With interest rates at such a low level off the back of the record low RBA rate, now could be a great time to enter the property market or refinance to a more suitable rate. I can help you navigate through some possible lending solutions available.
Why get ready to enter the property market now?
This September had the potential to be one of the worst economic months this year to date, with many property market analysts, myself included, calling for government and bank action as we headed towards an economic cliff that saw 100,000 borrowing families imminently at risk of defaulting, with more to come as the domino effect took place. Thankfully the fiscal cliff has been post-poned, but it is still coming. Originally slated to end this month, The Australian Banking Association (ABA) extended the mortgage deferral period by another four months for customers experiencing ongoing financial difficulty.
Similarly jobkeeper and jobseeker which were also both originally slated to end this month (hence the concern over the economic cliff) have been post-poned to January 2021. However, much like the mortgage deferrals, the programs have been restricted, as access is gradually restricted to the most dire cases.
With 2.3 million home owning families in mortgage stress, and a further 1.5 million home owning families currently reliant on credit to survive it is only a matter of time before those families that are unable to recover are forced to sell their home or risk defaulting on their home loans.
I expect mortgage stress to continue to worsen through to the end of the year, with the first waves of systemic forced sales to come in early 2021 as mortgage deferrals and government support are ended and Australia enters the worst of the fire season. However, it is possible that support measures will be extended again. Those living with NSW, VIC, or QLD are likely to be hit hardest.
Property prices will be at their most competitive during this time as the property market becomes saturated with homes for sale driving down prices as supply exceeds demand. In addition, fixed and variable interest rates have reached all time lows off the record low cash rate of 0.25% as decided by the Reserve Bank of Australia (RBA), creating an opportunity to get your foot in the door of the property market with low property prices and low borrowing costs.
Entering the property market: How does the home loan process work?
Arrange a pre-approved loan
If you haven’t started your property search, or are still looking, a pre-approved loan can be useful.
It gives you a clear picture of what your spending limits are and gives you peace of mind that if you find a property you’re really interested in you can move quickly to make an offer. And it may put you in a stronger negotiating position than other potential buyers who don’t have pre-approval. Of course, even with a pre-approval, a subject to finance clause is an important protection in any sale contract. The better your borrowing capacity, the more you can borrow and the more money you will be able to work with when looking for your property.
Find your property
Make sure you do plenty of homework when you’re on the hunt for a new property. Research property prices in the area, potential capital growth and existing and planned infrastructure, such as roads, public transport, schools and shops. If you’re unfamiliar with property values in the area, consider a full valuation carried out by a registered valuer before making a final decision. Don’t allow yourself to judge the property based on the interior design, home staging is a common method used to make buyers fall in love with the home and value the home emotionally rather than rationally.
Make an offer and sign a Contract of Sale
Whether you buy property at auction or make an offer on a listing you’ll be asked to sign a Contract of Sale. This contract will confirm the selling price as well as any terms and conditions. You will need to include appropriate conditions such as subject to lender approval, a building inspection report and a pest inspection.
The period from signing a Contract of Sale to settlement – when the property becomes legally yours – is usually six weeks (shorter in some states, such as Queensland).
Note: even if you have a pre-approved loan, your lender will still need to complete a valuation of the property you have chosen before issuing full approval and if that valuation is not satisfactory the lender may not give final approval of a loan to purchase that property.
Appoint a conveyancer
You will need a conveyancer or solicitor to act for you to complete the sale. Your conveyancer should also check all rates and taxes have been paid, check land use or building approvals for the property and order any relevant searches. They may also help sort out any inspections. On settlement day, the conveyancer will check the correct amount of money has been transferred from your lender to the seller and all fees – such as Stamp Duty – are paid, so you can take legal ownership of the property.
Pay a deposit
A deposit is required once a Contract of Sale has been signed by both parties. You won’t yet have access to your home loan, so your deposit will need to come from savings or elsewhere. You may also be able to arrange a deposit bond until settlement.
Cooling off period
If you didn’t buy your property at auction, you may have a cooling off period when you can cancel the contract, although there may be a small penalty. Cooling off periods don’t necessarily apply in every state so check with your relevant state authority to find out what your rights may be.
Be very cautious about signing an unconditional contract or bidding at an auction especially if you’re not certain about whether you’ll be able to obtain finance or about buying the property.
How we can help you enter the property market.
If you are looking to buy a home consider contacting us at Finance Mutual Australia, we are experts at finding the best home loan option to match your financial goals and your lifestyle needs, contact us today!
Please note we do not provide tax, legal or accounting advice. Any information contained in this document is of a general nature only and does not take into account the objectives, financial situation or need of any particular person and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Therefore, before making any decision, you should consider the appropriateness of the information with regard to those matters and consult your own tax, legal and accounting advisors before engaging in or considering the appropriateness of any