Mortgage Loans – Australia
The mortgage loan industry in Australia has been seeing negligible growth:
The mortgage market in Australia has been seeing hard times. Credit growth in the sector has been negligible and over the whole of 2018, credit for property purchases dipped to 4%, the weakest result on record. Loans extended for property investment have fallen sharply over the past year. Credit for owner-occupier property purchases also remained weak and the annual increase was the smallest since September 2015. Experts attribute several reasons for the pronounced slowdown, the main ones being a higher proportion of borrowers with amortizing loans, reduced property turnover and weak demand given ongoing declines in home prices.
An S&P Global Ratings report recently said the Australian residential mortgagebacked securities (RMBS) sector, which so far has been relatively resilient to pressure, with mortgage arrears remaining low and ratings performance stable, is now facing elevated risk than it was 12 months ago. “Alongside, high household debt and low wage growth are emerging risks such as lower seasoning levels in new transactions and i ncreasing competition. Digital disruption is set to change the competitive landscape in Australia, with comprehensive credit reporting (CCR) and Open Banking on the doorstep. Stakeholder expectations are also altering credit profiles, with regulators now the dominant force shaping underwriting decisions. The RMBS sector is well placed to weather disruption and economic change, but there is no room for complacency,” says the report.
VARIOUS TYPES OF LOANS
For most people in Australia, buying a home will not be possible without help from banks and home loan providers. Even those who invest in housing for investment purposes depend on banks. So, Australian mortgage market has a variety of loan providers to the extent that home buyers have hard time picking up the best. The different types of loans that are available for home buyers in the country are:
Variable Rate Loans, which rely on the Reserve Bank of Australia’s ever-changing cash rates, and the subsequent fluctuation of interest rates.
Fixed Rate Loans, which lock in the interest rate for a period of 1-5 years, generally at a rate above the current variable.
Interest Only Loans, where one pays for the interest only, minus the principal – for the meantime.
Guarantor Loans where one can ask a relative to be the guarantor and use a portion of his home as a security blanket for the mortgage.
Low Doc Loans are meant f or freelancers, business owners, or selfemployed people who don’t have some of standard papers.
Line of Credit Loans are meant for renovations to houses. These loans are also known as ‘home equity loans’.
PUSH FROM GOVT
If a person in Australia is buying a home for the first time, he is eligible for the First Home Owner Grant. This includes migrants with permanent residence who have already owned a house elsewhere. The applicant is paid the First Home Owner Grant directly. However, the grant is not available for land purchases. In most states, there are house price caps on grants and there may be further restrictions such as the property being your primary home.
Reverse mortgages are also popular in the country. There is provision for all citizens over 66 years of age to take a reverse mortgage. But, the regulator, Australian Securities and Investments Commission did some investigations and found that the lenders were failing to properly educate consumers about the risks of the loan. Just 5 banks originated 99% of all reverse mortgages in the last 2 years but 2 of these banks have stopped offering reverse mortgages.
The interest rates for home mortgages are competitive. The Australian Prudential Regulation Authority has allowed lenders to change the way they assess customers’ ability to meet repayments and set their own minimum interest rate floor and make their calculations using a 2.5% buffer. That means borrowers on a typical 4% mortgage rate can expect to be assessed at 6.25% rather than 7.25%, enabling them to immediately secure larger loans.
Some of the leading players in the mortgage loan segment in Australia are: loans.com, Athena, UBank, Macquarie, Newcastle Permanent, TicToc, Homestar, Heritage Bank, Hunter United and HSBC
Residential apartments in suburban Sydney