Not so fast on honeymoon loans, experts warn

By Gerv Tacadena

Banks are taking advantage of stamp duty adjustments to attract first-home buyers to take on honeymoon loans

Experts are flagging the risks associated with honeymoon loans as banks try to capitalise the growing share of first-home buyers in the market.

In a report for the Domain Group, BIS Oxford Economics senior manager Angie Zigomanis said banks are taking advantage of the most of recent policy changes in stamp duty and lending crackdown to make the most out of the growth in the owner-occupier market.

"At the end of the day, they’re targeting first home buyers because they’re trying to capture first home buyer demand with New South Wales and Victoria having introduced stamp duty exemptions and concessions," Zigomanis noted.

Some experts believe that the generous introductory rate, which may appear very attractive until the honeymoon period ends, may result in homeowners having to pay additional interest charges each year.

Mortgage broker and industry watcher Jane Slack-Smith urged first-home buyers to carefully consider all options before picking an uncompetitive product.

“It seems really reasonable when you’re looking at the now and the present position. But when first home buyers are exhausting all their savings to get into the property they need to concentrate on building up that cash buffer if anything goes wrong down the track,” she said.

Slack-Smith argued that borrowers may not be able to refinance once the initial variable rate ends, should banks continue to tighten lending screws.

“What it means in this tightening environment that APRA and the banks have actioned is the loans people could get last year may not be approved for refinancing this year or another year if they are reassessed," she said.

“It might be a solution for people who are cash-strapped and using every last cent to get their first home but it’s a cloud with a silver lining with a storm that lies ahead when the rate flips"

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