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Hello,
There have been some monumental changes in lending policy over the past few months which has resulted in making it more difficult to qualify for a home loan.
Due to the global financial crisis the banks feel it is prudent that they tighten their policies. I cant argue with this but it has really negated some of the good work done by the First Home Owners Boost. A lot of first home buyers can now not obtain finance since they dont have sufficient deposits.
A summary of the main changes are as follows:
- The maximum loan to valuation ratio offered by most lenders now is 90%. There are still a few lenders that are still offering loans of up to 95% of the purchase price + lenders mortgage insurance but they are becoming more difficult to qualify for. 100% home loans are no longer offered by any of the lenders on our panel. 100% loans are only available where you have a guarantor.
- Lenders are now requiring borrowers to show that they have genuinely saved at least 3% to 5% of the purchase price of a property over a period of at least 3 months. This needs to be confirmed with bank statements. There are still some lenders though that will consider lending up to 90% of the purchase price of a property without this genuine savings requirement.
- Low doc loans have become more expensive and most lenders now ask for Business Activity Statements to confirm the declared income. There are a few lenders though that dont require this. No Doc loans, where an income doesnt even need to be declared, are all but extinct.
- The interest rate discounts that can be obtained on loans are less than could have been achieved a year ago. For example I was able to arrange a 0.80% p.a. discount off the standard variable rate for customers who borrowed more than $500k a year ago. Nowadays it would be difficult to get any more than 0.70% p.a.
Although things are tougher there are still options out there. Just call me to discuss your individual situation.
Enjoy this newsletter and feel free to pass it on to family and friends.
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PO Box 319
Toongabbie NSW 2146| Tel: | 1300 66 12 11 | | Mob: | 0404 037 663 | | Fax: | 02 8214 6592 |
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Responsible Lending Laws
When you take out a home loan you want the peace of mind to know you are dealing with a broker who has demonstrated knowledge, experience and integrity.
It's with this in mind that the federal government has introduced the National Consumer Credit Protection Bill 2009, which puts in place new national responsible lending laws for all consumer credit.
While strong consumer protection standards already exist in the mortgage industry, consistency varies from state to state. This is the first time Australia will have one national, standard system of regulation.
Under the legislation, both lenders and brokers will need to be registered with ASIC by the end of this year and apply for an Australian Credit License by 30 June next year. It is a condition of holding a license that lending is done responsibly - extending credit to a consumer that is unsuitable based on their needs and financial capacity will become an offence. Licensees must also be members of an external dispute resolution scheme.
In practice little will change for brokers who are members of the MFAA and FBAA industry bodies and already adhere to code of practice standards, but it is good news for the industry as it will weed out unscrupulous operators and ban them from operating across all states of Australia.
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Serious About Saving
From childhood most of us are taught the value of saving money, a lesson that can now pay dividends for those entering the home loan market.
As banks and other lenders tighten their lending criteria in the face of the global economic crisis, the requirement for borrowers to show genuine savings to secure a home loan is fast becoming the norm.
Although the criteria for what constitutes genuine savings varies for different lenders, it most commonly means you will need to show at least 3 to 6 months evidence of a regular amount being put away to build up your deposit.
Savings could be in the form of bank deposits, shares, equity in another property or even rent paid over a 12-month period. Lenders won't count as savings any bulk deposits like tax returns, gifts, inheritance, sale of assets, borrowed money or the First Home Owners Grant. While these funds are allowed to form part of your total deposit, typically around 5 per cent of the purchase price (in some cases 10 per cent, depending on the Loan-to-Valuation ratio) must come from genuine savings. If you are looking to purchase a $300,000 property, for example, you are required to contribute a minimum of $15,000 in savings towards your deposit on top of any government contributions.
Documents you might be asked to provide to demonstrate your savings include:
- Bank statements in your name
- Sale of shares (net of any tax due)
- Equity from property like additional borrowings or sale proceeds
- Non-preserved superannuation contributions (provided they can be accessed in cash form)
- After-tax bonus from employer.
Not all lenders require genuine savings for a successful application, but there is a definite shift in this direction. In the current economic climate, evidence of genuine savings gives the lender confidence in your ability to maintain a savings pattern similar to maintaining a loan repayment. It also demonstrates you have adequate finances to complete the purchase after the loan is applied.
Give us a call to find out more about how you can meet your genuine saving requirements.
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Book Review
It's Not Just About The Bike: My Journey Back To Life - Lance Armstrong
In 1996, 24-year-old Lance Armstrong was ranked the number one cyclist in the world. But that October the Golden Boy of American cycling was sidelined by advanced testicular cancer that had spread to his lungs and brain. His chance for recovery was as low as twenty per cent. Armstrong embarked on the most aggressive form of chemotherapy available and underwent surgery-including brain surgery-to remove cancer that the treatments could not reach. Five months after his diagnosis he resumed training under a cloud of uncertainty. This is the story of a journey, from inauspicious beginnings through triumph, tragedy, transformation and transcendence.
It is a story of early success, near fatal cancer, survival, recovery, victory in the 1999, 2000 and now 2001 Tour de France, the Sydney Olympics, marriage and first-time fatherhood. Filled with the physical, emotional and spiritual details of his recovery, It's Not About the Bike traces the remarkable journey of this great athlete to a singularly inspiring appreciation of life lived to the fullest.
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Budget Boost for Home Buyers
The Federal Government's 2009 Budget has generated optimism in the property market thanks to a $22 billion infrastructure program and extension of the First Home Owner's Grant.
Both initiatives are considered as positive steps in the move to stimulate our economy and give first home buyers a foothold in the housing market.
Designed originally to cut out at the end of June, the First Home Owners Boost has now been extended. Buyers have until 30 September 2009 to receive a $21,000 rebate for the purchase of a new home or $14,000 for the purchase of an existing home. From 1 October 2009 the First Home Owner's Boost will be reduced to $14,000 for new homes and $10,500 for existing homes, and will cease on 31 December 2009.
It's a second chance for those who haven't already taken advantage of the First Home Owner Boost. As your mortgage broker we can assist you with your application and advise you of any state-specific entitlements you may be eligible for.
The Boost has already achieved considerable success in encouraging activity in the housing market (see Did You Know box) and the extension is expected to help thousands more new home buyers.
Similarly the $22 billion Building Australia Fund is hoped to give a push-start to the building and construction industries, in turn supporting employment and improving the accessibility and supply of housing.
The news that the budget deficit may hit a record $57.6 billion in 2009-10 paints a sobering picture of the tough times ahead and emphasises the importance of any moves to prop up Australia's property market in a way that positively impacts jobs, housing and consumer sentiment.
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Did you know?
- Home loan affordability has improved. The proportion of family income required to meet home loan repayments has decreased to just over a quarter of the average Australian pay packet (28.6 %). This compared to 32.4 % in the December quarter last year and 38 % in the March quarter 2008. (Source: the Real Estate Institute of Australia Affordability Report).
- Home values have increased significantly over the first few months of this year and gross rental yields are expected to peak over the coming months. Overall, national dwelling values were up 2.8 % in April from the start of the year, with only Perth failing to show an increase. (Source: RP Data/Rismark Australian Home Value Index).
The number of first home buyers has nearly doubled compared to one year ago. In the March quarter first home buyers represented 27.3 % of all buyers, compared to 16.4 % in March last year. (Source: ABS Housing Finance, March 2009).
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Redraw and Offset: A Step Ahead
While interest rates remain low, it pays to stay ahead of your minimum monthly repayments by using a redraw facility or offset account.
Since mortgage rates have dropped, nearly one in three suburban families continue to make more than the minimum required monthly home loan repayment*, a choice that will save years off their mortgage and thousands of dollars in interest.
Borrowers who are tempted to lower their repayments and put the money into a savings account should keep in mind that savings are taxable and paying off the mortgage is not.
If you are able to do without the additional funds, redraw and offset accounts offer a convenient place to store money that you can still access for a rainy day. For as long as you have extra funds in your mortgage you have the security of knowing you have a buffer to cope with hard times as well as the financial stability to weather any future interest rate rises.
What is a redraw facility?
It is a way of making additional repayments on your mortgage and then having access to this money again when you need it, such as for a new car or holiday.
Redraw is offered as a feature of most home loan products, with fees and conditions varying from one lender to the next.
What is an offset account?
It is a savings account that is connected to your home loan, where you deposit money into it and use it to pay off your bills and daily expenses. You don't earn interest on the money sitting in your offset account; instead the balance is offset against your mortgage amount.
Like redraw, offset accounts differ in their fees, terms and conditions. Some are fully offset (100%) while others are only partially offset and may be conditional on a minimum account balance or withdrawal amount.
As your mortgage broker we can advise you of the suitability of different lenders' redraw and offset accounts. Contact us to discuss the best option for your needs.
* May 2009 Mortgage Stress-O-Meter, Fujitsu Consulting.
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Mortgage & Finance Association of Australia
Mortgage World Australia is a full member of the MFAA. As a member we must adhere to an Industry Code of Practice, which requires professionalism, ethical behaviour, transparency and a commitment to you, the borrower.
This helps to ensure that your best interests are at heart whenever we make a finance recommendation.
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News & Specials
- Bankwest have brought back their Rate Tracker Home Loan which offers a 0.90% p.a. discount off the average standard variable rate of the big 4 banks for the first 3 years of the loan. There is also no early repayment penalty on this loan which means you can refinance after 3 years without being charged a hefty exit fees.
- As of Monday 13th July RAMS are offering a FlexiFix product where up to a maximum of 50% of the loan amount can be fixed for 2 years at 4.99% p.a. rolling over to the Smartway Variable rate after 2 years. Variable portion can only be taken as a Smartway Variable loan which currently offers an interest rate of 5.49% p.a.
- St.George are offering a 0.15% p.a. discount off their fixed rate home loans if taken under their Advantage Package. Westpac are offering a 0.20% p.a. discount off their fixed rates under their Premier Advantage Package.
- Although most lenders are no longer offering cheap low doc interest rates RAMS are still very competitive in this market.
- Go into the draw to win $10,000 in Cold Hard Cash by either booking an appointment with us, using our services to take out a home loan or by referring a friend. Competition ends on 31st July 2009.
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Disclaimer: This newsletter is intended to provide general news and information only. Readers should rely on their own enquiries before making any decisions regarding their own interests. Please do not rely on any part of this newsletter as a substitute for specific legal or financial advice. All material is copyright 2010.
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