How to get a home loan in Australia

If you are looking at buying a home, the reality is it's harder to get a home loan right now.

The Australian Prudential Regulation Authority, APRA, says the value of new housing loans approved in the December quarter fell by 12 per cent compared with the same time in the previous year.

To mark Global Money Week (25-31 March) - a financial awareness campaign built to inspire young people to learn about money matters in partnership with the OECD - SBS News has been looking at how everyone can be  better educated about money.

But buying houses in Australia, and getting finance for them, can be tough. 

 

Brokers 

The banking royal commission thrust the banks and mortgage brokers into the spotlight, recommending a fee-for-service model, meaning the borrower, not the bank, should pay brokers like Paul Pappas upfront.

"I don't expect clients to pay for our service, many of them won't, so what you're doing is adding to the cost of borrowing, first home buyers will be the biggest ones to be affected, they're already tight on budget, they're already tight on deposit," Mr Pappas told SBS News. 

Both sides of parliament have rejected the idea, although there may be changes in trail commissions, a recurring fee paid by the lender to the broker, in future.

Sixty per cent of all home loans are written by mortgage brokers.

The ABS says the value of new home loans dropped 2.4 per cent in January.
Source: AAP

Steve Mickenbecker from rate comparison website Canstar says while mortgage brokers are able to compare products and rates across different lenders, there are downsides.

"They don't have every loan in the market place, and they do only have their approved list, their panel, so there might be better loans out there, that they actually have listed."

He says that while banks only sell their own products, there some benefits.

"There is an advantage of having all of it in one place, and they have terrific online banking systems and there is a an advantage to having it all there, there is a personal balance sheet seeing what do I owe, what do I own."

But Mr Mickenbecker says lenders are making it harder to get a loan.

"They were using an overall measure for expenditure and the royal commission said, not good enough you have to look at people's individual circumstances. The banks have interpreted that as let's be a lot stricter."


Borrowers

Mr Pappas says lenders are going through expenses with a fine-tooth comb.

"Definitely more in terms of living expenses and looking at some of your spending habits. so they are no longer making assumptions of your broad living expenses."

Canstar's Steve Michenbecker says that means prospective borrowers need to be able to demonstrate they can afford to service a loan and offers this advice.

"The best way to do it, is to have a regular savings program, every month I put this much away, every month I pay my rent, and it proves up that you have the discipline and the desire to make your payments."

Deposits

He says loans are still being written.

"First home buyers for example don't have to have a 20 per cent deposit, you can still have a 5 per cent deposit, that's still available, investors, 10 per cent deposit, we've now got banks going back to 90 per cent loans to investors, on an interest only basis."

While some lenders offer loans with a small deposit, if it's less than 20 per cent, a borrower will be up for lenders mortgage insurance, which protects the lender, in case a borrower defaults.

A lower deposit, can mean a higher mortgage rate, depending on the type of loan you take.

Repayments

Principal and interest loans means your repayments cover the interest charged and reduces your loan over the term of the loan.

Interest only, only covers the interest,  usually for a period of 5 to 10 years.

Variable rates can change, if the cost the lenders incur to provide the loan, like wholesale costs or the official cash rate set by the Reserve Bank, moves. Fixed rates remain unchanged for an agreed period.

Mr Mickenbecker says now is a good time to compare your rates.

"If your loan doesn't have an interest rate with a three, you're paying too much."

Borrowers can approach their banks, mortgage broker, or check out rate comparison websites to search for a better deal.

The ACCC on Friday called for feedback from consumers, businesses and community organisations about its consumer data right draft rules which will make it easier to obtain and transfer banking data and switch banking products between providers.


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Published 29 March 2019 at 5:15pm
By Ricardo Goncalves

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