First-home buyer loan approval rates soaring
First-home buyers are getting approved for loans in record numbers, but there are still plenty of red flags that can trip you up. And what is the best rate you should be paying? Read more in our First Home Buyers Bible.
First Home Buyers
Don't miss out on the headlines from First Home Buyers. Followed categories will be added to My News.
The likelihood of first-home hunters getting the green light from a lender has soared in the past year.
Exclusive analysis for News Corp Australia by research firm Digital Finance Analytics (DFA) reveals more than 70 per cent of loan applications by people trying to break into the property market were successful in July, up from less than 58 per cent a year earlier.
DFA principal Martin North said the improvement came from lending regulator APRA making the interest rate test less stringent and prospective borrowers reducing amounts sought.
DFA’s data also shows that among those who miss out, a lack of expense history is the main reason one-third of the time — a share that has quadrupled in the past 12 months.
“Lenders have really tightened the screws on understanding people’s expense history,” Mr North said. Applicants who presented as a good risk were getting great deals, he said. Those who looked dicey were having to pay higher rates or being turned away.
“There’s much more separation of the sheep from the goats now,” Mr North said.
In response to the expense crackdown, mortgage brokers were “schooling” potential applicants on how to present themselves in the best possible light.
Australian Mortgage Awards broker of the year Josh Bartlett said his initial meeting with prospective borrowers was all about how to “get ready”. Mr Bartlett said many aspiring homeowners were either paying less in rent or living rent-free with parents. “They have never learnt what their budget will actually look like when they move into their own house,” said Melbourne-based Mr Bartlett, who has written $1 billion of loans in eight years.
He said he educates them to live on the amount they would have left after paying the loan they are seeking.
“If you’ve learned how to live like you have a mortgage, you’ll be looked on more favourably,” Mr Bartlett said.
In his initial meeting with clients he also
asks them to rate their money management skills out of 10.
To be able to manage a loan, a person needed to be a self-rated “eight”, he said.
For couples, it only needed to be one person; but a 10 and four would struggle, he said, because of the mismatch.
In that instance he would try to get the spreadsheet-wielding bean counter to ease up and improve the habits of the spendthrift.
He said outlays on home-delivered food and betting often had to be addressed, along with use of Afterpay.
MORE:
THE TOP SYDNEY SUBURBS FOR FIRST-HOME BUYERS
TOP INNER AND MIDDLE SUBURBS FOR FIRST-HOME BUYERS
“Afterpay is a problem,” he said. “Fifty to 70 per cent of the people I see have Afterpay.”
Mr Bartlett said another issue that had emerged recently was applying to the bank with which his client already had a personal loan, credit card or transaction account.
While a new lender might only scrutinise three months’ of expense history, a prospective borrower’s existing bank could look back three or four years.
That could lead to a rejection if the record was messy, he said.
DFA’s Mr North recommended people considering applying for a first home loan begin by visiting the Australian Securities and Investments Commission’s MoneySmart website and using its budgeting tools.
“Then prepare,” Mr North said. “Don’t just rock up and think you are going to magically get the loan.”
ASIC’s senior executive for MoneySmart Laura Higgins said increased use of online banking and electronic payments had made it easier for people to create an accurate picture of where their money was going.
So had the emergence of phone apps that track spending.
“Technology can really be your friend,” Ms Higgins said. “It can be quite empowering.”
How do you know if it’s a good rate
By Sophie Elsworth
New owner-occupier borrowers chasing a competitive deal should be getting a mortgage interest rate in the low 3 per cent range.
But those who have never had a loan before could be flying blind when signing the dotted line on a mortgage, experts say.
Analysis from financial services firm Canstar found a first-home buyer with at least a 20 per cent deposit could get deals below 3 per cent when taking out an owner-occupier principal and interest loan. Rates are slightly higher for investors signing up to a principal and interest loan, with the cheapest deals around the 3.2 per cent mark.
MORE:
WHY FIRST-HOME BUYERS ARE TURNING TO THEIR PARENTS
BIGGEST FIRST HOME BUYER MISTAKES TO AVOID
Canstar’s group executive of financial services Steve Mickenbecker warned the interest rate was not the only cost to factor in when committing to a mortgage.
“When you are looking at the cost don’t forget the fees and look at the comparison rate,” he said. “This allows you to see whether you have a good deal upfront — but maybe it doesn’t stay a great deal.”
The comparison rate is listed alongside the headline rate and factors in all of the fees and charges associated with the loan.
Reserve Bank of Australia Governor Philip Lowe made consecutive cuts to the cash rate in June and July, dropping it to a record low of one per cent.
Consequently lenders have continued to reduce their interest rates across all home loan products, with multiple lenders offering rates with a “2” in front.
ME’s general manager of lending, Andrew Bartolo, said first-time borrowers who want to keep their costs to a minimum should be considering no-frills products.
“If a first-home buyer wants to really cut down on fees, a basic home loan product generally only comes with a lawyer’s fee (for the settlement service) and a valuation fee (so the lender can get the property valued),” he said. “These are generally about $200 each, so a minimum of $400 in fees could be a reasonable expected minimum for a first homebuyer.
“There are also some very sharp low 3 per cent fixed rates if they are looking for some certainty on their repayments,” Mr Bartolo said.
$10k interest free to buy a house
More South Australians can achieve their dreams of home ownership with the state government expanding its ‘Starter Loan’ scheme eligibility criteria.
Surprising rise of the over-35 first homebuyer
The applications for the Federal Government’s First Home Loan Deposit Scheme has revealed a surprising number of candidates in their 40s and 50s trying to crack into the market.