Millions of borrowers sitting on a growing mountain of equity

Soaring home prices could be a thorn for first-time buyers, but the real estate boom of recent years has seen the equity of existing borrowers soar.

Research from RateCity.com.au shows that in Sydney, an owner-occupant who bought a house at the median price in September 2019 with a 20% deposit, paying principal and interest on a 30-year loan experienced a $ 402,032 increase in equity. Their loan-to-value ratio (LVR) fell from 80% to 55%.

In Melbourne, a homeowner who bought a home at the median price in September 2019 with a 20% down payment on the same terms experienced a $ 192,950 increase in equity. Their LVR went from 80 percent to 63 percent.

The RateCity database shows that 58% of the lowest variable rates are only available to people with large deposits of 30% or more, including CBA, Westpac, St George, BOQ, Bendigo Bank and Macquarie.

Homeowner buying the house at the median price – September 2019 (CoreLogic)

From 20% deposit

Property Purchase Price (Sep 19) Real estate prices today (September 21) LVR on purchase% LVR today% Net purchase value $ Net worth today $
Sydney

$ 936,532

$ 1,311,641

80%

55%

$ 187,306

$ 589,338

Melbourne

$ 792,070

$ 962,250

80%

63%

$ 158,414

$ 351,364

Brisbane

$ 555,112

$ 709,136

80%

60%

$ 111,022

$ 281,004

Adelaide

$ 458,365

$ 575,949

80%

61%

$ 91,673

$ 222,434

Perth

$ 447,029

$ 548,351

80%

63%

$ 89,406

$ 203,578

Hobart

$ 523,426

$ 704,321

80%

57%

$ 104,685

$ 300,628

Darwin

$ 452,277

$ 563,357

80%

62%

$ 90,455

$ 214,537

Canberra

$ 698,550

$ 956,119

80%

56%

$ 139,710

$ 417,361

national

$ 557,213

$ 719,209

80%

60%

$ 111,443

$ 289,457

Sally Tindall, Research Director at RateCity.com.au, said: “Millions of homeowners sit on a growing mountain of equity, some without even realizing it.

“If you’ve owned your own home for at least a few years and have been diligent in paying off your debt, you can refinance at a lower rate,” she said.

“Many lenders are offering interest rate reductions to new customers with loan-to-value ratios below 70 percent, including the Big Four Banks CBA and Westpac.

“First-time homebuyers who bought with a smaller deposit and used a guarantor could potentially take that out of their loan if their loan-to-value ratio is now below 80%.

“What goes up can also go down. If the market plunges, the proportion of your home that you own will also decline, ”she said.

What Can Mortgage Borrowers Do With Increased Equity?

  • Borrow more: People who have seen their equity increase have the potential to borrow additional money from the bank for major expenses such as a home renovation (any loan increase would still be subject to the bank’s viability tests and the maximum amount of the loan. loan is usually limited to 80% of your current home price).
  • Request lower rates: 58 percent of the lowest variable rates are offered to borrowers with a loan-to-value ratio of 70 percent or less.
  • Remove a guarantor: First-time homebuyers who have used a guarantor could reach an 80% loan-to-value ratio sooner than expected and request that their mortgage condition be removed.
  • Change lender: Customers who do not yet own 20 percent of their home usually do not switch lenders because they would have to pay mortgage insurance from lenders again. The increase in equity helps borrowers who started with a small deposit switch lenders sooner.


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