More Aussies appear to be jumping on the property ladder despite COVID-19 woes, according to data from the Australian Bureau of Statistics (ABS) which showed a surge in new loan commitments over August.
New loan commitments for housing increased in August, with seasonally adjusted figures revealing a 12.6% jump, according to the ABS data released in October.
While investor new loan commitments were up 9.3%, new loans for owner-occupiers jumped 13.6% over the month.
Owner occupier first home buyer loans commitments saw a 17.7% surge. Most first home buyers bought properties to live in, with those buying for investment purposes accounting for 4.2% of all first home buyer loan commitments.
“The value of owner occupier home loan commitments was $16.3 billion in August, the highest value in the history of the series,” said ABS head of Finance and Wealth, Amanda Seneviratne.
“August’s 13.6 per cent increase in the value of owner occupier home loan commitments is the largest month-on-month rise in the history of the series, eclipsing the previous record of 10.7 per cent set in July.”
BIS Oxford Economics principal economist Tim Hibbert said the latest data was promising.
“The latest lending indicators data is encouraging, with households responding strongly to record low interest rates and the various buyer incentives in play,” BIS Oxford Economics principal economist Tim Hibbert told Business Insider Australia.
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Confidence in the market growing
Along with an increase in lending over August, confidence in the housing market is also growing, according to Westpac.
The Westpac-Melbourne Institute Index of Consumer Sentiment saw confidence in the housing market boom over September, with the ‘time to buy a dwelling’ index increasing by 10.6% to its highest level since September 2019.
House price expectations also improved, with all states recording positive results and the national index climbing by 31.5% to 117.3.
“The national Index is now ‘only’ 17% below its pre-pandemic level and back around the level seen in July last year,” Westpac Chief Economist Bill Evans noted in the report.
Australian consumer sentiment according to the Westpac-Melbourne Institute Index advanced by 11.9%m/m in October to a 27-month high. Budget seemingly well-received despite the recent tapering of income supports. pic.twitter.com/wfMKSLD8yi— James Foster (@JFosterFM) October 13, 2020
Mr Evans believes the upturn in consumer confidence across all measures of the report can be attributed to the recent Budget announcement and the speculation of another interest rate drop.
“The Index has now lifted by 32% over the last two months to the highest level since July 2018,” he said.
“The Index is now 10% above the average level in the six months prior to the pandemic. Such a development must be attributable to the response to the October Federal Budget; ongoing success across the nation in containing the COVID-19 outbreak; and the expectation that the Reserve Bank Board is likely to further cut interest rates at its next meeting on November 3.”
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Low interest rates
In good news for property investors, interest rates are historically low and are expected to stay that way for at least three years, according to Dr Lowe’s opening statement to the House of Representatives Standing Committee on Economics in August.
“The Board has clearly indicated that it will not increase the cash rate until progress is being made towards full employment and it is confident that inflation will be sustainably within the 2-3 per cent target range,” he said.
“Given the outlook I discussed earlier, these conditions are not likely to be met for at least three years.”
Realestate.com.au chief economist Nerida Conisbee believes the low interest rate environment presents an opportunity for investors.
“Interest rates are incredibly low,” she told The Herald Sun.
“A lot of finance restrictions on lending have been relaxed – it’s easier to get finance.”
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Government schemes available to homebuyers and investors
Depending on your individual circumstances and where you live, there are a variety of government schemes available to encourage buyers into the property market. Below are some of the grants currently up for grabs which you may be eligible for.
First home buyer owner-occupiers
- First Home Buyer Grants: Depending on the state or territory you intend to buy in, you may be eligible for a First Home Buyer Grant. Ranging between $10,000 and $20,000, where available most of the grants require you to buy or build a new home. Find out more on the First Home Buyers Grant for your state here: First Home Buyers Grant: Everything you need to know
- Slashed stamp duty: Some states have slashed stamp duty for first home buyers or introduced generous concessions, so long as they meet the criteria.
- First Home Loan Deposit Scheme (FHLDS): The extended scheme will let up to 10,000 first home buyers build a new home with a deposit as low as 5% without needing to pay a costly Lenders Mortgage Insurance (LMI) premium for having a low deposit.
10,000 more Australians will be able to buy their first home from today with a deposit as little as 5% thanks to our First Home Loan Deposit Scheme. We’re proud to have already helped 10,000 Australians into their first home in the first year of the new scheme. https://t.co/QjDMGJyvLJ— Scott Morrison (@ScottMorrisonMP) July 1, 2020
- HomeBuilder: A $25,000 grant that allows eligible owner-occupiers to build a new home or substantially renovate an existing home. Find out more: Building a home? Your guide to the HomeBuilder Grant
- The Western Australian government’s $20,000 incentive for the construction of new builds.
The housing sector is critical to the Australian economy. Our #HomeBuilder program is designed to boost construction to create jobs & grow our economy. #HomeBuilder will provide a $25k grant to eligible owner-occupiers to build a new home or renovate an existing home🏡. pic.twitter.com/ke211eX1Ez— Josh Frydenberg (@JoshFrydenberg) June 3, 2020
- WA $20,000 Building bonus scheme: Also mentioned above, the Western Australian government’s $20,000 building incentive is available to both eligible owner-occupiers and investors.
Due to its overwhelming success, today we are extending the construction period so more homebuilders have more time to commence works and be eligible for the grant.— Mark McGowan (@MarkMcGowanMP) October 20, 2020
Is now a good time to buy or invest in property?
For those who are financially secure, property investment adviser Michael Yardney says now could be a good time to invest.
“In my opinion for those who have a secure job and their finances organised, this is a great time to buy a home or investment property at a price that you were unlikely to be able to get a couple of weeks ago when the property markets in big capital cities were booming and there were more buyers around than sellers,” he advised readers of his blog, propertyupdate.com.au.
“It is likely that human nature will cause many would-be buyers to sit on the side lines for a little while until things become more clear, which means that sellers will be more amenable to accepting offers rather than holding out for a top price.”
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Buyers’ agent Lloyd Edge, however, believes it’s more so a question of ‘where’ rather than ‘when,’ when it comes to buying property.
“Every investor or buyer should have a specific strategy in place that is unique to their goals. Common goals include wanting to retire, putting children through private school tuition or wanting to go on more holidays,” he told Business Insider Australia.
“This strategy will then inform the location of the property, for example buying in the city or in a regional area. There are many markets in Australia and each one performs differently due to their cycles, so make sure you stay up to date with the latest data, instead of viewing Australia as a whole.”
Mr Edge suggests it is best for buyers to invest in property according to their goals.
“Are you looking to buy for the long term, or for cashflow, or to add value to a property? If you’re looking for an investment, make sure you buy in an area where there is scarcity,” he said.
“Tenants are looking to outer suburbs and regional areas right now, as they are looking for a home office or backyard due to working from home policies. Whereas, if you’d like to live in a city suburb, you might be able to snap up an affordable property right now.”
Words by Kathryn Lee
- ABS MEDIA RELEASE Home loan commitments rose sharply again in August
- ABS Lending indicators August 2020
- BIS Oxford Economics principal economist Tim Hibbert as quoted by Business Insider Australia
- Buyers’ agent Lloyd Edge as quoted by Business Insider Australia
- Realestate.com.au chief economist Nerida Conisbee as quoted by The Herald Sun
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