start rising.
That’s one of the findings from the Reserve Bank of Australia’s (RBA) latest half-yearly Financial Stability Review.
Between February 2020 and February 2022, many borrowers built up big repayment buffers, by paying extra money into their offset and redraw accounts.
During those two years, the median buffer for owner-occupiers with a variable-rate loan increased from about 10 months of repayments to about 21 months.
“The increase in payment buffers partly reflects the impact of lower interest rates on minimum repayments,” according to the RBA.
“If interest rates were to increase by 200 basis points (i.e. 2 percentage points), current excess payments would be equivalent to just under 19 months of scheduled payments.”
In further good news, the share of loans in negative equity (i.e. where the loan exceeds the value of the property) has also significantly improved during the two-year period, falling from 2.25% to less than 0.25%.
A rate lock can protect you from forecast rate rises
The big four banks have forecast that the Reserve Bank will begin lifting the official interest rate from June 2022. If and when that happens, lenders will most certainly increase their home loan rates.
With speculation rising, many clients are questioning whether they should fix all or part of their loans. There are pros and cons to fixing and these should be considered carefully. One factor that is almost never considered is when will the fixed rate be fixed? The short answer is the fixed rate is locked at the time of settlement. There could be weeks or even months between the time you decide to fix your loan and when it settles. If the fixed rate goes down during this time…..bonus for you! But if they go up…..bonus for the bank.
One way to protect yourself against rising fixed rates, between application and settlement is “Rate Lock”. The Rate Lock feature for fixed rate home and investment loans guarantees the fixed interest rate at the time of application and protects you against rate rises between the time your application is received and when the loan settles – usually limited to a maximum of 90 days. The additional benefit is that if rates go down during this period, the lower fixed rate will be applied.
Typically, lenders charge a fee for the Rate Lock feature, and this could be based on a percentage of the loan amount or a fixed fee amount. On limited basis, some lenders offer Rate Lock at zero cost.
Let’s chat if you want to fix your loans.
TAG Finance and Loans
Sal Cinque | CEO
03 9886 0800 | loans@tagfinancial.com.au
Disclaimer: The information contained on this page is general in nature. Professional advice should be sought before acting on any aspect on this page. TAG Finance and Loans Pty Ltd ABN 25 609 906 863 Credit Representative Number 483873 National Mortgage Brokers Pty Ltd ABN 88 093 874 376 Australian Credit License 391209.