Refinancing numbers are surging across the country, here’s why

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Rising interest rates got you feeling a little vulnerable? It might be time to take some control back by refinancing or asking for a rate review. Here’s why we’re seeing refinancing numbers surge across the country.

In just two months we’ve seen the Reserve Bank of Australia (RBA) increase the cash rate from a record-low 0.10% to 0.85%, and it hasn’t taken long for most lenders to pass those rate increases on to customers.

Unfortunately, the RBA has warned that more rate hikes are on the way, which might have left you feeling at your lender’s mercy.

But there are ways you can make yourself feel more in control, including by doing what tens of thousands of mortgage holders around the country did in May: refinancing or asking their current lender for a better rate.

Homeowners are refinancing in droves

According to PEXA’s latest refinancing insights, refinancing increased by more than 20% in May (from April) across each of Australia’s four most populous states.

Here’s a quick breakdown:

NSW: 10,838 refinances. That’s up 20.8% on April, and up 15.6% year on year.

VIC: 11,500 refinances. May up 26.7% on April, and up 23.3% year on year.

QLD: 6,699 refinances. May up 21.8% on April, and up 49.6% year on year

WA: 3,244 refinances. May up 25% on April, and up 46.1% year on year

So why the big increase in refinancing?

Lenders now, more than ever, need to attract and retain borrowers.

So just because rates are going up, doesn’t mean you can’t scope out a better deal – especially if you have a decent amount of equity and a strong track record of meeting your mortgage repayments.

If that sounds like you: you’re a good customer. And lenders want good customers.

The other big reason for the recent surge in refinancing is that smaller lenders are stealing more and more borrowers away from the major banks with super-competitive rates.

In fact, in NSW, Victoria, Queensland and Western Australia combined, the major banks and their subsidiaries had a net loss of more than 5,000 borrowers to non-major lenders in May, according to PEXA.

Competition is fierce!

Why work with a broker now?

The amount of loans being written by brokers continues to grow.

In fact, brokers are currently writing 70% of all new home loans in the country – the biggest market share ever.

And as you know, brokers are loyal to you, not to any particular lender.

That means that if we think you can get a better deal elsewhere, we’ll encourage and help you to do so – not hope that you’ll stay put on your current rate.

And even if you don’t want to refinance with another lender, there’s always the option of asking your current bank to review your rate (and indicating that you’re prepared to refinance if they don’t come to the table).

So if you’d like to find out more about what options are available to you, get in touch with us today – we’d love to help you feel like you have some agency in the period ahead.

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 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.

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.

Netflix and too chill: house hunters cutting corners on inspections

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More than half of Australian house hunters spend the same amount of time inspecting a property as they do watching an episode on Netflix, according to new research.

We get it. You see a house you like and you immediately want to buy it, warts and all.

But take a breath, as FOMO can be costly – with a third of recent purchasers admitting to “buyers regret”.

Not doing your due diligence on a property can also have implications when applying for finance if the lender’s valuation doesn’t come in at what you expected.

And it turns out that a lot of house hunters are leaping before they look right now.

A recent survey of 1,000 property owners by lender ME revealed that 55% of house hunters spent less than 60 minutes checking out the property they eventually purchased, despite it being one of the biggest purchases of their lifetime.

That’s about the length of a standard 55 minute Netflix episode.

The impact of COVID-19

Turns out we haven’t just become better at bingeing during COVID-19.

COVID-19 has also reduced the time buyers have to check out properties.

But it’s not always the purchaser’s fault.

About two-thirds (65%) of recent buyers said “real estate restrictions impacted their ability to inspect and purchase their property”.

And surprisingly, almost half (45%) of buyers restricted by lockdowns admitted to doorknocking vendors to ask for an inspection on the sly, as well as looking at photos and/or videos of the property.

Hidden issues

The lack of inspection time led to around 61% of Australian home buyers discovering issues with their property after moving in.

Around 40% of this group said they missed picking up the issues because they “lacked the skill or experience in inspecting the property”, while 33% simply “fell in love with the property and overlooked them”, and 18% were “impatient and concerned by rising prices”.

Overall, the top post-purchase problems included construction quality (32%), paintwork (28%), gardens and fences (23%), fittings and chattels (21%) and neighbours (17%).

Among owners who identified issues:

– 34% experienced a degree of “buyers regret” following the purchase.
– 58% would have paid less for the property had they discovered the problems earlier.
– 84% spent money fixing, replacing or improving the issues identified, or have plans to do so.

The moral of the story? Emotions are always involved when purchasing a home, which can cloud your judgement.

“Give weight to any niggling hunches that give you cause for concern and get a professional property inspector to do the looking for you,” says ME General Manager John Powell.

“It is also important to know your borrowing capacity in advance so you can buy your home with full confidence knowing you’ve got solid financial backing.”

Get in touch to find out your borrowing capacity

As mentioned above, it’s important to know your borrowing capacity before you start house hunting so you don’t stretch yourself beyond your limits.

So if you’d like to find out what you can borrow – get in touch today. We’d be more than happy to sit down with you, take a breath, and help you work it all out.

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.

Bar raised for borrowers: tougher home loan serviceability tests

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Some borrowers will soon find it harder to get a mortgage after the banking regulator announced tougher serviceability tests for home loans. So who will they impact most?

The Australian Prudential Regulation Authority (APRA) will increase the minimum interest rate buffer it expects banks to use when assessing the serviceability of home loan applications from 2.5% to 3% from the end of October.

This means that banks will have to test whether new borrowers would still be able to afford their mortgage repayments if home loan interest rates rose to be 3% above their current rate.

APRA estimates the 50 basis points increase in the buffer will reduce maximum borrowing capacity for the typical borrower by around 5%.

“The buffer provides an important contingency for rises in interest rates over the life of the loan, as well as for any unforeseen changes in a borrower’s income or expenses,” APRA Chair Wayne Byres wrote in a letter to the banks.

Why is APRA increasing the buffer?

This move doesn’t come out of the blue. Federal treasurer Josh Frydenberg flagged tougher lending standards a week prior following a meeting with the Council of Financial Regulators.

And it’s due to a combination of factors.

Firstly, interest rates are at record-low levels, and secondly, the cost of the typical Australian home has increased more than 18% over the past year – the fastest annual pace of growth since the late 1980s.

That combination has made financial regulators a little worried that some homebuyers are starting to stretch themselves too thin and borrow more debt than they can safely afford.

Mr Byres adds that 22% of loans approved in the June quarter were more than six times the borrowers’ annual income. That’s up from 16% a year prior.

As such, APRA did consider limiting high debt-to-income borrowing but believed it would be more operationally complex to deploy consistently.

“And it may lead to higher interest rates for some borrowers as lenders effectively seek to ration credit to this cohort,” APRA adds, but it doesn’t rule out limiting high debt-to-income borrowing in the future.

Which borrowers are most likely to be impacted?

The increase in the interest rate buffer will apply to all new borrowers.

However, the impact is likely to be greater for investors than owner-occupiers, according to APRA.

“This is because, on average, investors tend to borrow at higher levels of leverage and may have other existing debts (to which the buffer would also be applied),” APRA adds.

“On the other hand, first home buyers tend to be under-represented as a share of borrowers borrowing a high multiple of their income as they tend to be more constrained by the size of their deposit.”

What could this mean for your home loan borrowing hopes?

If you’re worried about how this latest announcement from APRA could impact your upcoming application for a home loan, then get in touch today.

We can apply APRA’s new loan serviceability tests to your personal circumstances to help you determine your borrowing capacity and focus your house hunting.

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.