Good news for anyone planning to buy in early 2025, with the latest data suggesting conditions have turned in favour of buyers.
During this year’s spring selling season, sales volumes across the country were 4% lower than the spring average in 2019-23, according to CoreLogic. At the same time, the median amount of time required to sell a home rose from 28 to 32 days between the August and November 2024 quarters.
All this points to a market in which, increasingly, vendors are having to compete with other vendors to sell their home, rather than buyers having to compete with other buyers to purchase a property. That suggests there will be pressure on vendors to reduce their asking prices as we head into 2025, which will give buyers more negotiating power.
If you’re thinking about entering the market in 2025, I’d recommend that you consider:
- Looking for ways to increase your savings rate
- Avoiding making any unnecessary large purchases
- Trying to improve your credit score – by paying all your bills on time
- Maintaining your current role – it’s hard to get a loan when you’re still in the early stages of a new job
- Contacting me for a home loan pre-approval
If you’re a lower-income or middle-income earner, you will soon have a new way to buy a property, after the federal parliament passed legislation for Help to Buy.
Under Help to Buy, individual buyers who earn less than $90,000 per year or joint buyers who earn less than a combined $120,000 will be able to purchase a property in tandem with the government.
The government will take an equity stake of up to 30% in an established property or up to 40% in a new property, thereby reducing the amount of money you must contribute to enter the market. If you eventually sell the home, the government will receive some of the sale proceeds, equivalent to their stake.
Property price caps apply, which vary from location to location, from $450,000 in the regional areas of Western Australia, South Australia and Tasmania to $950,000 in Sydney.
Help to Buy will be open to any Australian citizens who do not currently own a home and who intend to live in the property they purchase. Buyers will need a deposit of only 2% and will not need to pay lender’s mortgage insurance.
However, while the scheme has been approved at the federal level – and therefore in the ACT and Northern Territory – it has not yet been approved at the state level. For that to happen, each individual state will need to pass supporting legislation; once a state does so, it will be able to participate in Help to Buy. Ideally, that will happen sometime in 2025, although it depends on each state’s circumstances.
Higher interest rates make it harder for borrowers to qualify for larger loans or even loans of any size. That’s because for every increase of 0.50 percentage points in interest rates, the average person’s borrowing capacity falls by about 5%, according to PropTrack senior economist Paul Ryan.
Since 2022, the Reserve Bank of Australia (RBA) has increased official interest rates by 4.25 percentage points, thereby reducing the average person’s borrowing capacity by about 40%.
If and when the RBA starts cutting rates, borrowing capacities will rise. In the meantime, the banking regulator, APRA, could achieve the same outcome by reducing a thing called the mortgage serviceability buffer.
Currently, to protect borrowers and the banking system, lenders need to add a buffer of at least 3 percentage points when assessing someone’s ability to repay a home loan – so if, hypothetically, you applied for a loan with an interest rate of 6.20%, lenders would assess whether you’d be able to make your mortgage repayments if the rate rose to at least 9.20%.
If APRA reduced this buffer requirement to say 2.5 percentage points or 2 percentage points, the assessment rate on the hypothetical loan mentioned above would fall, thereby increasing your borrowing power.
However, APRA recently ruled that it would keep the buffer at 3 percentage points. “In reaching the decision to keep the settings steady, APRA took account of high household indebtedness and a pick-up in credit growth, persistent cost-of-living pressures, a weakening jobs market and heightened geopolitical risks,” the regulator said.
About three-quarters of homebuyers are now using mortgage brokers, according to the latest data from Comparator.
In the September quarter, brokers originated a record-high 74.6% of all new home loans, while banks originated a record-low 25.4%.
Choice is the number one reason homebuyers prefer brokers – a broker will compare home loan products from a range of lenders on your behalf, while banks will tell you about their own products only.
For the same reason, many people who already own their own home turn to brokers when they’re thinking about refinancing.
It’s generally a good idea to consider switching home loans every few years, because lenders often give special deals to new customers. The Australian Competition & Consumer Commission’s most recent home loans inquiry found that borrowers with home loans between three and five years old paid, on average, 0.58 percentage points more in interest than those taking out new loans.
That’s why you could potentially save tens of thousands of dollars over the life of your loan by refinancing to a comparable loan with a lower interest rate. If you’re thinking about refinancing, get in touch – I’ll be happy to crunch the numbers for you, to see how much you could save by switching loans.