Does the cash right rise affect home loan interest rates for Aussie homeowners?

Posted by Justin Harding on 7 June 2022

The Reserve Bank of Australia (RBA) has recently raised the cash rate from 0.35% to 0.85% — but what does it mean for you?

Back in 2020, when the COVID-19 pandemic hit us hard and strong, the Australian government had to take measures to fight the rising unemployment. One of the measures was to reduce the cash rate, which in turn protected investments and kept Aussies in jobs. 

So, the cash rate had been sitting at a record-low of 0.1% until May 2022 — but things are changing rapidly.

Inflation is rising at a constant pace now, and the government will be compelled to take steps to fight it. So, experts predict we’re in for a series of anticipated hikes in the cash rate. But even that may not suffice, and authorities might raise it even more in the coming weeks, months, and years. 

But does this cash rate increase affect you in any way? Let’s find out. 

The cash rate is an ever-changing metric 

The cash rate reflects a fixed number that determines how much interest rate banks and lenders have to pay when they borrow money. Yes, it doesn’t directly affect how much interest rate you, as an end-customer, have to pay. But there are other ways how this metric affects you; more on that later. 

The cash rate is announced on the first Tuesday of each month of the year — except January. It’s determined based on a number of factors, like the current inflation and employment rate. 

When there’s a lack of jobs, the RBA may reduce the cash rate to create more opportunities. When inflation is rising, however, the RBA may increase the cash rate to counter it. 

Yes, you do get affected, although indirectly

Even though there’s no mention of end-customers when it comes to the cash rate, you do get affected by it indirectly. 

When the cash rate rises, banks and other lenders increase their home loan interest rates in Australia to cope with it. So, you’re the one who pays more interest on your home loan in the end as a result of rising interest rates.

Consider the case of Jane, our hypothetical homeowner:

  • Jane's loan amount: $600,000
  • Variable interest rate in April: 3% p.a.
  • Jane's loan term: 25 years

Jane’s lender increased her variable interest rate in line with the RBA’s rate rise in May. Jane's repayment increased by $47.03 per month. However, after June’s cash rate rise, Jane’s monthly repayments are now $273.27 more per month than before these two rises.

Expect to see the cash rate skyrocketing soon

Economists from major financial institutes had already predicted the cash rate increase that we’ve already seen. And according to them, it could easily rise to more than 2% in the next two years. 

Westpac says it will rise to more than 2% in May 2023. NAB says we could see it jump to more than 2.5% by August 2024. But the worst news: ANZ thinks it could increase a whopping 3% during 2023. 

What should you do next?

If you’ve been depositing money in your Savings account to buy a new house, there’s good news for you: you aren’t doomed. When banks raise the interest rate for home loans, they also increase the interest rates you get on your savings. 

However, considering the rising inflation, it may not be a good idea to let your cash sit in there. Savvy investors are discussing their property investment options with their home loan broker right now. They know that with rental demand higher than ever before, investing into property as part of your overall investment strategy is smart. In short, there’s no better time to invest than right now.

That’s where Fox Home Loans comes into play

At Fox Home Loans, we have a simple approach to our day: source our customers the very best home loan deal that’s available on the market today.

We are constantly monitoring the market on a daily basis, and we’ll guide you through the minefield of lender options out there to find a home loan that’s perfect for your unique circumstances. It might sound a little crazy, but we have literally hundreds of home loan products to consider for our customers, which will save you time and money.

Sounds good? Click here to speak to your home loan specialist right away!

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Great news about the Home Guarantee Scheme Being Extended

Posted by Nathan Drew on 20 April 2022
Great news about the Home Guarantee Scheme Being Extended

Home Guarantee Scheme Extended

There was some great news yesterday when the Australian Government announced that they were looking to extend the Home Guarantee Scheme and also introduce a new Guarantee Scheme specifically for regional buyers.

These announcements come on top of the previously introduced programs for First Home Buyers and Single Parent Families.

The government has revealed how much it expects to spend on its expanded Home Guarantee Scheme, with this year’s budget spelling a large focus on the regions.

Treasurer Josh Frydenberg handed down the 2022-23 federal budget on Tuesday (29 March), revealing a $78 billion deficit (3.4 per cent of GDP). For the previous year, there had been a $79.8 billion deficit.

The cost of living as fuel prices surge, omicron and the effects from the recent floods in NSW and Queensland had taken priority for the government, among other factors.

“The global pandemic is not over. Devastating floods have battered our communities,” Mr Frydenberg said. “We live in uncertain times. The last two years have been tough for our country, there have been setbacks along the way.”

“Over the last year, 160,000 Australians purchased their first home. In this budget we go further, more than doubling the Home Guarantee Scheme to 50,000 places per year." Mr Frydenberg said.

The First Home Guarantee and Regional Home Guarantee schemes allow eligible buyers to purchase a home with a deposit as small as 5 per cent, while the government guarantees up to 15 per cent of the property price – allowing the buyer to skip lender’s mortgage insurance.

The Family Home Guarantee on the other hand allows single parents with dependent children to purchase homes with a deposit as small as 2 per cent.

The new price caps across states will now apply during the 2022-23 financial year:

  • NSW
    Capital city and regional centres – $900,000 from $800,000 before
    Rest of state – $750,000 from $600,000 before
  • Victoria
    Capital city and regional centres – $800,000 from $700,000 before
    Rest of state – $650,000 from $500,000 before
  • Qld
    Capital city and regional centres – $700,000 from $600,000 before
    Rest of state – $550,000 from $450,000 before
  • WA
    Capital city and regional centres – $600,000 from $500,000 before
    Rest of state – $450,000 from $400,000 before
  • SA
    Capital city and regional centres – $600,000 from $500,000 before
    Rest of state – $450,000 from $350,000 before
  • Tasmania
    Capital city and regional centres – $600,000 from $500,000 before
    Rest of state - $450,000 from $400,000 before
  • ACT
    Capital city and regional centres – $750,000 from $500,000 before
  • NT
    Capital city and regional centres – $600,000 from $500,000 before
  • Other Areas - Jervis Bay Territory and Norfolk Island; and Christmas Island and Cocos (Keeling) Islands have seen no changes, with their respective caps remaining at $550,000 and $400,000

The capital city price thresholds apply to regional centres with a population over 250,000 – including Newcastle and Lake Macquarie, Illawarra (Wollongong); Geelong; Gold Coast and Sunshine Coast.

If you have more questions relating to your specific scenario, click here to reach out to one of our Lending Specialists today to learn more. You can also call the team on 1300 665 906.

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5 economic challenges that could affect property prices in 2022

Posted by Nathan Drew on 5 April 2022
5 economic challenges that could affect property prices in 2022

We have already seen some major events impact the Australian economy in 2022. We've all seen the cost of living increasing for things like petrol, and who's weekly grocery bill hasn't increased over the past 12 months? I know mine has.

We have also seen our Major Banks lifting some of their home loan interest rates, which brings about uncertainty when it comes to home loan affordability. We are all poised to see what the RBA does with the Cash Rate each time they meet, with the inevitable rise in rate just around the corner.

We also have the news channels reporting day and night on the potential widespread consequences of the war being fought right now in Europe.

However, all that being said, it's not all doom and gloom, here in Australia we are still experiencing record low interest rates and record property prices right across our nation. 

Here are five of the economic challenges that could impact the property market throughout 2022 and into 2023:

The floods

In certain areas, the substantial floods that have hit recently are likely to affect these towns for some time. History shows that when this happens, it can take at least five years for these smaller towns to bounce back. This is exaggerated in these areas with rents typically rising as there is a shortage of homes. On top of this, for the next 12 to 18 months after the water subsides, buyers will remain spooked to purchase in the region.

Within every downturn there is an upside. What is likely to happen is that you could see property prices ease in flood-affected areas in the short term while investors whose properties have not been inundated are likely to be able to command higher rents. 

Record home values

According to the Australian Government's Bureau of Statistics, the average home prices across Australia has risen by 23.7%.  purchase price being paid for homes hit a record highs in the October to December quarter 2021, and this trend has continued in most states and territories into the January to March quarter 2022. Owner-occupiers seeking to climb the property ladder were the biggest contributor to this result. We also saw Investor loans grow, too, but funds for first-time buyers has dropped by around 30% showing an increasing challenge for the first home buyers that are trying to save enough deposit to get onto the property ladder. 

Inflation & interest rates

The cash rate has been at a record-low 0.1% since November 2020. But in the world of finance, what comes down inevitably goes back up. It is likely that the Reserve Bank will be forced to act by August, just before the spring selling season. 

If the cash rate goes up, higher interest rates will quickly follow making mortgages more expensive potentially putting a damper on the spring selling season. Homeowners with variable-rate home loans could face higher repayments.

Time to vote

For some reason, the Federal elections generally cast a shadow of doubt over the country, and we are expecting that this one will be no different. We still don't know what policies will be proposed by either party, but time will tell. We are sure that housing affordability will be the hot topic.

History shows that elections can function as a hand brake on the economy so don't be surprised if you see retail spending and property sales go into a holding pattern once the election is announced. 

Rising costs of materials and labour

Supply chain problems, labour shortages and rising timber prices have all become major contributors to Australia's rising inflation rate, currently at 3.5%. This situation may worsen due to the rebuilding required after the floods that affected some parts of South East Queensland and New South Wales in February 2022 along with the new projects that are on the horizon with the infrastructure required for the 2032 Brisbane Olympics Games. 

There is a combination of things affecting the cost of new home builds and renovations right now, including the skills shortage and increase pressure on the labour market in the construction industry. Many Australian home constructions worksites are finding it hard to complete projects on time due to the massive labour shortage in the industry, which is in turn putting pressure on the hourly labour rate having to be paid for trades. When you add the rising costs of building materials on top of this and their lack of availability, there is no wonder that we are experiencing higher build costs for anyone looking to build their dream home or renovate their current home right now. 

We hope you found this information helpful, and please remember, if you have any questions around your home loan affordability, we are here to help.

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What is LVR (Loan to Value Ratio)?

Posted by Antonio Zalamea on 15 March 2022

Loan to Value Ratio is one of those things you’ll hear about a lot in the world of home loans. It’s important because it may affect your borrowing power. So, what is LVR?

The Loan to Value Ratio (LVR) is the amount you need to borrow as a percentage of the total value of the property.

Let’s break it down a bit more. Here’s an example (for illustrative purposes only), where the value of the property is the same as the purchase price:

 • Let’s say the value of the property is $500,000

 • You have a $100,000 deposit.

 • This means you need to borrow $400,000 to buy the property.

LVR is calculated by dividing the amount of your home loan by the value of the property we have as security like this:

lvr

Note: the above example includes fees such as stamp duty, Bank/Legal fees and Govt fees

Upfront Fees & Costs

There are a few upfront fees and costs you may have to pay when buying a house. If you haven’t taken these costs into account, you may end up having less money left for your deposit. The less you have for your deposit, the higher your LVR will be. Speak with us about how the upfront fees may work in your situation and for your impending purchase.

Generally, the lower the LVR, the better!

Why is a low LVR considered better? From the lender’s perspective, a lower LVR generally carries less risk as the lower the LVR the more equity you have in your home and the less you need to borrow from the bank.

A lower LVR is also good news because it usually means you will have more equity in your home right from the start (equity is the difference between a property’s value and the amount you owe on it. Using the example above if your house is worth $500,000 with a home loan of $400,000 – you will have $100,000 of equity in the property).

What Happens when your LVR is over 80%?

If you want to borrow more than 80% of the property’s value, there will be added costs that you will need to consider. This is because some borrowers with a LVR of over 80% are required to pay a Lender Mortgage Insurance (LMI).

Lender Mortgage Insurance (LMI) covers the Bank’s costs and risk when lending over 80% of the sale price of the security property. There are different tiers, but generally speaking the higher your LVR, the higher the LMI cost.

There are some Lenders on our panel that view this differently to the 80% rule, so speak with us about what your scenario is so we can provide you with some information more fitting to your situation.

Difference between a Bank Valuation and Market Valuation

When deciding whether to offer you a home loan and what the rate of interest should be, a lender will use a bank valuation of the property to calculate the LVR.

Bank Valuation of a property

A professional valuer performs a bank valuation. It may be different than estimated market value provided by a real estate agent, because the bank must ensure that they don’t lend more than the property’s true value.

The bank valuation is an estimate of what the lender might be able to recover from the sale of the property if the borrower was no longer able make repayments on the home loan.

Market Estimate of a property

A market estimate (or market valuation) is an estimate of how much the home will sell for in the Australian property market. Your real estate agent may base a market estimate on recent sale and purchase prices – rather than long-term trends. An estimate may also assume that the seller is willing to wait to get the best price.

We are here to give you guidance throughout your home buying journey, speak with us for more information today on 1300 665 906.

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How to Make a Competitive Offer on Your Dream Home

Posted by Antonio Zalamea on 15 March 2022
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Finding the right home for you can be a long, time-consuming process. But once you’ve found 'the one', you probably want to move quickly - especially in a hot property market - so understanding how to get the ball rolling is highly important.

The most important tip? Unless you’re making a cash offer, is to get pre–assessed for a home loan prior to hitting the open homes. From there, once a sales contract is in place, putting an application in for conditional approval would be next.  An offer backed by a pre–approval letter looks much better to sellers than one without. Plus, we can work with / communicate with their Real Estate agent to give them piece of mind that the offer is legitimate, and they are not wasting the sellers time in accepting this offer subject to the 21-day finance clause. Note, finance clauses could be less if the Lender’s SLA is less.

How to make a Competitive Offer on your Next Home

1. Do Your Research

Here are Fox Home Loans, we offer a Free Home Valuation Report on any property that they are considering making an offer on. This report give you range from Low – Mid – High bids for the property, recent sales in the area and even previous sale prices of the property that you are buying. Speak with us about how you can get you hands on this detail property report.

2. Making the Offer

The process of making an offer is actually very easy. All you need to do is contact the real estate agent and tell them what you’re willing to pay. The agent will liaise with the seller and get back to you. You can do this via a phone call, put it in writing in an email, or even in person if you would like.

But it’s not the act of making the offer that will set you apart from your competitors – it’s the lead up. Knowledge is power – at the stage where you are making an offer, you should know your financial situation, have learned the suburb conditions, scoped out the property, and researched the competition.

3. Get Pre-Approved

Put yourself in the seller’s shoes – selling a home is tedious and sellers are often looking for the easiest way out possible. Therefore, you need to make the process easy for them, get your finance pre-approved so you know exactly what resources you’re working with, and you don’t waste anyone’s time. Before you can make an offer, you must know your limits, and this is where we Fox Home Loans come in. We also need to advise our clients that they can always put an offer in as long as they have a finance clause in. (usually 21 days)

4. Attend the First Open for Inspection

Attending the first open inspection for a property is important. This allows you to gauge the level of interest – if it isn’t busy then the seller is much more likely to take up an offer. If there are a lot of people, check to see how many are asking for copies of contracts or asking about early offers. This should tell you what competition you’re up against and you can set your offer accordingly.

5. Inspect the Property Properly

Home inspections quickly become overwhelming, but you need to be at your peak if you want to get in a good offer. While you’re scoping the competition at the inspection, make sure you’re getting (and retaining) information as efficiently as possible. You don’t have much wriggle room for hesitation when making an early offer.

6. Offer Quickly

If you found that interest in the property wasn’t hot, it’s tempting to delay putting in an offer in a bid to make the seller desperate. However, your best bet is to get in early and confidently and set the seller a quick deadline to get back to you. This puts you in an ideal place to negotiate. A reasonable response period to set would be about 48 hours, this gives the seller time to decide but limits other buyers from getting in before you.

7. Offer your Best Price

Playing games with the real estate agent is a sure way to not be taken seriously. Real estate agents do this every day, they’d rather deal with upfront buyers than people trying to pull the wool over their client’s eyes. They know that most people making an offer pre-auction are either looking for a bargain or trying to cut through the competition, because presumably the property suits their needs. Don’t shoot yourself in the foot by under-offering and missing out to a higher bidder. Get a free suburb report and educate yourself on what you’re buying into, so you know your offer is reasonable.

8. Negotiation

If you’re putting in an offer, expect to negotiate. You’ll probably be negotiating against other buyers, so whether you’re dealing directly with the seller or via an agent, you want your offer to stand out.

Remember, your main priority is to make it easy for the seller. Do some research and learn about the seller’s situation. If they’ve already purchased another home, offer a settlement date that lets them avoid bridging finance or finding temporary accommodation between settlements.

We are here to give you guidance throughout your home buying journey, speak with us for more information today on 1300 665 906.







 
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