MULTIPLE lenders are allowing hopeful entry-level property buyers to front up with little or no deposit and walk away with a home loan.
Mortgage Choice figures show some first-time buyers are spending up to $1.72 million on properties, but experts have warned the historically low-interest rate environment won’t continue forever and servicing these large loans will eventually become tougher.
TWO out of five first home buyers in Australia aged over 36
Borrowers signing up to the average $300,000 home loan are handing over next to nothing or even as little just $6000 – the equivalent of two per cent – to buy a property.
New analysis from financial comparison website shows smaller lenders including G and C Mutual Bank, Teachers Mutual Bank and Hume Bank allow some borrowers to hand over deposits of three per cent or less.
Mortgage Choice spokeswoman Jessica Darnbrough said the desired locations for first-home buyers was often in expensive areas and to do so, she suggested they have decent savings.
‘A lot of first-home buyers are wanting to purchase property in the inner-city where prices are up to $1 million,” she said.
‘It’s very important for them to have a good-sized deposit because costs including stamp duty, legal fees, inspections, stamp duty, that all has to come out of their deposit.
‘Most banks like to see a 10 per cent deposit because they are getting a little bit tighter with their lending over the last 18 to 24 months while rates are low, they don’t want people to overcapitalise.’
The Reserve Bank of Australia dropped the cash rate to 2.25 per cent last month and it’s strongly predicted to fall again in the coming months which would see rates fall even further.
RateCity figures show on the average $300,000 30-year loan the standard variable rate is 5.08 per cent and the monthly repayments are $1625.
On a three-year fixed loan the average rate is 4.64 per cent and the repayments are $1545.
RateCity spokesman Peter Arnold said first-time borrowers were in a risky situation if they have virtually no equity in their property and rates rise.
‘Rates are low and property prices are high, if you loan-to-value ratio is high as well you are in the danger zone if things to go a different way,” he said.
‘You also face lenders’ mortgage insurance costs which insurers the bank and not the lender if you don’t have a 20 per cent deposit.
‘The ideal scenario is to get a 20 per cent deposit.’
Ms Darnbrough said a good rule of thumb is for borrowers to determine whether they could cope with repayments at a rate of 7 per cent.
‘If the answer is no then don’t take out that kind of debt,” she said.
In recent months the Australian Prudential Regulation Authority has shone the spotlight on investors loans which have become popular among entry-level buyers.
The RBA and APRA last year implemented limits on the rate at which investment property loan portfolios could rise.