November 2020 Finance Update
These four stories have been generating a lot of buzz over the past month:
Record-low rates drive borrowing bonanza
Buy-now-pay-later causing problems
Local first home buyer data released
Aussies building world's biggest homes
Read more below.
Record-low interest rates drive a surge in home loan activity
There has been a massive increase in home loan borrowing over the past year, according to the latest data from the Australian Bureau of Statistics.
Australians took out $22.5 billion of mortgages in September – a 25.5% jump on the year before. That included increases of:
33.8% for owner-occupiers
4.2% for investors
There was also a massive increase in first home buyer activity among owner-occupiers.
First home buyers took out 13,569 loans in September. That was not only up 45.5% on the year before, but was also the highest figure in 11 years.
The surge in borrowing comes as no surprise – interest rates are at record-low levels. And with governments around Australia providing assistance for first home buyers, it’s no surprise to see so many younger buyers entering the market.
Be careful with 'buy-now-pay-later' this holiday season
The use of buy-now-pay-later services is exploding – and causing some people financial harm.
The number of active buy-now-pay-later (BNPL) accounts increased 38% and transactions jumped 90% between the 2017-18 and 2018-19 financial years, according to a report from ASIC.
ASIC found that 21% of users who were surveyed had missed a payment in the previous 12 months.
Another negative impact is the red flags it can raise during a home loan application. Banks and lenders that see BNPL on your banking statements get nervous about your savings and spending habits.
Simply put, lenders might question your ability to budget and live within your means.
All BNPL providers are not looked at the same when you apply for a home loan. Some have higher risk associated with the way they lend money and it can lead to more difficulty with a home loan application.
If you’re going to use BNPL, treat it as a short-term loan that you pay back as quickly as possible.
Wondering how much first home buyers near you are paying?
IIn just a few seconds, you can find out some data about first home buyers in your suburb.
Click this link, type in a postcode and you’ll discover the average profile of first home buyers who participated in the First Home Loan Deposit Scheme during the first six months of 2020.
Looking at the national data, for 6,814 borrowers, the average profile was:
Age = 25-29
Household income = $91,000
Purchase price = $400,000
Loan-to-value ratio = 95%
Debt-to-income ratio = 4.3
Normally, when someone buys a property with a deposit of less than 20%, they have to pay lender’s mortgage insurance (LMI), which can cost thousands of dollars. But under the First Home Loan Deposit Scheme, the government acts as a guarantor, which allows eligible borrowers to put down a deposit of just 5% and avoid LMI.
The First Home Loan Deposit scheme is open to only 20,000 first home buyers this financial year, with at least half the spots reserved for people who are building or buying new homes.
Australia snatches property crown from the US
You know how real estate is Australia’s national sport? Well, here’s some data that proves it.
Australia has overtaken America as the country building the biggest houses in the world, according to a report from CommSec.
In the most recent annual results, the average size of newly-built homes was 235.8 square metres in Australia and 233.1sqm in the US.
ACT residents built the biggest houses in the 2019-20 financial year, while Tasmanians built the smallest:
Australians are building bigger houses today than in previous decades. New houses are 6% bigger than 20 years ago and 27% bigger than 30 years ago, according to the report.
Property and finance can be complicated, so get in touch if you need to ask any questions.
Disclaimer: The advice provided in this article is general advice only. It has been prepared without taking into account your objectives, financial situation or needs. Before acting on this advice you should consider the appropriateness of the advice, having regard to your own objectives, financial situation and needs. We encourage you to consult a finance professional before acting on any advice provided in this article or on this website.
