Long-term home loan customers paying ever-high ‘loyalty-tax’
You might not realise that lenders often charge lower interest rates to new borrowers compared to existing customers.
Over the past year, as the graph from the Reserve Bank of Australia shows, this gap has widened.
Back in October 2020, owner-occupiers who took out new variable loans were charged an average of 0.32 percentage points less than existing borrowers. By October 2021, this gap had grown to 0.37 percentage points.
If the RBA increases the cash rate next year, as many economists predict, it will be interesting to see if this gap widens or narrows as lenders bid to undercut their rivals and grab more market share.
Want to find a better rate? Chat with us!
More properties being listed for sale
More property listings are coming onto the market, which should give buyers more choice in 2022.
In November another 96,346 properties were listed for sale, according to SQM Research. This was 2.3% higher than the month before and 20.4% higher than the year before.
While there has been a significant increase in new listings, there has also been a substantial decrease in stale listings. That suggests many of these homes have finally found buyers.
If buyers have more properties to choose from in 2022, it’s likely homes will take longer to sell.
Properties listed on realestate.com.au during November took an average of 30 days to sell, which is incredibly low by historical standards. The year before, the figure was 44 days.
In November, the amount of new listings added to realestate.com.au reached their highest level in a decade for capital cities and highest level in five years for regional locations.
Government boosts first home buyer support
An extra 4,651 first home buyers will be able to access federal government assistance during the 2021-22 financial year.
The government had originally pledged to support 20,000 first home buyers this year – 10,000 under the First Home Loan Deposit Scheme and 10,000 under the New Home Guarantee.
Now, the government has added an extra 4,651 places, which went unused during the 2020-21 financial year.
The First Home Loan Deposit Scheme lets eligible first home buyers purchase a home with just a 5% deposit, without having to pay lender’s mortgage insurance.
The New Home Guarantee is almost identical, except it applies to new builds, off-the-plan properties and house-and-land packages.
The government hasn’t stipulated where the extra 4,651 places will be allocated, but it seems likely they will be spread over both programs, based on demand.
If you or someone you know is a looking to buy their first home, we can help.
Australians taking out bigger loans in response to rising property prices
Over the year to October, the average Australian home loan increased 16.4%, according to the latest data from the Australian Bureau of Statistics. Loan amounts increased in every state and territory, as the graph shows.
Obviously the amount of money you borrow is very important but so is the share of money you borrow compared to the value of the property you purchase.
This is known as your loan-to-value ratio (LVR). For example, if you borrowed $800,000 to buy a $1 million property, the LVR would be 80%.
The lower the LVR, the more likely lenders will offer lower interest rates and special deals. Conversely, if the LVR is above 80%, borrowers will most likely be required to pay lender’s mortgage insurance (LMI) – an insurance policy to protect the lender in case the borrower defaults.
If you’re planning to buy in 2022, it’s important you consider:
- What your LVR is likely to be
- Whether you can aim for a lower LVR to access lower interest rates
- Whether you’re willing to pay LMI to enter the market
The key is to be prepared and to crunch your numbers. We can help you with both tasks.
If you need some advice on your mortgage, chat with us.
Australians turning to mortgage brokers in record numbers
In the September quarter, mortgage brokers originated a record 66.9% of all new residential home loans, according to research group Comparator. This compares to a market share of 60.1% the year before.
Why is the broker market share growing so strongly?
One reason is value. When you go directly to a bank, you will only get told about that bank’s products. But when you go to a mortgage broker, the broker will compare loans from a wide variety of lenders.
Another reason is ethics. Brokers have to follow the Best Interests Duty, which legally obliges them to work in their clients’ best interests. Banks, though, are not bound by the Best Interests Duty.
The broker market share is likely to keep increasing, due to the rollout of open banking, a system that makes it easy for consumers to share their data with third parties. Brokers will be able to use Open Banking to help clients shop around and find better deals.
Kind regards,
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.