Australia goes on a building spree
Australian’s have built 1.02 million homes between the 2016 and 2021 financial years – a significant increase on the long-term average, which has typically seen approx. 750,000 dwellings completed during a five-year period.
Over the past 12 months, 231,816 residential building approvals have been issued, suggesting many new homes are in the pipeline. That said, not every approval converts into a build.
Low interest rates and government incentives are two big reasons for the recent building boom.
Construction loans are similar to regular home loans – interest rates are comparable and you can choose between variable and fixed. However, most construction loans usually start with interest only repayments for the first 2 years.
With construction loans, the lender approves a total limit and releases the funding in stages or ‘drawdowns’, as the different stages of your building are completed. The lender charges interest only on the funds it has provided, not the full amount: so if your total loan for the build is for $500,000 but you have only received only $100,000 of drawdowns, you’ll only be charged interest on the $100,000 not the full $500,000.
If you are thinking of building, chat with us to find the best rates.
Five reasons to think about refinancing you home loan
Refinancing is attracting a lot of attention right now, as speculation builds about the Reserve Bank increasing the cash rate in 2023 or even 2022.
Australian Bureau of Statistics data shows that refinancing activity is at near-record levels.
In recent weeks, a host of lenders, including all of the big four banks, have increased their fixed rates, which might be causing some more borrowers to consider refinancing.
Also, some people might be thinking about refinancing to take advantage of equity they’ve built up in their home during the ongoing property boom.
So if you’re thinking about refinancing, you’re not alone. That said, you should refinance when it makes sense for your personal situation, not because other people are doing so or because the media is speculating about interest rate movements.
Depending on your personal set of circumstances, refinancing may allow you to:
- Reduce your interest rate
- Switch your interest rate type (i.e. variable to fixed)
- Drawdown equity to fund the deposit on an investment property or any other worthwhile purpose
- Consolidate several higher-rate debts into a new lower-rate home loan
- Secure a loan with additional features
In addition, some lenders are offering cash incentives of up to $3,000 if you refinance your loan from another bank – conditions apply of course.
Strong investor activity defies wider home loan trend
Investor borrowing has increased for 11 consecutive months, according to the most recent data from the Australian Bureau of Statistics.
During those 11 months, the value of investment loans have jumped from $5.1 billion in October 2020 to $9.6 billion in September 2021 – an increase of 87.5%.
The September result was also the second-largest month for investors in history.
Why are so many investors entering the market right now? Because, in many parts of the country, investors are enjoying a rare trifecta of rising prices, rising rents and falling vacancy rates.
Meanwhile, total home loan borrowing has been trending down since May, after previously reaching record-high levels.
Monthly home loan commitments fell from $32.6 billion in May to $30.3 billion in September, due to an ongoing decline in owner-occupier activity.
Whether you’re an investor or owner-occupier, it’s important to know your numbers and put a plan in place well before you start searching for a property.
Feel free to contact us if you would like to explore your options.
Analysis finds property prices can go up even when rates are rising
For the past year, the cash rate has been at a record-low 0.10%, with the Reserve Bank using ultra-low interest rates as a way to stimulate the economy during the pandemic.
But what will happen if and when the Reserve Bank raises the cash rate? Will it lead to a downturn in the property market?
The answer is no, according to research by the Property Investment Professionals of Australia (PIPA), an association that represents buyer’s agents.
PIPA analysis of five periods of increasing cash rate movements since 1994 found that property prices continued to rise – sometimes significantly – even after rate rises of up 2.75 percentage points.
So if interest rate rises don’t lead to property downturns, what does?
PIPA says downturns occur because of some combination of reduced access to credit, falling affordability, worsening local economic conditions and declining consumer sentiment.
Kind regards,
Sal Cinque | CEO
03 9886 0800 | loans@tagfinancial.com.au
Disclaimer: The information contained on this page is general in nature. Professional advice should be sought before acting on any aspect on this page. TAG Finance and Loans Pty Ltd ABN 25 609 906 863 Credit Representative Number 483873 National Mortgage Brokers Pty Ltd ABN 88 093 874 376 Australian Credit License 391209.