Borrowers Hit by Loyalty Tax | Property Market Sets New Record | Twelve Grains Capital
Loyal borrowers pay higher interest rates
Borrowers who stick with the same lender year after year are probably being slugged with a ‘loyalty tax’, according to new data from CoreLogic.
Owner-occupiers who took out new variable loans in April were charged an average interest rate of 2.77% p.a. However, owner-occupiers with existing variable mortgages were charged an average of 3.10% p.a. – forcing them to pay a loyalty tax of 0.33 percentage points. Investors had to pay an even larger loyalty tax, with variable loans priced at 3.06% for new borrowers and 3.44% for existing borrowers – a gap of 0.38 percentage points. For a $500,000 mortgage, those interest rate differentials can add up to a lot of money over the life of the loan:
You pay $31,887 less interest over 30 years with a rate of 2.77% p.a. rather than 3.10% p.a.
You pay $37,539 less interest over 30 years with a rate of 3.06% p.a rather than 3.44% p.a.
Paying too much for your home loan? Let’s talk
RBA urges banks to keep lending standards high
Reserve Bank governor Philip Lowe has reminded banks they need to continue rigorously assessing home loan applications.
“It is important that lending standards remain sound in an environment of low interest rates and rising housing prices,” he said in a recent speech. “The RBA does not, and should not, target housing prices. We do, though, have a strong interest in trends in household borrowing, especially given the already high level of household debt in Australia.”
What, exactly, are 'high lending standards'? Well, it can differ from lender to lender, but it's based on three core factors:
Employment status and income
Savings and credit history
Existing loans and equity
Where it gets tricky is that different lenders assess those factors differently, and so reach different conclusions on who they lend to. As a mortgage broker, I can give you expert advice on which lender would best suit your personal circumstances. Need trusted home loan advice? Call us
Red-hot property market sets new record
The total value of residential dwellings in Australia has surpassed $8 trillion for the first time, according to new data from the Australian Bureau of Statistics.
During the March quarter, the total value of Australia's 10.6 million homes rose by $449.9 billion – the biggest jump on record. At the same time, national property prices rose 5.4% – the fastest rate of growth since the December 2009 quarter. The breakdown by capital city was:
Sydney = 6.1%
Hobart = 6.1%
Canberra = 5.6%
Perth = 5.2%
Melbourne = 5.1%
Darwin = 4.7%
Brisbane = 4.0%
Adelaide = 4.0%
Govt makes it easier for first home buyers and single parents to buy property
From July 1, the federal government will release a total of 30,000 openings in three different assistance programs aimed at first home buyers and single parents. At the same time, the government will increase the price caps that apply to two of the programs, making them easier to access. The three schemes allow eligible buyers to purchase a property with a deposit of anywhere from 2% to 5% (depending on the scheme). The government guarantees the ‘gap’ between that 2-5% deposit and a standard 20% deposit, so the buyer doesn’t get charged lender’s mortgage insurance (which generally applies when buyers have a deposit under 20%).
Under the First Home Loan Deposit Scheme, 10,000 first home buyers can purchase existing homes with a 5% deposit.
Under the New Home Guarantee, 10,000 first home buyers can buy or build new homes with a 5% deposit.
Under the Family Home Guarantee, single parents (who may or may not be first home buyers) can purchase a property with a 2% deposit.
The schemes have price caps, which vary from region to region. From July 1, the caps will increase for the First Home Loan Deposit Scheme and Family Home Guarantee.
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