Canstar data insights director Sally Tindall.
The mortgage market has been flipped on its head with the best rates available going to an unusual segment of borrowers.
Two lesser-known lenders, Unity Bank and G & C Mutual, both recently slashed their lowest variable rates, from 5.24 per cent to just 4.99 per cent. The catch? You need to be a first-home buyer to get that deal.
The 4.99 per cent figure is the lowest variable rate available on Canstar’s database and the move by those two lenders is the latest in a trend that is seeing the sharpest mortgage rates reserved for first timers.
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The normal state of affairs is for the best rates to go to refinancers, in a bid to entice them over from other lenders, but that’s all changed.
Unity Bank and G & C joined Horizon Bank, which already had a 4.99 per cent rate for first-home buyers.
Police Bank (5.09 per cent) and LCU (5.1 per cent) were the next best.
Canstar data insights director Sally Tindall believes banks have realised the most fertile territory for competition is no longer the refinance market, but is now the pool of young Australians desperately trying to buy before prices surge again, especially with more government help soon available.
First-home buyer loan applications have begun to increase. Picture: iStock.
“A growing proportion of the lowest home loan rates are exclusively for first home buyers. Of the top 10 variable rates on Canstar right now, excluding eco loans, half are reserved for new entrants to the market. At the start of this year, this number was just one,” Ms Tindall said.
“Banks know the federal government’s First Home Guarantee Scheme is about to be thrown wide open from October, and they’re jostling for position. By dangling rock-bottom rates in front of these buyers, lenders are hoping to snap up customers trying to get a foot on the ladder.”
The lowest variable rate available to refinancers sits at 5.08 per cent, courtesy of in1bank. It’s a good deal, but requires a 50 per cent loan to value ratio … that is, the bank is only lending half the value of the property.
Meanwhile, the best rates for first-home buyers only require a 2 or 5 per cent deposit, in line with the Home Guarantee Scheme.
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The number of first-home buyer loans has ticked up by 2 per cent from the previous quarter, as young buyers are enticed back into the market, but Ms Tindall said government assistance isn’t the only thing to consider when mortgage shopping.
Sally Tindall said super low deposits can add risk. Picture: Tim Hunter.
“Borrowers shouldn’t assume all they need is a spot in the government’s scheme to get the keys to their first home,” she said. “First-home buyers will still need to pass their lender’s serviceability assessment in order to get the green light on their mortgage, and the current scheme doesn’t have any rules in place to bend this process.
“The government might be removing one hurdle to home ownership, which is saving up for a decent deposit, but buyers will still need to clear what is, for many, a far bigger obstacle – that is, earning enough to pass this serviceability test.”
There are other potential catches to be wary of with new loans aimed at young buyers.
Both Unity Bank and G & C’s 4.99 per cent variable loans aren’t permanent. They’re honeymoon deals that are valid for just the next three months.
So it’s important borrowers check the fine print and all the terms and conditions before jumping in, to make sure the loan products suit their situation.
“Shop around, because competition for your business is heating up,” Ms Tindall said. “But don’t assume a headline rate is the whole story, check what happens after any honeymoon period, and make sure the loan suits your long-term needs.
“Remember, just because the government says it’s OK to borrow with a 5 per cent deposit and just because the bank says it can loan you a giant truck load of money, doesn’t automatically make it a good idea.
“A wafer-thin deposit can get you in the door sooner, (but) also leaves you with very little buffer if interest rates rise, house prices dip or unexpected bills come your way. Having a bigger deposit up your sleeve isn’t just about ticking a lender’s box, it’s about giving yourself some financial breathing space when the unexpected happens.”
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