A home lender’s tips on how to approach the market amid the COVID-19 outbreak
As housing prices across Australia remain unsteady in the wake of COVID-19, potential homeowners are calculating whether it’s the right decision to break into the property market.
To help make an informed decision, we recruited home loan specialist at CUA, Joel Dooner, to provide some insight into considerations that should be made before you decide to take the leap.
“The amount of activity in the property market has dropped off with COVID-19 – in some cases that may mean fewer properties to choose from,” Dooner explains. “But the quieter market is also an opportunity for homebuyers, particularly those who are essential workers or in jobs that have not been negatively affected by the pandemic and government restrictions.”
As Australians enter our first recession in 29 years, the decision to invest in a property now might seem at odds with the current economical climate, which appears to be reflected in Dooner’s line of work.
“The main concern we are seeing from borrowers is uncertainty about their jobs or the economy, and what the coming 12 months might bring,” he says.
However, as Dooner explains, those who are able to buy their first home might just benefit from doing it during these uncertain times.
“First homebuyers and those wanting to build a new home (or renovate an existing one) have been among the winners in recent months, benefitting from additional Government support,” Dooner states. “Meanwhile, essential workers with stable employment and property investors are seeing opportunities to buy at a time when the market is quiet and there is less competition.
“One of the big changes has been around qualifying for a loan. In a time where there’s more uncertainty about the economy and employment in some industries, many lenders have needed to put some additional checks in place to make sure borrowers can afford the ongoing commitment of a loan.”
Dooner goes on to list four other reasons why purchasing a property could work in our favour:
- “The First Home Loan Deposit Scheme is a great option to help first-time buyers get into a home with a 5% deposit, while avoiding the cost of Lenders Mortgage Insurance.”
- “Interest rates remain at very low levels. CUA has variable rates starting from 2.73% p.a. (2.78% p.a. comparison rate). That’s a lot more affordable than the days your parents might remember when interest rates were up around 16% p.a.!”
- “It could be a good opportunity to buy an investment property, if you are in a comfortable financial position, as there are currently fewer buyers and less competition.”
- “Lastly, buying will give you the security of being in your own home. No more uncertainty about whether your landlord might hike the rent, or decide to sell up if they are facing their own COVID-19 challenges.”
The last point Dooner makes is validated by the influx of recent stories about the disconnect between landlords and tenants, as tenants struggle to come to an agreement or renegotiate their rent.
So, if you do want to purchase a house, there are a few crucial factors to consider, one of which is your ability to save and how much you’ll reasonably need to have in your account to avoid paying far more in the future.
“The more you can save towards a deposit, the better off you will be,” Dooner reasons. “At a minimum, you’ll typically need 5% to 10%, but having a good deposit to contribute to the purchase will save you money – it means you won’t have to borrow as much.
“In some cases, you might be able to secure a lower interest rate and you can save on Lenders’ Mortgage Insurance (LMI), which applies if your deposit is less than 20% of the property value,” he continues.
“The First Home Loan Deposit Scheme is a great Government initiative for first homebuyers, as it allows eligible applicants to borrow up to 95% of the purchase price without needing to pay for Lenders’ Mortgage Insurance – that could get you into your own home sooner.”
As a renter, the notion of saving for a home while simultaneously spending a large portion of your paycheck on monthly bills can seem overwhelming, so Dooner recommends seeking your banks’ advice well in advance to know where you stand.
“My other advice would be to talk to your bank early – don’t wait until you are ready to buy a property,” he suggests. “Your bank will be able to give you advice about your “borrowing power”, which is the amount you can afford to borrow.
“That will give you a really good idea of how much you need to save towards the deposit. Work out how long it will take to reach the savings goal, based on what you can afford to save each week, and this will keep you motivated.”