Nine New Mortgage Trends to Watch Out For
A mortgage broker has identified nine new real estate lending and housing trends that will have a large share in the new fiscal year.
Marcus Roberts, mortgage broker and founder of Brighter Finance, identified a few mortgage trends that he believes will rise strongly over the next six months, with a particular focus on first-time home buyers.
1. The rise of the “mom and dad’s bank”
There is a lot of talk these days about the “Mom and Dad’s Bank” (BOMAD) which generally refers to parents who provide money for their children to buy a home in today’s hot real estate market.
Some research suggests that ‘BOMAD’ is among the top ten lenders in Australia based on how much money is passed on from parents to children.
“Many parents feel that giving their children money to buy real estate is better use of their money and less risky than a surety because bank money is not keeping up with inflation,” said Roberts.
“Parents helping their children buy a house are increasingly seen at many auctions.”
2. Low interest rates on large deposits
While some lenders have increased their mortgage rates, there are still lenders who are cutting rates, especially for borrowers with large deposits, that is, low loan-to-value ratios.
“There has been an interesting trend in the last few months for lenders to offer their customers their best discounts with LVRs of up to 60%,” said Roberts.
“The LVR refers to the part of the property value that people borrow. So an LVR of 60% means that you have either saved a 40% down payment (if you are a first-time homeowner) or have built up 40% equity. “
3. Shared loans are growing in popularity
A split loan refers to a loan where part is charged at a fixed rate while the remaining part is charged at a floating rate. This allows you the flexibility of a floating rate, which means you have the option to make additional repayments while at the same time having the stability of a fixed rate on part of the home loan for a period of time – effectively the “best of both worlds” . .
“Fixed rates in particular have made the headlines, with some experts predicting the current record lows for homeowners may be as good as possible,” said Roberts.
“For people who would like to settle part of their loan but don’t want to miss out on some of the attractive features of an adjustable home loan, a 60/40 split home loan is a commonly used compromise.
“A split rate home loan is not a specific type of home loan, it is a type of home loan interest rate. While most home loans are either floating or fixed rate, split home loans use both rates. to allow people to hedge their bets. “
Marcus Roberts from Brighter Finance. Picture supplied.
4. The great asset transfer for first time buyers
“Concerned that their children may never be able to afford a home of their own, more and more parents are putting their hands in their pockets to give their children an early inheritance by either buying their first home or making a substantial contribution to their first Buy your own home. ” said Robert.
“This increasingly common trend is part of the legion of parents who are taking charge of their adult children’s housing futures, including guaranteeing mortgages, depositing bail and renting their investment property to their descendants either at greatly discounted prices or free of charge. “
5. Digitization of mortgage applications
“For most brokers, the most important piece of technology they use is their customer relationship management (CRM) system,” said Roberts.
“Thanks to COVID, the digitization of mortgages and paperwork has made leaps and bounds and particularly welcomes the introduction of the option of signing things like credit guidelines and data protection consent with DocuSign.”
Mr Roberts also said that there are now “a variety of tools in the market to speed up the process”.
“Traditionally, the software has mainly focused on organizing and storing customer data and credit documents, but in recent years systems have focused much more on creating automated workflows and increasing productivity, whether through proprietary technology or through embedding external technology platforms into their systems, ”he said.
“Many companies are changing the way the mortgage process works, making tools available to brokers to help them get their business fully online and connect with customers digitally, checks or ‘soft’ credit checks that don’t affect results.”
6. The big change in the COVID tree
“Young families are prioritizing property size over urban locations, and new home sizes are growing the fastest in more than a decade, with the COVID-inspired shift in buying preferences expected to be an ongoing phenomenon,” Roberts said.
“Barriers and social distancing requirements led many Australians to believe the walls were closing, leading buyers and renters alike to prefer space and privacy to being close to work.”
CommSec found last year that Australian house sizes, on average, were again the largest in the world, but property sizes had shrunk over the past decade.
“The average size of a new house [grew] 3% yoy, the biggest jump in 11 years. Historically low interest rates have given home buyers the flexibility to look for more space, ”said Roberts.
7. Apartments are a winner for first time buyers
“First-time home buyers are now responsible for around 90% of our new home inquiries, up from 15% to 20% last year,” said Roberts.
“Spurred on by government incentives, low interest rates, and a spate of newly-completed or soon-to-be-finished units coming to market, many are grabbing the opportunity to buy, while investors, deterred by falling rents, are bottoming out.” . “
8. More willingness from first-time buyers
“As they say, be forewarned to be prepared, and for most things, the more you plan, the better the result,” said Roberts.
“It’s no different when applying for a mortgage. The better the planning and preparation, the better the result and the less stressful the process of applying for a home loan.
“Preparing the finances six to twelve months after the willingness to buy a home includes: a stable job or a (profitable) business, having a good credit rating, getting rid of unnecessary credit cards (or at least reducing limits), cleaning up bank accounts to do a test run to live on a budget and set financial goals. “
9. Frustration in the market for first time buyers
“With Australian home prices rising at the fast pace of 17 years, with historically low interest rates and limited supply spurring buyers to action, first-time home buyers are frustrated with home prices and limited availability,” said Roberts.
“It’s a harsh reality that the people of NSW will have to get into more debt than other states to achieve the same dream.”
Photo by Lochlainn Riordan on Unsplash