Home Lending Trends – Why NOW Could Be a Great Time to Borrow for Property

Lending Cycles and the Current Market Climate

Home lending goes through ups and downs, just like the property market. It’s shaped by the economic cycles, social demographics, and consumer expectations; but more importantly it’s shaped by the risk factors at any given moment determined by the lending institutions. Over the past decade, the home lending landscape has been impacted by Covid19, technological innovations, demographic changes, as well as employment and inflation fluctuations. At the moment, inflation is trending downwards, signalling possible reductions in the interest rates, and the property market – together with low unemployment – are all indicators for a buoyant, low risk lending cycle. Lenders are relaxing their lending policies due to lower risk factors (especially for self-employed borrowers), and there are great incentives for first home buyers to get on the property ladder. Borrowing power has improved in some cases with changes in income assessment policies, and lending criteria.

Why Lending Conditions Are Easing

There are even greater low deposit lending options to make it possible for people to borrow now, rather than later. The flip-side of this coin is the additional demand on housing supply we will undoubtedly see as more first-home buyers and investors take hold of the available properties.

What Happens If the Market Shifts?

All this can change in an instant. I remember when unemployment rates were higher and lenders required PAYG to be employed for a minimum of 6 months, no exceptions, and Casual employee’s income was heavily shaved to allow for periods of unemployment with a minimum of 12 months history, and the restrictions went on, and on….. If interest rates were to rise, or unemployment rises, and borrowing risk increases we will no doubt see lending policies tighten to reflect the change in lending appetite. So, right now could be the best time to utilise home loans to achieve your property goals.

How Borrowers Are Accessing Finance Today

Certainly, we’ve seen dramatic changes in the way people approach and access lending. Here’s a snapshot of the current status quo:

Digital Lending Platforms

Digital lending is a growing platform for borrowers that can embrace streamlined online applications and automated assessments. Beware though – these platforms often have limited purpose testing, and client types. For example, purchase or refinance only (no consolidations), individual applicants (no company or trust entities), PAYG only (no self-employed applicants) etc. The process is automated with no personal contact, and the applicants do all the work, but the interest rate is generally very competitive.

Why Mortgage Brokers Are in Demand

Mortgage Brokers are now the go-to method of lodging applications for over 75% of home lending across Australia. Brokers have become key to helping borrowers navigate the broad lending options available to them to give their application a greater chance of success. Whereas a bank can only offer their own product, a broker gives their client access to dozens of lenders to meet their unique and individual needs, comparing interest rates to find the best loan for their client. Brokers are legally bound to act in your best interests through Best Interest Duty. Through each lender accreditation, they understand complex policies and niches that allow them to match client needs with a solution. Mortgage Brokers are especially helpful for first-home buyers, investors, and self-employed business owners. In addition to this, Mortgage Brokers take care of the application for their clients, dealing with the myriad of lender requirements and communications. They often secure faster approvals because of their knowledge and understanding of assessment frameworks.

Refinancing for Better Outcomes

Refinancing is becoming commonplace – with homeowners taking advantage of the equity in their homes to consolidate their other debts and take advantage of lower home loan repayments through competitive interest rate sourcing. If it’s been a while since you have asked your bank to review the rate on your home loan then chances are you’re paying a higher interest rate than you could be paying. Try asking your lender to reduce their interest rate in the first instance to retain your home loan with them. If there are still lower interest rates available then why not look at refinancing to potentially save yourself thousands of dollars over the life of the loan?

A Real-World Example

A new client came to me who was struggling to paying down 4 credit cards as well as a home loan that hadn’t had a rate review for 5 years. Because of the low balance of the home loan, and the age of the applicant, the lender was not willing to negotiate the interest rate. I refinanced the client to a lower interest rate loan and consolidated the 4 credit cards into the new home loan for a final monthly repayment that was lower than the current monthly home loan repayment. The credit cards were closed and the client saved over $700 per month in repayments. Clients are also using a refinance to access equity in their existing home and build their investment portfolios.

Hot Tip on Refinancing

You might have originally taken out your loan with a low deposit and paid lenders mortgage insurance; which generally meant you were given a higher rate of interest as well. Lenders won’t generally apply a lower rate of interest just because your home value has increased. By refinancing, and getting an updated valuation, you could achieve a lower rate of interest based on the lower loan to valuation ratio, and again save money on your monthly repayments.

More Lending Options Are Emerging

Lending scenarios have been expanded to allow co-borrowing, shared equity schemes, government help-to-buy schemes, and low deposit options to mention a few. There are more commercial and business lending options, and lenders are embracing businesses that are becoming more mainstream, such as e-commerce and ride-sharing/property sharing entities. The rise of AI is providing lenders the ability to accurately simulate outcomes and determine risk to tailor loan products with better niches.

In Conclusion

So, in conclusion, Lenders are evolving their criteria and assessment tools to meet the changing profiles of borrowers, and technology is reshaping how mortgages are offered, processed and serviced. It’s clear from the escalating number of home loan applications facilitated by mortgage brokers that Australians are becoming savvy in where they place their mortgage and how that mortgage works for them instead of against them. Housing affordability, supply and demand may be throwing a spanner in the works for some, but the smart investors and home buyers are not waiting around – they’re educating themselves and marching onwards regardless.

Consider having a strategy conversation with your finance expert – mortgage broker, financial planner or accountant – to understand what options are available and the structure that would best suit your goals. Remember, if you start with the end in mind then you’re more likely to get there.

Whether you're looking to buy, refinance, or simply better understand your borrowing options, being informed is your best asset.

Reach out to me directly at thepa@themortgagepa.com.au to explore how the right loan structure can support your property goals.

Now and into the future.

— Helen Petterson