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Is It Cheaper to Buy Than Rent Post-Covid?

New research from CoreLogic found that servicing a mortgage has become cheaper than paying rent on 36.2% of Australian dwellings, up from the pre-Covid-19 numbers of 33.9% posted in February 2019.

More than a quarter (26.2%) of dwellings are cheaper to purchase in the combined capital cities, while the numbers increased to 60.1% in the combined regional cities.

The analysis was done at the individual property level, using a group of mortgage assumptions and valuation estimates to come up with a ballpark figure for mortgage repayments. The numbers were then compared with rental estimates at the individual property level.

The assumption was that the buyer saved a 20% deposit and bought property at an interest rate of 2.4% on a 25-year loan term.

The combined capital cities had varied levels of mortgage serviceability compared with 2020, with data showing that in certain cities, the number of houses that are cheaper to purchase has decreased.

For example, in Sydney, 4.9% of dwellings are cheaper to purchase in 2021, down from 7.1% in 2020, while in Melbourne, it was 7.3% in 2021, down from 9.6% in 2020.

Sydney property prices have risen by 15.2% since February 2021 (amid low interest rate), which has boosted loan principals.

Rents in Sydney grew by just 2.1% compared to 2020, due to reduced rental demand because of the delated foreign migration.

Properties were cheaper to buy than compared to renting in 2021 thanks to significantly lower interest rate costs on mortgage debt since the start of the pandemic.

Based on the analysis by CoreLogic of data from the Reserve Bank of Australia, the average new mortgage rates for owner-occupiers have declined from 3.21% in February 2020 to 2.40% in May 2021.

CoreLogic: principal could decline because of higher fixed rates

Mortgage costs could increase as lenders start to increase long-term fixed rates along with increased funding costs.

For new owner-occupier borrowers, average long-term fixed rates have improved from recent lows by an average of roughly 12 bps, which would have already undermined serviceability in certain areas.

However, average fixed rates with at least a three-year term are still so far from pre-pandemic levels. Numbers are currently at 2.11%, down from 3.06% in February 2020.

But despite the moderate increase in longer-term fixed rates, renters should still assess their housing costs for longer-term renters, versus the cost of purchasing.

Higher mortgage rates would increase interest rates for buyers. However, for some, mortgage servicing may still be a smarter path than renting in this situation. This is because increased interest rates could weaken the housing market and reduce the principal.

It depends on individual circumstances, and evaluating the cost of various tenure types.

For mortgage brokers, there is business to be had from people who want to shift from renting to owning a home even when rates are increasing. However, they should be aware of the possible tightening in prudential standards.

Monetary policy could remain liberal in the near term, with projected growth in the cash rate fluctuating from late 2022, as forecasted by major banks, to 2024, according to the RBA.

In case average, long-term fixed rates go the full 100 bps, they would return to levels reported in October 2019, when dwelling demand was significantly high.

Taking all of these into account, there could be more proactive risk management and possible tightening in prudential requirements in the housing lending situation. So, you may want to note that there could be increased focus on serviceability assessment.

Two new changes that could get you into your dream home faster!

Property Markets are going to crash!!  Well, that was the prediction for last year that never happened.

 

Calmer heads have now prevailed and can finally see what any sales agent or broker will tell you, the markets are BOOMING right now.

And for good reason. Property has shown to be virtually rock solid through Covid and in some places like Newcastle the market has gone up.

Even though Property is kicking goals right now the rest of the economy is still struggling and there is no better place for the government to pull some Macro levers than in the property and construction sectors.

To get the economy firing again people need to be in jobs and to spend money so the federal and state government of NSW have come to the party with a couple of very important changes.

If you are a FHB (First Home Buyer) and purchasing under the NSW threshold of $650K for existing or $800K for new builds then you already get a onetime free pass on paying SD (Stamp Duty).

The NSW government finally announced that for the rest of us (Not FHB’s) it was going to change how Stamp duty/transfer duty was collected.

Currently Stamp Duty is collected when a properties title is transferred or purchased and is determined by the value of the property. The higher the property the higher the stamp duty.

For new builds that purchase the land portion first you will only pay SD on the land value.

E.g., a $300,000 property will require a $8,935 payment of SD where as a $900,000 property will set you back $35,835. Or a $400,000 block of land will be hit with a $13,335 in SD.

What many are claiming to be a “long overdue” change to an “outdated tax” this could be the chance many buyers have been waiting for to upgrade or to purchase their next “stepping stone” property on their way to their dream home.

The NSW government has announced they will allow buyers to decide if they pay the full SD up front in one go or if they choose to pay a land tax style fee each year.

This will have drastic consequences to the property markets. There is no question about that.

The first of which is the extra cash that buyers will now have to increase their deposits. Previously buyers always had to keep enough for SD aside which often decreased what they could purchase. Now with the option to make your repayments incrementally once a year, buyers get an automatic Borrowing Capability boost.

Your Borrowing Capacity (BC) is not determined by your deposit but is directly tied to it. Even with a $2 million dollar BC if you have no deposit you could not purchase a property.

Let me show you a scenario using a 10% deposit.

Joanne has $70,000 deposit and wants to purchase a property to live in. She is not a FHB so will be required to pay Stamp Duty. Previously Joanne would be restricted to a property value of $512,000.  $18,735 would go to Stamp Duty leaving only $51,265 of her $70,000 deposit.

With the new changes Joanne can choose to pay the land tax version once a year and if she has the Borrowing Capacity can now afford a $700,000 property. Almost $188,000 in extra borrowing capability is going to mean that market distortions could take affect very quickly in 2021.

There is one other little quirk regarding the new change. It has been mentioned that if a property is transferred once and the buyer chooses the land tax option that property will continue to have land tax paid yearly if it is sold in the future. Again, potentially creating two different types of markets. This “quirk” still must be clarified by the government as it is only speculation at the moment.

 

So, who will benefit from these two types of Stamp Duty payment methods?

For investors paying your Stamp Duty as a land tax makes sense as any land tax is currently tax deductible though that has not been determined yet and you should speak to an accountant for any tax advice.

Paying your Stamp Duty all in one go as it is currently may be beneficial if you were entering your retirement years and are purchasing your final home. It may be more beneficial to pay all you Stamp Duty up front, so you are not paying Land tax yearly as you grow older and your savings/super diminish over time.

The second big change is the “relaxing” of the responsible lending legislation. The federal government has said that it intends to reduce the onus on the banks when buyers complete a loan application.

Currently the sole responsibility is on the bank or lender. The new changes will mean that if you say your living expenses are $3,400 a week then the bank will accept that they are as you have claimed. Currently they will assess 3 months of your bank statements to gain an average of your spending and then if it falls short of what an average family of your size and income would spend then the average is still used.

This can detrimentally affect customers Borrowing Capacity as the higher your LE (Living Expenses) the lower your BC. If you happen to be a great with your budget, then you can be unfairly limited due to the bank using a higher LE amount than you really do.

The suggested changes will allow the banks to use the living expenses amounts that you have claimed and could mean you can afford a more expensive property.

Depending on your situation it could increase your Borrowing Capacity by $50-$60K.

2021 will see some massive changes to the property industry all of which are designed to fire up the lagging economy.

Speak to the professionals at Open Plan Finance today and run your scenarios, dreams and goals past our team.

 

Written by:
Jason Hare
Mortgage Broker & Finance Consultant
Co-Founder and Lending Specialist
CEO | Lending Specialist
0400 805 206
jason@opfinance.com.au

 

 

Tips to Avoid Mortgage Stress

There are many Australians with mortgages that fail to arrange for contingencies in case of interest rate increases or changes in their financial situation, both of which can hinder the ability to fulfil their mortgage duties.

There are many ways to avoid mortgage stress, including knowing your true financial circumstance, making extra payments, opening an offset account, or fixing interest.

Income information and estimated expenses are used by lenders and mortgage brokers to make sure applicants can pay the loan their applying for.  However, knowing your own financial position is vital in case there are changes, and some mortgage brokers provide their clients a family budget spreadsheet that they can use to understand their current financial position and allow them to better manage the future.

When there is trouble, you can relieve stress through changes in the loan or lifestyle with the help of a budget.  Especially important at this time of year as all those credit card bills from Christmas are beginning to come in.

Another way to avoid mortgage stress is by making extra repayments. It will move you ahead of regular repayments and reduce your interest as well.

There are also the offset accounts, though they can be quite accessible at times.

There are some lenders that allow clients to take a repayment holiday if the situation is ideal, like a new baby or major illness. However, even this is on a case by case basis.

A fixed rate is another way to ensure repayments, especially with interest rates at record lows at the moment.

Best advise is to get educated about your own circumstances and use the services of a professional to help you!

 

 

National Residential Property Listings Decline in 2018

With homeowners taking a break and enjoying summer holidays, national property listings declined in January 2018 by 4.8% to 303,901, according to data from SQM Research.

Melbourne led the decline in listings with 13.9%, followed by Sydney with 6.9%. Stock levels in Brisbane and Melbourne significantly declined from a year ago, by 11.9% and 29.1%, respectively, indicating a large scarcity of homes for sale in those areas. However, listing increased by 20.9% in Sydney compared to a year ago, a sign of a significant rise in homes that are for sale.

Listings in Canberra dropped 6.2% and declined by 5.8% in Adelaide. The stock on market in Brisbane dropped by 3.9%, by 2.1% in Perth and 1.3% in Darwin. Listings in Hobart dropped 2.6% over January.

National Residential Property Listings Decline in January 2018


The decline didn’t come as a surprise since January is normally is the slowest month of the year for listings in most areas as people go off to their summer holidays. However, Sydney listings are much higher year on year.

Modern price gains in Sydney and most other capital cities are expected going forward, since interest rates remain low and the likely expansion of lendings by banks.

As for auction clearance rate results and the asking prices over the rest of February provides some excellent understanding of how the market was launched. Asking prices recorded a major increase in January, but it was due to a lower number of listings, so it would be prudent not to read too much into it at this point.

For the month until January 30, capital city asking prices were up 2.2% for houses and 3.0% for units. Sydney posted the biggest monthly increase, with house asking prices rising 4.5% and unit asking prices increasing 4.2%.

Prices were highest in Melbourne year on year, with housing asking prices increasing 24.1% and 11.9% for units. Increases were high too in Hobart, with asking unit prices growing 8.9% and 6.3% for houses.

Darwin recorded the only  decline in house prices due to the mining slowdown that continues to affect the real estate markets in the region. In Perth, asking prices increase 2.2% for houses year on year, as it recovers from the slump.

Interested to know the changes in your suburb?  Ask Annette or book a 15 minute appointment for more information about your home.

How Much Does Property Investment Cost by State?

You can purchase a house or an apartment unit for no other reason but because it is a good investment, even if it is a long commute in another region or a plane flight away in a different state.

However, the fees and charges you have to pay depend on which state you want to purchase in.

Don’t forget that because you’re purchasing the property as as investment, you are disqualified from the concessions granted for first-home buyers as you will not be residing in the property. So expect to pay for the full costs.

In this article, we used as an example a home bought at $500,000 as the best price range for investment is between $400,000 and $600,000 according to real estate experts.

NSW
Where in Sydney can I purchase property for $500,000, you might ask?  Difficult but not impossible if you are willing to purchase a studio or one-bedroom house, or search on the outskirts of the city.  You’ll also discover that what you’re going to pay for investing in Sydney is, for the most part, cheaper compared to other parts in Australia with the exception of Queensland (the only state with lower fees).

For a house that costs $500,000, you’d have to pay a little over $18,000.

Stamp duty – $17,990
Transfer fee – $138.30
Mortgage registration fee -$138.30
Total – $18,267

VIC
Victoria has the most expensive purchase price for a residential investment property out of any state in the country.

For a $500,000 home you’ll be hit with more than $8,000 more than a similarly priced house in Sydney, though the house you’d own for that price would probably be nearer the city or much bigger.  By adding $50,000 on the purchase price, you’ll pay roughly $3,000 to the applicable stamp duty, together with a slightly higher transfer fee.

Stamp duty – $25,070
Transfer fee – $1265
Mortgage registration fee – $114.90
Total – $26,449

QLD
The real estate market in Queensland has not enjoyed the same degree of growth as New South Wales and Victoria, making it an attractive investment haven.

The cost of buying an investment property in the Sunshine State is the lowest of all Australian states.

Stamp duty – $15,925
Transfer fee – $1269
Mortgage registration fee – $181
Total – $17,375

SA
South Australia may not quite match Victoria in terms of the high overall costs of investing, but it is close to it.
Investors need to cough up $3,897 for the transfer fee on a $500,000 property. This is 300% more than in other states.

In some states the transfer fee is fixed, but the fee in South Australia increases by around $402 each time you add $50,000 to your purchase price.

Stamp duty – $21,330
Transfer fee – $3897
Mortgage registration fee – $160
Total – $25,387

WA
Western Australia’s real estate market is seen as unstable to some degree, but investors who are prepared to brave it will experience reasonably low stamp duty and fees. The state follows behind Queensland when it comes to low stamp duty fees. For transfer fees, they increase only fractionally as the price of the property increases.

Stamp duty – $17,765
Transfer fee – $258.70
Mortgage registration fee – $168.70
Total – $18,192

TAS
Fees are kept low also in Tasmania, largely because of the fees being kept at low rates, regardless of how much the property is worth.

Pleasantly for buyers, all properties have a transfer fee that is set at $203.05. This means that when the purchase price reaches $800,000, the cost in Tasmania becomes the least expensive in Australia.

Stamp duty – $18,247
Transfer fee – $203.05
Mortgage registration fee – $132.52
Total – $18,583

Other items to note
You’d also most probably pay annual land tax, depending on the state in which you purchase your investment property, and the type and size of the property you purchased.

Each state also has different land tax thresholds and charges an amount depending on the size of the land where the property stands.

But for units, you’d only pay a portion of the land tax, depending on the number of apartments or units are on the land. Make sure to find out the land tax rate before purchasing.

 

 

Window Safety Devices in Strata Must Be Installed by 13 March

People living in, owning or managing a townhouse or unit block have until 13 March 2018 to install window safety devices to prevent children from falling from windows. This law covers all openable windows where the interior floor is over 2 metres above the surface outside and within a child’s reach (below 1.7 m above the inside floor).

The devices must be fixed to a window frame or tough bars (provided the opening can be curbed at less than 12.5 cm and can endure 250 newtons of force). They are also required to be installed on applicable windows in stair landings and other common areas.

Owners corporations will incur a fine if they fail to comply with the 12 March 2018 deadline. Owners corporations do not need to supervise or implement the use of window safety devices but they must make sure they are installed by the set deadline.

Once window safety devices are installed, the windows can be fully opened. However, residents are strongly advised to engage the devices every time there are children, to prevent falls.

Contact your property manager, owner or strata manager as soon as possible if yours have not been installed or have not been informed of an installation date.  Alternatively, you can always contact Annette Pinkerton at One Agency Pinkerton Properties for more information and advice.