Nine new mortgage trends to watch

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A mortgage broker has identified nine new mortgage and housing lending trends that will become a big part of the new fiscal year.

Marcus Roberts, Mortgage Broker and Founder of Brighter Finance has identified some mortgage trends that he sees emerging strongly over the next six months, with a particular focus on first-time homebuyers.

1. The rise of “the bank of moms and dads”

Much talked about these days, the “Bank of Moms and Dads” (BOMAD) generally refers to parents providing their children with funds to buy a home in today’s booming real estate market.

Some research suggests that “BOMAD” is among the top ten lenders in Australia, judging by the amount of money passed from parents to children.

“Many parents find that giving their children money to buy real estate is a better use of their money and less risky than a guarantor because bank liquidity does not keep up with inflation,” Mr. Roberts.

“Parents helping their children buy a home are quickly seen regularly in many auctions.”

2. Low rates for large deposits

While some lenders have increased their mortgage rates, there are still lenders who are cutting rates, especially for borrowers with large deposits i.e. low loan-to-value ratios.

“Over the past few months, there has been an interesting trend of lenders offering their best discounts to clients with LVRs of up to 60%,” Mr. Roberts said.

“LVR refers to the portion of the property’s value that people borrow. So a 60% LVR means they’ve either saved a 40% down payment (if they’re the first-time home owner) or accumulated 40% equity. “

3. Split loans are becoming popular

A split loan refers to a loan part of which is charged at a fixed interest rate, while the remaining part is charged at a variable rate. This allows you to take advantage of the flexibility of a variable rate, that is to say to have the possibility of making additional repayments, while having the stability of a fixed rate on part of the mortgage for a defined period – effectively “the best of both worlds”.

“Fixed rates in particular have grabbed the headlines, with some experts predicting the current record lows could be as good as homeowners,” said Roberts.

“For people who want to repair part of their loan, but don’t want to miss out on some of the attractive features of a variable home loan, a 60/40 split home loan has become a commonly used compromise.

“A split rate home loan is not a specific type of home loan, but rather a type of interest rate home loan. Where most home loans are variable or fixed rate, fractional home loans use these two types of interest rates, allowing people to “hedge their bets”.

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Marcus Roberts of Brighter Finance. Image provided.

4. The great transfer of wealth for first time buyers

“Concerned that their children will never be able to afford their own homes, a growing number of parents are reaching out to give their children an early inheritance by buying them their first home or making a significant contribution to their first home.” Mr. Roberts said.

“This growing trend is part of the legion of parents taking responsibility for the future of housing their adult children, including vouching for mortgages, paying the deposit and renting out their investment property to their offspring. at greatly reduced rates or at no charge. “

5. Digitization of mortgage loan applications

“For most brokers, the primary technology offering they use is their customer relationship management (CRM) system,” said Mr. Roberts.

“Thanks to COVID, the digitization of mortgages and paperwork has progressed by leaps and bounds, particularly welcoming the adoption of the ability to DocuSign things like the credit guide and privacy consent. “

Mr Roberts also said that there is currently a “range of tools on the market to help speed up the process.”

“Traditionally, software has focused primarily on organizing and storing customer data and loan documentation, but in recent years systems have become much more focused on creating automated workflows and productivity, whether through proprietary technology or by integrating external technology platforms into their systems, ”he said.

“Many businesses are turning the mortgage process upside down and providing brokers with tools to help them grow their businesses entirely online and digitally connect with their clients. or “soft” credit checks that don’t impact scores. “

6. The big COVID tree change

“Young families are prioritizing lot size over locations close to town and new home sizes are growing at their fastest rate in more than a decade, shifting buying preferences inspired by COVID to be a lasting phenomenon, ”Mr. Roberts said. .

“The closures and social distancing requirements made many Australians think walls were closing, forcing buyers and tenants to prioritize open spaces and privacy over proximity to work.”

Last year, CommSec found that Australian home sizes were once again the largest in the world, on average, but lot sizes had shrunk over the past decade.

“The average size of a new house [grew] by 3% over the year, the biggest jump in 11 years. Historically low interest rates have given buyers the opportunity to seek more space, ”Mr. Roberts said.

7. Apartments are a winner for first-time home buyers

“First-time homebuyers are now responsible for about 90% of our inquiries for new apartments, a massive increase from their 15-20% share last year,” said Mr. Roberts. .

“Encouraged by government incentives, low interest rates and a wave of newly completed or about to be completed units entering the market, many are seizing the opportunity to buy while investors, deterred by the lower rents, stay low. . “

8. More preparation on the part of first-time buyers

“As they say, to be warned is to be warned and with most things the more you plan, the better the outcome,” said Mr. Roberts.

“It’s no different when it comes to applying for a mortgage. The more planning and preparation, the better the results and the less stressful home loan application process.

“Preparing finances six to 12 months before you’re ready to buy a home includes: having a steady job or running a (profitable) business, having a good credit history, getting rid of unnecessary credit cards (or at least reducing limits), clean up, open bank accounts, give it a try to live on a budget, and set financial goals. “

9. Frustration in the market for first time buyers

“With real estate prices in Australia rising at the fastest rate in 17 years as historically low interest rates and limited supply are pushing buyers to act, first-time buyers are frustrated with the current market. terms of housing prices and limited availability, ”Mr. Roberts said.

“It is a stark reality that the people of New South Wales have to take on more debt than other states to achieve the same dream.”


Photo by Lochlainn Riordan on Unsplash

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