The Coronavirus disease (COVID-19) pandemic has affected all of us; but for those who were on the cusp of buying their first home, it may be one of the best times to buy. If you have a secure job and somewhat of a deposit saved up, going through with your home loan application may mean unprecedented savings thanks to a variety of factors.
Record low interest rates and weak market
As of writing the official RBA cash rate is at 0.25% and holding – a record low. Barring a rapid economic recovery, which seems unlikely, home buyers can lock in record low interest rates. As the market softened over 2019, prices are also weakening due to many economic factors. This includes investors pulling back from entering or bolstering their property portfolio due to falls in the stock market. It also removes those people hedging their bets or those uncertain about their income.
Relaxed lending restrictions
The Australian Prudential Regulation Authority (APRA) relaxed lending restrictions in 2019, meaning it’s now easier for people to gain approval for home loans. The “stress test” requirement is now waived, so you won’t have to prove you can afford a loan if interest rates 2.5% higher than right now. Some banks may still apply a “stress test” but at their own discretion.
First Home Loan Deposit Scheme
Introduced this year, the Federal Government’s First Home Loan Deposit Scheme helps first time home buyers purchase their own home by guaranteeing 15% of their deposit. This means if you have saved 5% of the purchase price of your home, you will not have to pay Lenders’ Mortgage Insurance (LMI) as the government acts as a guarantor (a party responsible for another person’s debt.)
Effectively, you can purchase a home if you have a 5% deposit and you clear all the eligibility requirements (which you can view here). You will need to have an income of up to $125,000 as a single or a couple with a combined income of $200,000. You will have to apply for the scheme through your bank or lender. As of writing, over 27 of Australia’s major lenders and banks have signed on to the scheme.
The downside – red flagged job sectors
As the pandemic shut down sectors of the economy, many people with jobs in hospitality, tourism, or aviation services may be scrutinised further by banks and lenders. Since these sectors have been severely affected by lockdowns and mandatory closures, it may take more time to process an application, even if your job is secure for the near future.
Get a better deal through a broker
To get a better deal, it’s best to approach a home loan broker, as home loans expert and Savvy CEO Bill Tsouvalas says. “All these factors are best navigated by someone who knows the market and is connected to multiple banks and lenders. Brokers can help find competitive rates and mortgages with features that suit your goals. They can also weed out any lender not participating in the First Home Loan Deposit Scheme, so you can rest assured you’re getting the best chance at approval.”