Part 2 - What's in store for 2020? | Morgan Property Agents

Part 2 - What's in store for 2020?

Wayne Morgan Posted on 22 Jan 2020

THE YEAR OF THE EVERYDAY AUSTRALIAN

It was a tale of two markets last year, pre and post-election. Leading up to the

federal election, in May 2019, confidence had been dented by the banking royal

commission and debate around proposed changes to negative gearing

and capital gains tax concessions. These two factors, combined with tighter bank

lending practices, saw buyers pull back from the market and property values

decline. But what happened next surprised us...

Take a look at part 2 of our 3 part series for what's in store for 2020?

TREND # 2

RENTERS BECOME HOMEOWNERS

Record low interest rates, APRA softening mortgage serviceability requirements, and property prices below their 2017 peak have made weekly mortgage payments cheaper than weekly rents in most capital cities.

This has seen more tenants, first home

buyers, in particular, consider the

switch from renting to purchasing a

home. This trend is likely to gather

further momentum during 2020 as the

federal government rolls out its much

anticipated First Home Loan Deposit

Scheme, which will help 10,000 first

home buyers get into the market quicker,

Moreover, to encourage borrowing,

APRA released pressure on applicants

and amended its guidance on

residential mortgage lending. Up until

June 2019, because the market had

been running hot for a few years,

borrowers were assessed on their

capacity to service a mortgage

with an interest rate of 7.25 percent.

This has since changed to a rate of 2.5

points above the quoted interest rate

(e.g. 6.5 percent if the interest rate is 4

percent), making borrowing accessible

to more people, but also allowing

applicants to borrow more.

Add to this interest rates reaching a

record low that should fuel demand

from all buyer types, prices still 10

percent below the 2017 peak, but also

the option for 10,000 buyers on low to

middle incomes to benefit from the

First Home Loan Deposit Scheme, and

2020 appears like the year to make a

move. Despite prices beginning to rise,

all these changes provide

opportunities to buy at a more

affordable level. Furthermore, some

states also offer first-time buyer grants

and stamp duty exemptions.

Let's look at the figures.

At a national level, considering the median house value and house rent,

first home buyers able to get a 20 percent deposit would save an average

of $3 per week with a 30 year loan term offering a 3.20 percent interest rate.

With a 10 percent deposit and the same mortgage terms, they would only

pay an extra $51 per week or $2,652 per year.

Not surprisingly, these figures vary from one region to another, and some capital cities offer more opportunities than others.

For example, with a 20 percent deposit and the same contract, first home buyers would save money

weekly in Darwin ($119), Hobart ($87), Canberra ($30), Adelaide ($26), and Brisbane ($24).

In Darwin & Hobart, even a 10 percent deposit would suffice to save money on housing costs, respectively $73 and $38 per week.

In Perth, however, where prices started falling after the end of the mining boom, they would still need to spend an extra $54 per week to trade-off rental payments for mortgage payments.

Similarly, in Sydney and Melbourne, where the medium house values are high, making the switch from renting to owning would respectively cost an extra $127 and $142 per week, or $6,604 and $7,384 per year.

No matter the area, and even if prices should continue to rise, all indicators are

green to make the leap in 2020, with affordability still quite good compared to

where it was. Renters willing to buy their first home will have everything to gain by

taking action in the coming year, starting with a decrease in their housing costs.

But what if, despite all these favourable signals, they can't afford to buy where they

live? Then two alternatives have seemed to take shape in the past year; either

move to a nearby more affordable suburb, or make a bigger move and relocate to

a regional area, where opportunities to enjoy a similar could be at a much more

affordable cost.