Home loans and home buying in 2021: how to save and our predictions

Australia’s housing market has shown impressive resilience throughout 2020, despite all odds. House prices briefly dropped, before rising again before the end of the year. While unemployment rose, government stimulus, loan repayment holidays and good pandemic management have prevented a more dire situation in Australia.

In the wake of the COVID-19 pandemic, Aussies can likely expect a better year as the country moves towards economic recovery. In this article we’ll share our predictions and savings tips for the year ahead to give you confidence on your property buying and ownership journey.

Look out for home loan incentives

In recent years, the number of home loan lenders has increased. The big banks may still dominate, but the smaller lenders may offer better deals. In order to remain competitive, especially with low interest rates, lenders are thinking creatively about how to attract and retain customers.

Plenty of lenders are offering incentives for taking out home loans with them. These include:

• Cashback deals
• Gift vouchers
• Honeymoon rates (e.g. lower introductory rates for 6 months to 2 years)
• Low or zero fee home loans
• Removing certain fees (e.g. application fees)

As always, don’t let a shiny new offer cloud your judgement. Home loans should be carefully considered. Think about the product as a whole and consider what your priorities are:

• Interest rate
• Loan features (e.g. portability, offset account, redraw facility)
• Loan repayment term
• Fees (e.g. application, establishment, maintenance, features)
• Fixed vs. variable interest rate
• Ability to make extra repayments

Don’t settle for a bad interest rate

Record low mortgage rates mean that there’s almost no reason to be paying more than you have to. In most cases, the interest rate you get in 2021 should start with a 2 — or even a 1 if you’re very lucky.

Of course, some borrowers have unique circumstances that prevent them from having access to these super low rates. For example, if you have bad credit you may have to accept a higher interest rate since lenders will want to account for the risk they’re taking lending to you.

You can call up your lender and ask for a lower rate if you think you’re missing out on a good deal. Try do the following things to improve your chances of getting a lower rate:

• Make repayments on your home loan, credit cards and other loans on time
• Maintain a stable job and income
• Avoid spending beyond your means
• Check your credit file to make sure there aren’t any inaccuracies
• Having at least 20% equity in your home will help

Don’t expect property prices to drop anytime soon

While the property market did experience a brief dip in most Australian states for part of 2020, values ended on a high at the end of the year. According to CoreLogic‘s economists, 2021 will continue this resilience in the Australian property market.

Inner city apartments will become cheaper to rent and buy

Now that working from home has become increasingly normalised (even mandated at times), renters may be able to snap up a bargain in the inner city. Many professionals no longer have a need to live close to their workplace, so they’re opting for coastal and regional living. Overall, due to spending more time at home in 2020 than ever before, people just want space.

This means that investors should think carefully about where they buy property since city apartments may no longer be the reliable investment they once were. Read our 2021 property investing predictions for more information.

First home buyers might rush to buy

The federal government and several of the state governments have expanded schemes designed to assist first home buyers. These include:

1. HomeBuilder grant
2. First Home Loan Deposit Scheme
3. Various state stamp duty concession schemes
4. Various state grants for first time home owners

In New South Wales, for example, the state government has expanded the First Home Buyer Assistance Scheme to make more homeowners eligible for stamp duty exemptions and concessions.

If you didn’t refinance in 2020, 2021 could be your year to save big

The record low cash rate established in 2020 is set to continue throughout 2021. So, if you haven’t already refinanced to secure a competitive interest rate, consider doing so this year.

Don’t forget that you don’t always have to refinance to get a lower interest rate. Sometimes all it takes is giving your lender a call and asking them to reduce your rate! Many lenders would much rather give you a rate reduction than lose you as a customer.

How to negotiate a lower interest rate:

1. Research what rates your lender and other lenders are offering new customers
2. Ask for the same rate new customers get
3. Have all your home details ready
4. Use your loyalty as a bargaining tool
5. Express that you are willing to switch lenders if you don’t get a better rate
6. If you are offered a lower rate, have the lender send it over to you in writing/email ASAP
7. If you can do better, switching to a new lender might be the way to go.

Remember that your chances of getting a lower rate, with your current lender or with a new one, will be greater if you have:

• At least 20% equity
• A solid history of making on time mortgage repayments
• Stable employment and spending habits
• A good credit score.

Working from home will bring location flexibility

As more Australians are set to work from home, continuing into 2021, home value fluctuations may continue. While house prices in capital cities are unlikely to drop, certain areas of these cities may see disproportionate growth.

For example, in Sydney and Melbourne, beachside suburbs are seeing increased rents and property value increases. This is because people are able to trade accessibility to the office for a coastal work from home lifestyle. Smaller cities like Newcastle and the Gold Coast may experience rising house prices as Sydney and Melbourne residents make the move.

Even real estate in small coastal towns far from any major city may experience growth as it’s now possible to enjoy a big city profession in a small town setting. If you’re working from home, 2021 might be the time to experiment with living somewhere new.

Navigate the home loan process with an expert

Since there are so many incentives and home loan options available nowadays, it can become overwhelming. This is why it’s a good idea to seek the help of a mortgage broker or Home Loan Specialist. They do all the negotiating and hard stuff for you, and it won’t cost you a cent!

If you’d like to see what home loan options are available for you, compare rates and deals using an online home loan platform like Lendi. You can compare, apply and be approved for home loans all in one place.

Got a home loan question? Just ask!

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The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.