2018 looks set to be a bumper year for home buyers. Aussie CEO James Symond shares his thoughts on the home loan space for the year ahead, and offers six key insights on what to expect.
1. 2018: The year of the great deal for owner occupiers
If I could sum up 2018 it’d be “the year of opportunity for home buyers”. Lenders are likely to feel the pinch of slowing activity among foreign investors, who now face hikes in stamp duty and other taxes in both NSW and Victoria. Growth in investment lending has been capped at 10% by banking watchdog APRA, and lenders will be looking to fill these gaps, actively chasing owner occupiers paying P&I with some very enticing deals.
It adds up to great news for first home buyers, upgraders and refinancers, who could find themselves in the driver’s seat to negotiate a well-priced, flexible home loan in 2018.
2. Improving housing affordability
The big news of the year is likely to be improving housing affordability across all states and territories.
After several years of soaring gains, Sydney and Melbourne are seeing a return to more normal conditions, and this will be a welcome change for those looking to buy into the market.
That said, I definitely don’t see a major property downturn – Sydney’s population for instance, is expected to hit eight million in 40 years’ time, so we can expect strong ongoing demand for homes.
However, a momentary lull in price growth is something worth taking advantage of. Don’t waste a minute – Speak to your Aussie Broker about achieving your property goals this year.
3. First home buyers make a comeback
Here’s some welcome news. Figures from the Real Estate Institute of Australia (REIA) show a large increase in the number of loans to first home buyers.
In fact, first timers now make up 24.5% of the owner occupied housing market – the highest since September 2013.
If you’re keen to buy a first home I encourage you to set a date to talk with your local Aussie Broker to make the most of today’s favourable market conditions.
4. Interest rates – likely to remain stable
After speculation about the possibility of rising rates, it now appears to be increasingly likely that interest rates will remain on hold in 2018.
Even the Reserve Bank, has commented that low rates are supporting the Aussie economy, and a rate hike now could negatively impact household spending and business investment – two key drivers of our economy.
Of course, interest rate movements can be unpredictable, and no one can say for sure how rates will move over the next 12 months. Nonetheless, home owners do have an ace up their sleeve. Fixed home loan rates remain very low – often below 4%. If rising rates would be a problem for your budget it could be worth locking into a fixed rate loan.
5. Low deposit loans retreat from the radar
It’s likely 2018 will see a continuing trend away from high “loan to valuation ratio” (LVR) lending.
We’ve already see a drop in the number of loans that allow home buyers to borrow more than 90% of their property’s value. Some lenders are also cutting back on loans where a deposit is below 20%.
This means that borrowers may need a bigger deposit than in the past. This often isn’t an issue for upgraders and refinancers, who can access home equity. But for first home buyers it can make a first home purchase more of a stretch.
Having a 20% cash deposit certainly isn’t the only way to buy a home though. Your Aussie Broker can explain other strategies when you don’t have a big deposit including family guarantee loans.
6. Interest-only loans fall out of favour
For owner occupiers planning to use an interest-only home loan, it may be worth rethinking your strategy and asking your Aussie Broker to crunch the numbers on principal and interest repayments.
Lenders have been cooling on interest-only repayments since March 2017, when APRA asked lenders to limit new interest-only lending to 30% of all new home loans.
APRA was concerned about how households with high debt levels would cope with principal and interest repayments once the interest-only period came to an end. It’s not an unreasonable point. One of the benefits of making principal and interest repayments is the potential for steady growth of home equity, which can help to future-proof your home loan if rates do rise further down the track.
Investors may still be able to secure an interest-only loan but it’s likely to be for a 5-year period. The days of interest-only repayments being extended for 10 or even 15 years could be behind us, and at some stage, even as an investor, chances are you’ll need to start paying down your investment loan. If this could be a challenge for your cash flow, talk to your Aussie Broker about refinancing your investment property loan. A more competitive rate could free up spare cash.
The bottom line is that 2018 is shaping up to be an exciting year for owner occupiers and investors alike, with plenty of opportunity when you get the right mortgage advice. As the home loan market remains competitive, I urge you to set a date to meet with your Aussie Broker to be sure 2018 sees you with the home loan right for your needs.
You may also be interested in New Year, new home loan, With stamp duty exemptions, where can first home buyers afford to buy? and Why now could be the time to upgrade.
