Australia’s housing market has traditionally been a valuable asset to investors; however, recent changes have led to an unprecedently enthusiastic market and an influx of new entrants looking to secure their dream home. A mixture of record low interest rates and additional support from federal and state governments has generated a massive surge in demand for local properties.
While this enthusiasm is surely a healthy sign for Australia’s economic recovery, the sheer number of applications for general loan products and home loans has extended loan approvals drastically. With many bankers and brokers overburdened with the excess demand, those looking to own their first home or purchase an investment property need to be aware of serious risks facing new entrants in the market.
To find out the current situation and how you can avoid delays and penalties, read on:
The Current Situation
A number of converging factors have generated an increased demand for lending products across all areas of Australia’s lending and financial services industry. They are as follows:
- Interest Rates
Over the past few months, the Reserve Bank’s decision to reduce the national cash rate target to 0.10% has resulted in many lenders offering competitive fixed-rate loans and a variety of other lending products in response to the economic downturn and stagnant wages.
- Government Support Packages
While each state government provides its own form of assistance to support homeowners locally, the federal government has also outlined a number of schemes designed to get Australians into their first home. These include:
- The First Homeowners Grant
- First Home Loan Deposit Scheme
- The Family Home Guarantee
To find know more about homeowners’ concessions, click here.
What’s Happening in the Housing Market?
With circumstances indicating there’s ‘never been a better time to buy, homeowners have swarmed to the bank seeking loans and mortgage` approvals at a much higher rate, leading to backlogs and highly risky decisions by prospective buyers.
- Mortgage Processing Delays
While the Big 4 banks have taken measures to reduce mortgage and business loan approval wait times, the turnaround has been drastically increased. Earlier this year, 63,400 mortgages were taken out by investors and owner-occupiers, almost doubling the amount recorded last year. This means institutions across the country are collectively required to process over 2,000 mortgages each day, leading banks, and brokers to work overtime to keep on top of the backlog. This coupled with an influx of new requests means that additional weeks have been added to approvals. This is a particular issue in Victoria, where many financial services staff are subject to working from home, lacking the adequate resources to process loans within regular deadlines.
- Bidding Without Secured or Approved Mortgages
A grave concern is the refusal of lenders to provide approval in principle, leaving potential buyers to attend an auction or approach a seller without adequate funds. With reports of buyers risking this possibility, a lot of people will end up being sued and could lose their deposits when they can’t complete contracts.
Considering the deposit of property falls between the margins of 5-10%, first home buyers are actively running the risk of losing thousands of dollars along with the potential to own their first home.
What Does it Mean for You?
Despite the attractiveness of current lending conditions, we advise you to get in contact with your financial adviser, accountant, or lending institution to minimise the risk of losing your deposit or entering a contract that you’re uncertain you can fulfill.
If you’re interested in more information or lending advice, get in contact with our team today.
Image source: Shutterstock (619031555)