Home loan industry insights

Competition among lenders for a home loan remains steep but borrowers may still be missing out on great deals and important information that could save them thousands of dollars.

YOU HAVE FREEDOM OF CHOICE

Most lenders will pitch one or two loan products to customers. But that’s a tiny fraction of the number of loans available in Australia. If you want to get a grasp of the wide variety of products out there, consider a mortgage broker.

A mortgage broker works for you, not the lender, and can help you tap this vast vein and find the loan that is best suited to your needs.

Talk to your broker about your financial circumstances and goals so they have as much information as possible to determine the best product solution for you.

YOU CAN SET UP A LINE OF CREDIT TO HELP FUND YOUR INVESTMENT PROPERTY

If you are negative gearing an investment property, you will have a shortfall between your costs and rental earnings. You can fund this gap with a line of credit (LOC) product using equity in your home or another property.

Say you have a gap of about $500 each month for your investment property, including interest and other costs, such as repairs and rates. You could set up a LOC for $20,000 to fund these expenses for a period of time, which may give you a little more financial breathing room. How long the LOC holds up will depend on interest rate fluctuations and your rental costs.

Like interest on your primary investment loan, the interest on this LOC is tax deductible, providing its sole use is to cover your investment expenses.

One caveat: this strategy works providing there is capital growth in your investment property over the same period, otherwise you are eating into your capital gain.

You also need to have some fiscal discipline and not dip into the LOC for non-investment related expenses, such as holidays.

While lenders will be able to set this structure up quite easily, they are not likely to offer it up front as part of your investment loan. Talk to your broker and financial advisor about whether this strategy is a smart option for you.

PEOPLE WITH POOR CREDIT RATINGS CAN STILL GET HOME LOANS

While it’s true a poor financial record will probably make it harder for you to land a loan, the doors may not be closed. Lending criteria has tightened in the wake of the global financial crisis but there are still plenty of loans up for grabs for those with a blemished track record or little financial backing. Be prepared, however, to pay a higher interest rate than the standard offering. A broker will be able to help you find loans with less stringent criteria, often labelled non-conforming loans, and will help negotiate with the lender on your behalf. You should also do a budget to ensure you are able to make any repayments, lest you end up adding to your woes.

THERE ARE WAYS TO AVOID LENDER’S MORTGAGE INSURANCE IF YOU DON’T HAVE A 20 PERCENT DEPOSIT

Lender’s Mortgage Insurance (LMI) is a one-off payment by the borrower when a loan exceeds 80 percent of the property’s value. It covers the lender’s risk if the borrower defaults, but does not cover any loss by the borrower.

LMI can be a painful hit to the hip pocket, often running to several thousands of dollars, especially after a home buyer has scraped together the minimum deposit.

One alternative to paying LMI if you have less than a 20 percent deposit is to secure a guarantor to cover the extra stretch.

A guarantor is usually a family member who is willing to put forward their property as security. One of the common myths that can scare family off is that the guarantor is then responsible for the entire loan. Not true. They only need to guarantee any amount beyond the 80 percent loan-to-value ratio (LVR). Although it’s a good idea for a guarantor to seek both financial and legal advice before committing.

The advantage of securing additional funding through a guarantor is that it simply gets tacked onto your loan so you can repay it over time, rather than forking out up front for LMI.

The key before you make any big decisions about home finance, is to have all the facts at your fingertips. Your broker will be able to compare the products and options that are out there and size up which arrangement will work for you and your circumstances.

AFG Competition Index – July 2014

Non-major lenders struggle for share of competitive home loan market

Non-major lenders have struggled to increase their collective monthly average of 25% of all home loans processed during the last financial year according to AFG Australia’s largest mortgage broker. AFG’s quarterly Competition Index, published today, reveals that the collective market share of non-major lenders was 26.3% in July 2013 and 25.2% in June 2014.

During the past 12 months, the share of loans processed for non-majors remained within a band of 24.0% (January 2014) to 27.7% (November 2013).

Mark Hewitt, General Manager of Sales and Operations says: ‘On the surface competition appears as strong as any time in the last 20 years. However the reality is that the major banks and their subsidiary brands continue to dominate and non majors have made little or no headway in the past 12 months.’

AFG Competition Index shows that lenders are increasingly focusing on different market segments, resulting in some significant changes in market share. ANZ built its share of first home buyers from 9.4% in July 2013 to 12.0% by June 2014. Among the non-majors, ME Bank recorded a massive increase of all fixed rate mortgage processed, from 1.0% share in July 2013 to 10.3% in June 2014. Macquarie Bank showed strong growth, particularly among borrowers seeking refinancing (7.8% in July 2013 to 10.0% in June 2014) and Bank of Queensland also made strong inroads in the first home buyers market, especially in the past six months (1.8% in January 2014 to 6.4% last month).

In terms of downward trends, a marked decline for BankWest was recorded during the first 6 months of this year with overall share falling from 9.0% in January to 5.0% in June, as far fewer home loans were processed for the bank on behalf of first home buyers (17.7% in January down to 10.3% in June). NAB recorded a steady overall decline during the year from 1.8% to 1.2%, and among non-majors, Suncorp, which held the largest share at the start of the year (5.6%) had declined to 2.9% by the end, behind Macquarie and ING.

Download full report: 
Competition Index – July 2014

Mortgage Index July 2014

INVESTOR ACTIVITY HEATS UP IN QLD AS NSW COMES OFF ALL TIME HIGH: LATEST MORTGAGE DATA

Investor activity is heating up in Queensland as it comes off unprecedented levels in NSW, according to AFG, Australia’s largest mortgage broker. AFG’s latest Mortgage Index, published today, shows that the proportion of mortgages arranged for investors rose from 33.5% in January to 38.7% in June in QLD. During the same period, investor loans in NSW declined from a peak of 53.4% in January to 45.9% in June. The June figure for NSW still leads the nation, with QLD next.

Elsewhere, VIC continues to enjoy solid investor support, with 36.6% of all home loans in June for investors. SA finished the year slightly higher on 35.5% and WA recorded 33.0% for investor loans in June.

AFG processed a total volume of $3,794 million in home loans last month – 23% more than in June 2013. The June figure was 10% lower than for May, following the usual seasonal pattern.

Mark Hewitt, General Manager of Sales and Operations says: ‘Overall it’s been a great financial year for AFG – we processed almost $44 billion in home loans, which is 24% more than in the last financial year. In NSW, investors have accounted for more than 2 out of every 5 home loans each month for the past two and a half years. What we’re seeing now is a resurgence in QLD as investors step up activity there. In both cases it should also be noted that the proportion of first home buyers are at very low levels compared with the rest of the country.’

The proportion of first home buyers in NSW last month was 3.4%, compared with 5.6% for QLD, 11.3% for VIC, 12.9% for SA and 23.1% for WA.

The average mortgage size rose from $401k in July 2013 to $433k by the end of June 2014 – a 7.9% increase. The biggest rise was in QLD (from $344k to $373k – an 8.4% increase), followed by VIC (from $388k to $419k – up 7.9%), NSW (from $494k to $526k – up 6.4%), SA (from $322k to $335k – up 4.0%) and WA (from $408k to $424k – up 3.9%).

Loan to Value Ratios (LVRs) the value of a loan expressed as a percentage of the value of a property, fell during the financial year from 68.4% in July 2013 to 66.6% in June 2014. This trend is in line with the decline in first home buying (from 11.6% of all loans in July 2013 to 10.8% last month), with upgraders and investors using equity from existing properties to finance new purchases.