How to avoid becoming a victim of underquoting

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It’s the hope that kills you. Just ask Carlton fans, NSW Blues supporters, Wallabies sufferers, and hopeful homebuyers who have fallen victim to underquoting. Obviously, you can’t change your footy team, but you can follow these tips to avoid the sketchy real estate practice.

If it hasn’t happened to you, it’s probably happened to someone you know.

You find a dream home that appears within your budget, you get your finance pre-approved, you get your hopes up, and … you get blown out of the water come auction day because the agent has underquoted the property.

But hang in there – all is not lost, as we’ll touch upon below.

What is underquoting?

Underquoting is the misleading practice of advertising a property with a price guide that suggests to hopeful buyers that it could sell below market value, or for less than what the agent knows the vendor will accept.

Accusations of underquoting have been rife in recent times, as national property prices have soared 24% over the past year alone.

Now, there’s no doubt that some agents out there have been intentionally underquoting properties to drum up interest. But not always.

Real Estate Buyers Agents Association (REBAA) president Cate Bakos says on many occasions selling agents get blamed unfairly for their reluctance to predict a strong competitive result, and in many circumstances, vendors exercise their right to change their price expectations without prior consultation with their agent.

“Underquoting is amplified by a rising market,” adds Ms Bakos.

Which means as property prices peak in Sydney and Melbourne, and the rest of the country starts to follow a similar trend, less underquoting should occur.

Why do agents underquote a property?

The main reason vendors and agencies underquote, explains Ms Bakos, is based on the belief that an underquoted property will attract more prospective buyers.

It’s hoped that these buyers will fall in love with the property so much that they’ll find a way to compete against more cashed-up buyers, helping to push the property’s final price up in the process.

“The reality is that many buyers find themselves shortlisting properties that are beyond their financial constraints, and this can lead to disappointment, wasted expenditure for building reports and due diligence, and lost opportunity,” says Ms Bakos.

Isn’t underquoting illegal?

Ms Bakos said while price guide legislation varied between states and territories, the problem was relatively endemic in many cities across the nation.

She said while underquoting was illegal, there were still many legal loopholes that existed in current legislation, particularly in Victoria.

“In Victoria for instance, vendors are not required to state their reserve price for an auction until moments before the auction,” says Ms Baokes.

“And some offending agencies take advantage of this by pitching the property at a price lower than that of a reasonable price expectation or a realistically anticipated reserve.”

How to avoid becoming a victim of underquoting

Rather than rely on the price guide the real estate agent gives you, do your own homework.

You can do this by looking at comparable sales within the last month or two (on websites such as Domain and realestate.com.au), and compare like-for-like properties and locations.

“It’s an approximation, but it’s more helpful than living in the past and working off older, unreliable sales,” adds Ms Bakos.

Here are the REBAA’s other top tips to avoid becoming a victim of underquoting:

1. Compare comparable properties by location, land size and condition.

2. Spend the months leading up to active bidding time (while obtaining finance pre-approval) to inspect, inspect and inspect as many properties and neighbourhoods as you can.

3. Look at other similar properties in the area and see what the agent’s initially-published estimate price range was; what the reserve price was; and what it finally sold for.

4. Consider consulting and engaging a REBAA-accredited buyer’s agent to take care of the process so you can “buy with confidence.”

And last but not least, don’t forget to get in touch with us in advance to get your finance pre-approved.

That way, come crunch time, you can spend less time on your finance application, and more time doing your homework to make sure the properties you’ve got your heart set on haven’t been underquoted.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

How to save a first home deposit in just over a year

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It’s taking young couples roughly five years on average to save for a 20% home loan deposit, according to new research. Want to hear something crazy, though? We know how to quarter that timeframe…

Real talk: it’s never been tougher to save up a deposit for your first home.

In Sydney the average timeframe is 8+ years. In Melbourne 6.5 years. And most other places across the country, 4 to 6 years. 

That is unless you happen to know a finance professional who can help first home buyers purchase a home with just a 5% deposit – and not pay any lender’s mortgage insurance in the process.

And how do we do that?

Well, if you’re eligible, we can hook you up with the First Home Guarantee (FHG) scheme – which will release 35,000 places from July 1 (more on this below).

By getting in early on this scheme and reserving a spot, you can quarter the amount of time it takes you to save up for your first home deposit.

Don’t believe us, check out these stats

Below you’ll see how long it’s currently taking first home buyers across the country to save for a 20% home loan deposit (according to Domain data), compared to saving just 5%.

Sydney: 8 years 1 month (20%), down to 2 years (5%).
Melbourne: 6 years 6 months (20%), down to 1 year 7 months (5%).
Brisbane: 4 years 10 months (20%), down to 1 year 3 months (5%).
Adelaide: 4 years 7 months (20%), down to 1 year 2 months (5%).
Perth: 3 years 7 months (20%), down to 11 months (5%).
Hobart: 5 years 10 months (20%), down to 1 year 5 months (5%).
Darwin: 4 years 3 months (20%), down to 1 year (5%).
Canberra: 7 years 1 month (20%), down to 1 year 9 months (5%).
Combined capital cities: 5 years 8 months (20%), down to 1 year 5 months (5%).
Combined regionals: 3 years 10 months (20%), down to 11 months (5%).
Australia-wide: 4 years 5 months (20%), down to 1 year 1 month (5%).

So if you’ve been saving towards a 20% for at least a year, you could be ready to hit the ground running when the 35,000 FHG schemes become available on July 1.

Tell me more about the First Home Guarantee scheme!

Ok, so the First Home Guarantee scheme (previously the First Home Loan Deposit Scheme) allows eligible first home buyers to build or purchase a home with only a 5% deposit, without forking out for lenders’ mortgage insurance (LMI).

This is because the federal government guarantees (to a participating lender) up to 15% of the value of the property purchased.

Not paying LMI can save buyers anywhere between $4,000 and $35,000, depending on the property price and deposit amount (it’s also worth noting that property price caps apply).

But places in this scheme are on a first-come, first-served basis.

So don’t let the recent expansion to 35,000 spots lull you into a sense of complacency.

They’ll go fairly quickly, which means if you’re interested you’ll want to get in touch with us asap to ensure you’re ready to lodge the application come July 1.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Budget winners: first home buyers, regional buyers, single parents

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First home buyers, regional buyers and single parents keen to crack the property market are the big winners in this year’s federal budget – with 50,000 low deposit, no LMI scheme spots up for grabs. 

Want to buy your first home with just a 5% deposit and pay no lenders’ mortgage insurance? 

You could be in luck – the federal government is expanding its hugely popular First Home Guarantee scheme to 35,000 places from July 1, 2022.

First home buyers who use the First Home Guarantee scheme fast track their property purchase by 4 to 4.5 years on average, because the scheme means they don’t have to save the standard 20% deposit.  

The government usually issues just 10,000 spots for the First Home Guarantee every July 1, but next financial year it’s upping the ante.

It’s worth noting that the similar New Home Guarantee scheme for first home buyers (10,000 spots for new builds only), isn’t expected to continue next financial year.

However, regional buyers (10,000 spots) and single parents (5,000 spots) will benefit from similar schemes, which we’ll run through in more detail below.

But first, what’s the First Home Guarantee scheme?

Ok, so the First Home Guarantee scheme (previously the First Home Loan Deposit Scheme) allows eligible first home buyers to build or purchase a home with only a 5% deposit, without forking out for lenders’ mortgage insurance (LMI).

This is because the federal government guarantees (to a participating lender) up to 15% of the value of the property purchased.

Not paying LMI can save buyers anywhere between $4,000 and $35,000, depending on the property price and deposit amount.

But places in this scheme are on a first-come, first-served basis.

So don’t let the expansion to 35,000 spots lull you into a sense of complacency.

They’ll go fairly quickly, which means if you’re interested, you’ll want to get in touch with us asap to ensure you’re ready to hit the ground running come July 1.

The new Regional Home Guarantee

Regional homebuyers will benefit from the announcement of the Regional Home Guarantee.

Under the scheme, 10,000 guarantees each year (from 1 October 2022 to 30 June 2025) will be made available to support eligible regional homebuyers.

The good news is that this scheme will also be made available to non-first home buyers, and permanent residents, to purchase or construct a new home in regional areas.

Details on this scheme are still fairly limited, though. 

For example, it’s not confirmed in the budget papers or ministerial statements whether it will be a 5% deposit scheme like the first home buyer one.

And what’s classified as a “regional area” hasn’t been disclosed yet, but rest assured we’re watching this space closely.

Family Home Guarantee for single parents

For single parents, 5,000 guarantees will be made available each year from July 1, expanding upon the Family Home Guarantee announced in last year’s budget.

The Family Home Guarantee can be used to build a new home or purchase an existing home with a deposit of as little as 2%, regardless of whether the single parent is a first home buyer or has owned property before.

Previously, it was planned that just 2,500 spots would be up for grabs each year over four years, so it’s good to see the federal government expand this scheme until June 2025.

Get in touch today to get the ball rolling

With these schemes, allocations are generally snapped up fast.

So if you’re a first home buyer, regional buyer, or single parent looking to crack into the property market sooner rather than later, get in touch today and we can explain the schemes to you in more detail and help check if you’re eligible.

And when the spots do become available over the next few months, we’ll be ready to help you apply for finance through a participating lender.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

What’s your debt-to-income ratio? And why do lenders care about it?

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New data from the lending watchdog reveals almost one in four new mortgages are risky. How are they deemed risky? Well, it’s got something to do with your debt-to-income ratio, which we’ll explain in this week’s article.

Your debt-to-income (DTI) ratio might sound complicated, but it’s really very simple to work out.

Basically, your DTI is a measurement used by lenders that compares your total debt to your gross household income.

The formula is: total debt / gross income = debt-to-income ratio.

So if you’re seeking a $700,000 home loan (and have no other debt), and you have $160,000 in gross household income, your DTI is 4.375 – a ratio most lenders would be very comfortable with.

So why do lenders care about your DTI?

Well, December quarter data just released by the Australian Prudential Regulation Authority (APRA) shows 24.4% of new mortgages have a DTI ratio of 6 or higher.

At the 6+ ratio, APRA (aka the banking watchdog) deems these loans as risky.

And they’re keen to see the percentage of these loans that lenders approve start to come down.

That’s because they’ve been steadily on the rise for a while now.

In the September 2021 quarter, for example, new mortgages with a DTI of 6 or higher were at 23.8%, while in the December 2020 quarter it was at just 17.3%.

“However, the rate of growth in the [most recent] quarter slowed,” APRA points out (probably with a sigh of relief) in their latest release.

So why has the percentage of risky loans recently risen?

The recent rise in high DTIs has most likely got a lot to do with the phenomenal price growth (and resulting FOMO!) we’ve seen across the country over the past 12-18 months.

In fact, new data released by the Australian Bureau of Statistics shows that in the 12 months to December 2021, residential property prices rose 23.7% – the strongest annual growth ever recorded.

The mean price of residential dwellings in Australia now stands at $920,100.

That’s a jump of $44,000 from the September quarter ($876,100), and a jump of $176,000 in 12 months from the December 2020 quarter ($744,000).

So with property prices increasing at such a sharp rate, and people stretching themselves to their limits to buy into the market, it has resulted in upwards pressure on high DTI percentages.

The good news is that as the property market starts to cool, so too should the growth rate of risky DTIs, which is what APRA alluded to above.

So how much can you safely afford to borrow?

There’s a fine line between maximising your investment opportunities and stretching yourself beyond your limits.

Especially so as RBA Governor Dr Philip Lowe this week warned Australians to start preparing for higher interest rates.

And that’s where we come in.

It’s not only important to stress-test what you can borrow in the current financial landscape, but also against any upcoming headwinds that are tipped to hit borrowers – such as interest rate rises and possible tightening lending standards.

But hey! Everyone’s financial situation is different. Some lenders will take into account your particular circumstances and accept a loan application where a DTI is higher than 6.

So if you’d like to find out your borrowing capacity and options, get in touch today. We’d love to sit down with you and help you map out a plan.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Fixed rates on the rise, as CommBank tips a June cash rate hike

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Hold onto your hats, things are about to get a little bumpy. Economists from Australia’s biggest bank are predicting the Reserve Bank will raise the official cash rate as early as June – and we’re already seeing fixed interest rates increase significantly.

Commonwealth Bank (CBA) economists have brought forward their forecasted Reserve Bank of Australia (RBA) cash rate hike from August to June, making it the earliest prediction amongst the big four banks.

We’ll go into more detail on why CBA has brought forward their prediction below, but first something a little more concrete: we’ve definitely noticed fixed rates trending up in recent months.

Fixed rate hikes

For example, back in November, for a $700,000 loan at 80% loan-to-value ratio, a two-year fixed rate with one particular lender was 1.84%.

That rate has since gone up to 3.04% – a staggering increase.

While not every lender has increased fixed rates so significantly, we are seeing them go up across the board.

So if you have been umming and ahhing about fixing your rate lately, you’ll want to get in touch with us sooner rather than later.

Because while most lenders have recently reduced their variable rates to compensate a little, with news now that the cash rate is being tipped to increase mid-year, you can expect variable rates to increase with the cash rate.

So why has CBA brought forward their forecast to June?

Ok, so back to CBA’s June cash-rate hike prediction and why they’ve brought it forward from August.

In a nutshell, CBA senior economist Gareth Aird is anticipating inflation to be a lot stronger than the RBA is forecasting.

As a result, Mr Aird believes this will lead to a rise in the cash rate to 0.25% at the June board meeting (currently it’s at a record-low 0.1%).

“We are very comfortable with our expectation that the quarter-one 2022 underlying inflation data will be a lot stronger than the RBA’s forecast,” explains Mr Aird.

And here’s the thing: it’s not the only cash rate hike CBA is predicting the RBA will make over the next 12 months.

Mr Aird is expecting a further three rate increases over 2022 to take the cash rate to 1%, with another move to 1.25% in early 2023.

That’s five cash rate hikes over 12 months!

Get in touch today to explore your options

Believe it or not, there are more than 1 million mortgage holders out there who have never experienced a rate rise (the last RBA cash rate hike was in November 2010).

And if the CBA’s prediction of five rate hikes over the next 12 months proves right, then some households will be in for a bumpy ride as they face hundreds of dollars in extra mortgage repayments each month.

So if you’re keen to act before the RBA increases the official cash rate, get in touch with us today. We’d love to sit down with you and help you work through your options in advance.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.