Home Loan Stage: Financing

Rate cuts? Pencil them in for 2025

Put the party pies on ice and postpone those rate-cut celebrations for a while yet. The much-touted rate cuts we’ve been waiting for may not arrive until 2025. Here’s why rates could be staying higher for longer, and how to take action yourself.

June saw the Reserve Bank of Australia (RBA) keep the cash rate on ice – yet again.

Rates haven’t budged since November last year, and with the RBA not due to make another rate call until August, interest rates will remain in a holding pattern for at least two more months.

For home owners struggling to manage their home loan at current interest rates, it begs the question: ‘what happened to all the talk about rate cuts in 2024?’

Here’s what’s happening.

One reason why rates aren’t moving

Just a few months ago, some of our biggest banks were predicting interest rates would start to slide sooner rather than later.

The Commonwealth Bank and Westpac, for instance, expected rate cuts as early as September.

That’s now looking increasingly unlikely.

The reason lies with inflation.

The RBA is intent on getting inflation down to 2-3%.

Unfortunately, inflation is not playing along.

It’s currently sitting at 3.6%. So close, but not quite there.

When are rates likely to fall?

The RBA expects it could be “some time yet” before inflation is happily nestled in that 2-3% range – the point at which long-awaited rate cuts may start to kick in.

It’s not much of a date for home owners to work towards, though the big banks have a few time frames of their own.

Westpac and NAB now both see rates heading south from December. And while CommBank recently stated it expected rates to fall in November, there are signs it’s losing hope for a 2024 rate cut.

“Given the challenging underlying inflation backdrop, as well as a labour market that is loosening more gradually than expected, the runway is shortening between now and November,” CBA’s head of Australian economics, Gareth Aird, said.

“The risk to our call is increasingly moving towards a later day for an easing cycle.”

Meanwhile, ANZ doesn’t expect a rate cut before 2025. Ditto Citi economists and a growing number of other experts.

Long story short, even if we do get a December 2024 RBA rate cut, it’s probably fair to say we won’t see those cuts flow through to home loans until early next year.

And a note of caution: the RBA mentioned in its June statement that it is “not ruling anything in or out”.

It’s a grim reminder that a rate cut is not guaranteed before another rate hike.

This is why it’s so important to take action of your own.

How to manage higher rates

Revisiting your household budget, identifying areas where you can cut back, and tucking spare cash into an offset account to save on loan interest are all steps worth considering.

And don’t forget, tax cuts for 13.6 million Australians kick in from 1 July.

That could provide extra cash each pay day to help pay off your home loan.

It’s also a good idea to speak to us for a home loan review.

We can let you know if you still have the loan that’s right for your needs, or if you could save by switching – without having to wait for RBA rate cuts.

Better still, rising national property values may mean you could be in a great position to refinance.

Talk to us today for more tips on managing your home loan repayments and possibly trimming your loan rate. It may mean the party pies can come out sooner!

 

Disclaimer:

The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Is a tree or sea change on your horizon?


Fresh air, no bumper-to-bumper traffic and more affordable home prices. There’s plenty of appeal in regional living, including a chance to potentially reduce your home loan.

The classic tune ‘Home among the gum trees’ is fast becoming a lifestyle anthem for a growing number of Aussies.

A surging number of city-slickers are heading to the bush or bay, new Commonwealth Bank research shows.

In fact, metro to regional relocations are now 20% higher than pre-Covid.

It goes to show that regional towns and cities have a lot going for them.

So what’s the appeal?

Along with a laidback lifestyle and the chance to see Skippy on your way to work, rather than countless sets of traffic lights, a key drawcard of regional living is more affordable housing.

Where are people moving?

The Sunshine Coast in South East Queensland is currently the nation’s most popular destination for Australian movers, securing a 16% share of net internal migration over the past 12 months.

Other popular areas outside our nation’s capital cities include the Gold Coast, Wollongong, Newcastle, Lake Macquarie, Moorabool, Geelong, the Alexandrina region, the Fraser Coast and Launceston.

Western Australia is also becoming an increasingly attractive destination with Busselton, Capel, Greater Geraldton, Northam and Albany all making their way onto various hotspot lists this quarter.

Regional home values vs city prices

Across Australia’s capital cities, the median home value is about $864,780, according to CoreLogic.

By comparison, the median value across regional markets is $626,888.

That’s a whopping $237,892 difference.

The price gap can be far bigger depending on where you’re moving from and moving to.

In Sydney, for instance, the median house value is $1,441,957. Head to regional NSW, and you could pay closer to $760,000 for a house – a saving of around $680,000!

Regional living can help cut loan repayments

Buying a more affordable home can have other flow-on benefits, such as a lower stamp duty bill.

It can also have a huge impact on home loan repayments.

For example, let’s use the above figures and pretend you’re deciding between purchasing an $864,780 capital city home and a $626,888 regional area home.

To keep things simple, let’s say you’ve saved up $173,000 for a 20% deposit on the $864,780 home – and you’ve also got extra money set aside to cover any stamp duty expenses or other fees (the exact amount would vary state to state).

Let’s also assume a home loan rate of 6.4%, which the Reserve Bank of Australia says is about the current average principal and interest variable rate, and a 30-year loan term.

On this basis, the initial mortgage for the city home would be about $692,000 and the monthly mortgage repayments on the city home would come to around $4,329 each each month.

For the regional property, your initial mortgage would be about $454,000 (assuming you put the full $173,000 towards the deposit) with monthly repayments in the order of $2,840.

That’s a monthly saving of $1,489 by moving to a regional area – extra money to spend on your home, yourself or your lifestyle.

What about capital growth?

No one can say with certainty how property values will perform in the future.

What we can do however is look at how house prices have performed across regional areas in recent years.

CoreLogic says values in regional areas have jumped 51.1% ($212,000) nationally since March 2020, compared to an average of 31.5% ($207,000) across our state capitals.

So in terms of dollar values, the capital gains across both markets have been fairly similar in recent years.

Ready for your home among the gum trees?

Okay, regional living isn’t for everyone.

Even for committed fans, moving from a capital city to a regional area calls for careful planning and research.

But if you’re hankering for a home with a more manageable mortgage, give us a call today to discuss loan options that could help you get that tree or sea change happening sooner.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Getting ready to buy your first home

Here are the most important things to know before you borrow.

If you’re looking to buy your first home, chances are you’re also looking for your first home loan. It may seem daunting, but it doesn’t need to be. With some expert advice and help along the way, you’ll be able to find the right loan and, more importantly, get closer to owning your own home. More than half of all Australians taking out a mortgage are doing so with the help of a mortgage broker. It’s the smart way to go. In this blog, we’ll cover everything you need to know about getting your first home loan and how having a broker by your side could benefit you.

Working with a Front Row Financial mortgage broker is the smart way to go

  • We provide real choice, looking to find you the right deal.
  • We work with multiple lenders, not just one – keeping competition alive.
  • We may negotiate a better outcome.
  • We help at a time and place that suits you, doing the legwork for you.
  • Our aim is to save you time and stress, and get things moving as quickly as possible.

Start saving for a deposit

Most lenders require a deposit of at least 10-20% of the total loan amount.

Lenders Mortgage Insurance

If your loan amount is more than 80% of the value of your dream property, you will also need to pay Lenders’ Mortgage Insurance (LMI). This is a one-off insurance payment charged by lenders, to borrowers who are considered a higher financial risk. Your risk to lenders is determined by your loan to value ratio (LVR), which is the amount you wish to borrow divided by the lender’s valuation of the property you wish to buy. Lenders generally like to have at least a 20% buffer, so if you have to default on the loan, they stand a good chance of recouping the loan amount through the sale of your property. Ideally, you should start with a 20% deposit to avoid paying LMI. For some borrowers, however, LMI is considered a worthy investment to help secure a loan with a lower deposit.
The critical factor is whether your income can support the higher loan repayments. We can give you an LMI estimate based on your financial situation before deciding how much you need for your deposit.

Saving for a deposit

There is no time like the present to start stashing your cash for a deposit. The longer you put it off, the harder it can be to develop good savings habits. Unless you win the lottery, inherit or receive some other windfall, chances are you will need to make sacrifices to save. This may mean finding cheaper rent or moving back in with parents, while making some tough choices about how you spend your disposable income.

Start with a budget

Make an honest appraisal of all your living expenses and decide where you can cut back. Once you know how much you can actually save, set up a direct deposit from your pay into a separate savings account with no card access. That way you won’t be tempted by ATM withdrawals or EFTPOS purchases. It may not be easy, but it will be satisfying to watch your nest egg grow, knowing your homemade lunches and big nights in will eventually reap financial rewards.  

Remember the extra costs

In addition to a deposit, you’ll also need to have enough  saved to pay for stamp duty and conveyancing or legal fees  associated with the purchase of the property.

Talk through your options with us

When it comes to buying your first home, it’s a good idea to speak to a mortgage broker first – even before you speak with a real estate agent, or get too far down the track.

Not only is a broker a wealth of information and advice, we’ll also help you find the right loan, and aim to make the whole application and approval process much easier. There are literally hundreds and hundreds of different loan products for you to choose from. It’s just a matter of helping you finding the right one. As your broker, we will look for a loan that suits you and your circumstances. With access to multiple lenders and an array of different loan products, we stay up-to-date with changes within the market and new products from the lenders as they come online. The best thing is, while you’re saving for your deposit, we are working for you to give you the peace of mind that you’re in the right deal.

The first thing we will do is catch up and chat about your needs and goals. We can then give you a realistic idea of your borrowing potential and help you find the loan that suits you. So when you find the right place, we can work on sorting out your finance as quickly as possible. Once you know what you can borrow, have found a house, and have chosen a loan, we take care of the application process, taking all the headaches and stress away.

Why not go straight to a bank?

Of course you can go to a bank, but this can be trickier than it sounds. Firstly, which one do you choose? Which of their products is right for you? And what about other lenders, building societies, and credit unions? There are a lot of options out there and, with regularly moving interest rates and new products, it’s an ever-changing market. And let’s not forget that if you’re a first homebuyer, you’re probably very new to this. That’s why a broker makes sense. We do this everyday. We know the lenders, their products and policies and we keep up-to-date with changes. We help choose what’s right for you. Banks enjoy working with brokers, as we do a lot of the work for them and may help speed up the application process. Put simply, having a broker in your corner makes it easier to find the right loan, saves you time and, hopefully, money.

How much can you afford?

The first thing we will do is work out your borrowing potential. While you may have your dream home in mind already, you need to find out if you can afford it first. There are many factors that will influence your decision around what to buy and where – proximity to work and family and your stage of life are just a few – but the single biggest decider is nearly always what you can afford.
It’s really a case of looking at the big picture and working your way back from there. Consider your household income and what you realistically can afford in loan repayments, taking into account all of your expenses (even coffees and lunches).

As a guide, a mortgage calculator can be a great place to start, but it won’t take into account all of your personal circumstances or eligibility for a loan. Talking to us will give you a much more accurate idea of what you can afford. We can look to obtain pre-approval from a lender so you can put an offer on a home when you find the one you like. Of course, even with a pre approval, a subject to finance clause is an important protection.

Finding your home

Once you know what you can afford, you can get a much better idea of what type of home you can buy and where you can live.

When it comes to the type of property and location, many first buyers find they have to compromise in some way. A free-standing home in an established, convenient, leafy neighbourhood near a CBD, great transport, family and friends might well be out of reach the first time around. If convenience is important, you may be looking at apartments instead of houses, remembering that often the closer you get to a CBD, the higher the demand and price. Your budget, for example, might only stretch as far as an older, walk-up unit if you want a property within 20 minutes of a major capital city. If you definitely want a house and garden, depending on where you are, you may be restricted to the outer suburbs or regional areas.

Plan for the future

You should consider what is most important to you now and over the next five years. Are you looking to be part of a community that’s similar in age to you? Is it important to get to and from work as quickly as possible or can you cope with a long commute, providing you have a great lifestyle when you get home? Do you have children or are you starting a family? All of these, in addition to your budget, will influence where and what you buy.

Do your research

When considering an area to buy in, look up suburb demographics and price trends over the past 10 years, plus existing and planned infrastructure, such as public transport, shopping centres and schools. If property values in one suburb have really taken off in the past five years, find out why and consider whether neighbouring areas have similar potential.

Understand the different mortgage types

There’s a lot more to loans than interest rates and fees. A low rate is obviously important, but it’s not everything. There are different sorts of loans and features that will make managing your mortgage easier. We’ll take the time to teach and advise you on the fundamentals you need to know to make an informed decision. To begin with, it’s important to know the main types of loans:

Variable

The interest rates go up and down depending on factors such as the official cash rate, market conditions, and each lender’s decisioning. When the rate goes down, so do your minimum
repayments. But when the rate goes up, your payments will too.

Fixed

The interest rate can be fixed for one to five years. Even if rates change, your repayments stay the same. This helps manage your household budget by knowing exactly what you’ll have to pay. Of course, you won’t benefit if interest rates drop and there may be significant break costs to change the loan before the end of the fixed term.

Split Rate

One part is variable, the other is fixed. This lets you enjoy the benefits of an interest rate drop but also protects you from being affected fully if they rise.

Interest Only

You only pay the interest on your loan but not the principal loan amount. Your repayments are less but you still have the same level of debt at the end of the interest only period. However, an interest only loan will usually cost more over the term of the loan as you won’t start paying off the principal until after the end of the interest only period.

Line of Credit

You can pay into and withdraw from this account as long as you keep up with the required repayments. You can have your income paid into this account to help pay off the mortgage sooner but interest rates are usually slightly higher.

Honeymoon Periods

Designed especially for first homebuyers, you can enjoy a lower interest rate for the first six to 12 months, and then the rate returns to the standard variable rate.

Low Doc

These are popular with self-employed people because they need less documentation or proof of income. However, they usually have a higher rate of interest or need a larger deposit, or both.

Borrowing from the bank of Mum & Dad

With property affordability getting increasingly tricky for some, many first homebuyers are reaching out to their families for financial assistance to help increase their borrowing power.

Partnering up with your family can reduce the financial burden and may mean you can afford a better quality property with greater growth potential than if you bought solo. But it’s not a move you should make lightly. Even if you decide to buy your first property with family, make sure you seek legal advice and ensure each party understands their financial and legal obligations. You don’t want a financial transaction or financial partnership to come between you and your family.

You should talk about what would happen if one of you was unable to cover their share of the mortgage and how you might reduce this risk. It’s also important to contemplate scenarios such as one of you wanting to sell or move out sooner than planned. As with every significant financial decision you make, it’s important to weigh up the pros and cons. If you are considering getting financial assistance from a relative, we recommend speaking to a financial planner and lawyer.

Renting out your first home

There’s no rule that says you have to live in your first property. Many first homebuyers are challenging convention by rent-investing – renting where they want to live and buying an investment property in a more affordable location. The objective for these renters is to buy where they can afford to get a foothold on the property ladder. That could be another suburb in the same city or a town in an entirely different state.

As with any investment, the key is to choose a property on financial merit, not emotion. Are you looking for capital gain over time or high rental yields right away? The investment property can be positively geared, where the rent exceeds the cost of the mortgage and upkeep to give you a profit, or negatively geared, where the rental income is less than the cost of owning and managing the property, which may create a tax deduction.

Again it’s important to seek appropriate legal and financial advice so you are well informed about how renting and taking on an investment property impacts your finances and tax obligations.

The First Home Owner’s Grant & other incentives

The First Home Owner Grant (FHOG) and other various grants and stamp duty concessions may be available to give first homebuyers a leg up. The grants usually apply to apartments and houses up to a certain value. These thresholds can vary depending on the type of dwelling and the state or territory in which the property is located. The savings can be significant, so it’s certainly worth exploring. Talk to us to find out what’s on offer under the FHOG scheme in your market. It is also worth checking if your state or territory offers stamp duty exemptions or concessions for first homebuyers.

 

Please note we do not provide tax, legal or accounting advice. This guide has been written for general informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. We encourage you to consult your own tax, legal and accounting advisers before engaging in any transaction. Front Row Financial Australian Credit Licence: 482584