First, the good news (if you are house hunting): The NSW government has announced stamp duty changes from July 1 that will mean first home buyers of existing and new properties costing up to $650,000 will be exempt.
Official interest rates are at an historic low of 1.5 per cent since August 2016.
Some market analysts suggest house price rises may have peaked (others say that the rises may have slowed, but not by much). But no-one is quite ready to answer the Are we there yet?” question on a market peak.
Latest data shows a monthly decline in prices for May, after increasing at the slowest pace in 16 months in April or, if you believe CoreLogic, actually declining 1.1 per cent (the combined capital cities were still 8.3 per cent up over last year).
St George economic Janu Chan describes it as a “perfect storm” of events.
But head of research Cameron Kusher says they aren’t calling the peak of the market yet, but it “has lost momentum”.
Construction will see a high later this year, and AMP Capital’ Chief Economic Shane Oliver is tipping some city areas will fall up to 20 per cent – but a broader crash was unlikely.
That didn’t stop the Financial Review headlining a story on Brisbane apartment sales coming off as much as 70 per cent recently.
Chinese buyers, under pressure from their government, are quitting the market and may even default on apartments they have already bought.
Now the bad news: Experts say mortgage rates are on the way up thanks to the levy on the banks;
Ratings agency S&P has downgraded the credit ratings of more than 20 small financial institutions, including Bank of Queensland, Bendigo & Adelaide Bank and AMP Bank.
And that’s all about the fears that a downturn in property prices – that’s in the good news section – could mean small lenders would find themselves with loans that are unsecured.
The “too big to fail” Big Banks – they have 80 per cent of the home lending market – were left untouched. But they have a revenue hole. So expect , according to The Sydney Morning Herald, increased annual fees on home loans and higher interest rates on credit cards.
But what’s really going on at the auctions?
A shortage of housing, coupled with record-low interest rates, has made Sydney the world’s second-most expensive property market. The city’s home prices jumped 16 per cent in the 12 months through April, helping produce record household debt and putting ownership increasingly beyond the reach of many.
Australia’s biggest banks have been tightening their lending standards under pressure from regulators, making home loans for investors and interest-only mortgages more expensive.
The Reserve Bank of Australia has cited the east-coast property markets and their impact on financial stability as a key concern.
The property site Domain has produced a list of 11 affordable suburbs – defined as those with units under $459,010. Gosford, 65 kilometres from Sydney’s centre, on the Central Coast and on the cusp of Greater Sydney, is the cheapest area for first-time buyers.
A $10,000 budget boost from the First Home Owner Grant for new properties, would render the median house prices of six more suburbs affordable.
It’s really worthwhile to look at smaller lenders like co-operaties and mutual.
Melina Morrison, chief executive of the Business Council of Co-operatives and Mutuals, told Domain: “There is a long list of customer-owned and small banks which offer better value for everyday Australians,” Morrison says.
“They have the advantage of being owned by their customers so it’s in their interests to do the right thing by them.”
But borrowers must be aware of the costs and fees of switching to another mortgage.
Finder.com has a good list of what to look out for:
• Compare multiple lenders. Always get more than one quote when looking for a mortgage. This will ensure you get a good mix of options from different types of lenders.
• Get your credit score in order. A credit score above 740 can open the door to more competitive interest rates and loans, even special government program loans such as FHA and VA loans. Better credit scores can give you benefits such as lower required down payments.
• Consider paying for points. Discount points are upfront charges you can pay to reduce the interest rates on your loan. You should work out whether or not paying for points will have a beneficial effect on your total cost in the long run, especially if you don’t plan on keeping your home for the long term.
• See if you qualify for special programs. There are government, state and local programs that may offer competitive rates and terms, so be sure to check these out.
• Save a larger down payment. The bigger your down payment is, the less of a risk you present to your lender. Borrowers with lower risk are rewarded by lenders with better interest rates.
• Lower your debt-to-income ratio (DTI). Your total debt load will affect what loans you qualify for, which means you may be able to take out a lower rate. This makes it a good idea to pay off and close any other credit cards or loans you don’t currently need if you’re shopping for the best rate.
So should you buy or not?
Our feeling: If you can, wait. This market is in play and the next few weeks will be very significant.