Marcus Roberts, mortgage broker and founder of Brighter Finance identified some mortgage trends he sees emerging strongly over the next six months, focused particularly on first home buyers.
1. The rise of 'the bank of mum and dad'
Talked about a fair bit these days, the 'bank of mum and dad' (BOMAD) generally refers to parents that provide their children with funds to buy a home in today's hot property market.
Some research suggests 'BOMAD' is in the top ten lenders in Australia, judged by how much money gets passed down from parents to kids.
"Many parents feel that giving their children money to buy real estate is a better use of their money and less risky than a guarantor, as bank cash is not keeping up with inflation," Mr Roberts said.
"Parents helping their children buy a home are rapidly becoming regularly seen at many auctions."
2. Low rates for large deposits
"Over the past few months, there’s been an interesting trend of lenders serving up their best rate discounts to customers with LVRs of up to 60%," Mr Roberts said.
"LVR refers to the portion of the property value that people are borrowing. So a 60% LVR means they’ve either saved a 40% deposit (if they’re a first home owner) or built up 40% in equity."
3. Split loans getting popular
A split loan refers to a loan where one portion is charged a fixed interest rate, while the remaining portion is charged a variable rate. This allows you to take advantage of the flexibility of a variable rate i.e. having the ability to make extra repayments, while having the stability of a fixed rate on a portion of the home loan for a set period - effectively 'the best of both worlds'.
"Fixed rates in particular have grabbed the headlines, with some experts predicting that the current record lows could be as good as it gets for homeowners," Mr Roberts said.
"For people keen on fixing a portion of their loan, but don’t want to miss out on some of the appealing features of a variable home loan, a 60/40 split home loan has become a commonly-used compromise.
"A split rate home loan isn’t a specific type of home loan, but rather a type of home loan interest rate. Where most home loans are either variable or fixed-rate, split home loans utilise both of these types of interest rates, allowing people to 'hedge their bets'."
4. The great wealth transfer for first home buyers
"Worried their children may never be able to afford their own home, a growing number of parents are putting their hand in their pocket to give their kids an early inheritance by either buying them their first home or significantly contributing to their first home," Mr Roberts said.
"This increasingly common trend is part of the legion of parents taking charge of their adult children's housing future, including acting as guarantors on mortgages, forking out for the deposit and renting their investment property to their offspring at either greatly reduced rates or at no cost."
5. Digitisation of mortgage applications
"For most brokers, the main technological offering they utilise is their customer relationship management (CRM) system," Mr Roberts said.
"Thanks to COVID, digitisation of mortgages and paperwork has come on 'leaps and bounds', particularly welcoming the adoption of the ability to DocuSign things like the credit guide and the privacy consent."
Mr Roberts also said there's a "gamut of tools on the market now to help speed up the process."
"Traditionally, the software mainly focused on organising and storing customer data and loan documentation, but over the past few years the systems have become much more focused on creating automated workflows and driving productivity, whether through proprietary technology or by embedding external tech platforms into their systems," he said.
"Many companies are shaking up how the mortgage process works and providing brokers with tools to help take their business fully online and connect with clients digitally. Whether it’s screen-scraping tools to access bank statements, digital signature providers, remote VOI tools to complete identity checks, or 'soft' credit checks that don’t impact scores."
6. The great COVID tree change
"Young families are prioritising lot size over near-city locations and the size of new houses is growing at its fastest rate in more than a decade, with the COVID-inspired shift of buying preferences expected to be a lasting phenomenon," Mr Roberts said.
"Lockdowns and social distancing requirements made many Australians think the walls were closing in, causing buyers and renters alike to prioritise open space and privacy over proximity to work."CommSec last year found Australian home sizes were once again the biggest in the world, on average, yet lot sizes had shrunk over the past decade.
"The average size of a new house [grew] by 3% on the year, the biggest jump in 11 years. Historically-low interest rates has allowed homebuyers the flexibility to seek out more space," Mr Roberts said.
7. Apartments are a winner for first home buyers
"First home buyers are now responsible for around 90% of our enquiries about new apartments, a massive increase from their 15 to 20% share last year," Mr Roberts said.
"Encouraged by government incentives, low interest rates and a flurry of newly completed, or soon-to-be-finished, units coming on to the market, many are seizing the chance to buy while investors, deterred by falling rents, are laying low."
Marcus Roberts of Brighter Finance. Image supplied.
8. More preparedness from first home buyers
"As they say, forewarned is to be forearmed and, with most things, the more you plan the better the outcome," Mr Roberts said.
"This is no different when it comes to applying for a mortgage. The more planning and preparation that is done, the better the outcome and less stressful the home loan application process is likely to be.
"Preparing finances six to 12 months out from being ready to buy a home includes: being in stable employment or running a (profitable) business, having a good credit history, getting rid of unnecessary credit cards (or at least reducing limits), cleaning up bank accounts, having a trial run at living off a budget and setting financial goals."
9. Frustration in the market for first home buyers
"With Australia's property prices rising at the fastest rate in 17 years as historically low interest rates and restricted supply spur buyers into action, first home buyers are frustrated with the current market in terms of housing prices and limited availability," Mr Roberts said.
"It’s a harsh reality that people in NSW have to go into more debt than other states to achieve the same dream."
Photo by Lochlainn Riordan on Unsplash
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