Purchasing a home is the biggest financial investment most of us will make in our lifetime, so it’s paramount you ‘get it right’ if you want to ensure your long-term financial security. While it’s easy to get carried away comparing floorplans and décor, it’s unquestionably more important to focus the best part of your attention on the one thing that will have the most significant impact on your financial future—your home loan.
With a continually changing lending landscape in Australia, finding the best home loan that genuinely meets your needs and requirements is often easier said than done, with most home buyers finding it harder than ever to secure finance approval on the best mortgage product for them if they’re not armed with the right information.
To help you navigate the confusing home loan market like a seasoned property veteran, here’s a run-down of what’s happening in the current lending environment and the most important things to look for when comparing home loans.
A changing home loan market
The property and home loan market has changed a lot in the last five years. With more competition among lenders, tightening regulation and customers needing to jump through more hoops than ever before, our approach to buying property and choosing a home loan needs to evolve in line with this.
Historically, it was common practice to approach your current bank when looking for a home loan in the belief you would get a good deal in return for being a long-term, loyal customer. However, we now operate in a very different environment.
Consumers no longer possess the same degree of loyalty to their banks as they once did, and are far more willing to shop around for a better deal—something which has seen a significant increase in the proportion of loans sourced through mortgage brokers. Loans sourced through mortgage brokers now account for more than 55 per cent of home loan lending in Australia—a figure which is expected to continue to grow.
This shift in consumer behaviour has led to an increase in the number of lenders and brokers vying for customers’ business, with many of them using flashy marketing campaigns and call centre service models to grab as much of the Australian home loan pie as possible.
Changes to regulation within the financial services and lending industry is having a significant impact on the availability of credit to borrowers.
While the Financial Services Royal Commission has played a pivotal role, it hasn’t been the only impetus—even prior to the Royal Commission, both the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC) had placed renewed focus on how bank credit standards were being enforced and realigning them with ‘responsible lending’ regulations. As a result, banks and their lending practices are being placed under more scrutiny than ever before.
More hoops to jump through
As a flow-on effect from tighter regulation, customers are being forced to jump through far more hoops to get their loan application over the line. Banks and lenders are requesting more detail, explanations and justifications about an applicants’ personal and financial circumstances before they will approve a loan.
While lenders historically relied on uniform statistically-driven metrics to calculate living expenses (a methodology which seemingly worked considering we still have historically low mortgage arrears/default rates), most lenders now place a much higher level of scrutiny on expenditure, conducting a thorough and detailed analysis of an applicants’ living expenses and spending patterns over an extended period.
Where a lender identifies any transactions which indicate that an applicants’ financial situation is likely to change in the near future, there’s a good chance it will affect their application.
The current lending landscape
While the lending landscape has undergone significant changes in recent times, there are still plenty of options and incentives available to borrowers who can meet the stringent loan requirements.
More loan options
Borrowers now have more loan options than ever before. Historically, if you were considering a variable rate loan, the interest rate was by and large the same whether it was an owner occupier or investment loan.
By introducing ‘principle and interest’ and ‘interest only’ loan options, there are now four different standard variable rates—when these are overlaid with the risk ratings attached to the Loan Value Ratio (LVR) and total aggregate amount borrowed, what we have is more interest rates, products, tiers and specials for borrowers to choose from than ever before.
Some lenders now have more than 80 different loans on offer, creating a new level of complexity and confusion for borrowers trying to decide which loan is right for them.
As borrowers find it increasingly difficult to get finance approval and the number of property transactions across the country decreases, lenders are offering great incentives to attract refinance applications. Incentives like generous cash rebates are becoming more common in attempt to persuade loan holders to leave their current lender to get a better deal.
This focus on attracting ‘new clients’ has meant existing customers who trust that their current lender will reward them for their loyalty are losing out—unless a borrower initiates a review of their package, interest rate or loan products, it’s likely their lender will simply sit back and reap the rewards.
What to look for when evaluating home loans
Most borrowers tend to look at loan comparison rates as the most important factor when comparing home loans, however it shouldn’t be the be-all and end-all. While the comparison rate should be an important consideration when choosing a loan, there are a few other things that also need to be factored in.
The first and foremost thing borrowers need to consider when choosing a home loan is if it’s fit-for-purpose. Before even looking at the interest rate, it’s important to consider if a loan will offer the additional products or features they need, like an interest offset account, fee-free credit cards, security of fixed rates, or access to a redraw facility.
When comparison rates were first introduced, they were designed to consolidate loan establishment fees with the ongoing costs of a loan to provide the consumer with a clearer indication of the overall cost. However, some savvy lenders found a way to work around the rules by classifying certain fees with descriptions that fell outside the comparison rate assessment, making their products appear more attractive than they really were.
When calculating the real cost of a home loan, borrowers need to include all set-up costs, lender legal fees, settlement fees, valuation fees, application fees, risk fees and any other charges which will be applied at settlement in their calculations before they can accurately determine the true cost of a loan product, as these may not be included in the comparison rate.
It’s also important to consider the loan amount and length of the loan term, as the quoted comparison rate may not be based on the same conditions.
Mortgage insurance rates
To draw an accurate comparison between loans, it’s also important to consider the mortgage insurance premium being offered. Depending on the size of a borrower’s deposit and the amount they’re borrowing, mortgage insurance premiums are often one of the largest expenses associated with buying a home, however many buyers are often unaware that insurance premiums can vary significantly between lenders.
The top 3 Canberra home loan providers according to you
RiotACT’s editorial team has combed through 19 years of on-site comments to compile a list of the most recommended businesses according to you.
To be listed in our Best of Canberra series, each business needs to have consistently received positive feedback on RiotACT and maintain a minimum average of 4/5 stars on both Google and Facebook reviews.
A popular alternative to mortgage brokers amongst RiotACT readers is using a Canberra Community Bank mobile lender.
Bryan Dacey is a popular Mobile Relationship Manager for Canberra Community Bank Group, which manages four Bendigo Community Bank branches in Canberra (Curtin, Calwell, Wanniassa and Jerrabomberra).
Bryan draws on 30 years of experience in finance to help his customers make financial decisions that are right for them. He can meet you anytime (even outside business hours), anywhere and will bring along any information/forms you need to save you a trip to the branch.
And because Canberra Community Bank Group return 80% of their profits to the Canberra community, you can be proud knowing your banking is having a positive impact on the lives of your fellow Canberrans.
If there’s one mortgage broker in Canberra that can help you navigate the complexities of finding and applying for a home loan, it’s Clarity Home Loans. Their experience, commitment, and extensive knowledge sets them apart from competitors.
One of the key benefits of working with Clarity Home Loans is their transparency. Their mortgage brokers are paid the same amount no matter which lender their client opts for. That means you can be 100% confident that your needs, wants, and goals are the top priority.
Clarity Home Loans maintains contact with both you and the lenders until the loan has settled… but it doesn’t end there. The friendly team works to build a long-term partnership with each and every client, to ensure all facets on the home-buying or investment process run smoothly.
With years of experience, unbeatable customer services, and a large choice of lenders, Clarity Home Loans is a safe choice. Hopefully this list will clarify any doubts or reservations you’ve been having. Let’s get right into it.
Based in Forrest (in Canberra Avenue), they’re not limited to home and investment loans—they can also help with vehicle, equipment and personal loans. With access to hundreds of different loans, they can manage the whole process for you, including handling all the negotiations with your chosen lender.
They can show you loans for almost any type of property purchase whether you’re looking to buy, invest, renovate or review your current loan. They’ll do all the paperwork, manage the application process and take it through to approvals and settlement, allowing you to be relatively hands-off. If you’re strapped for time, their brokers can also arrange to meet you at a time and place that suits you to make the process easier.
They’re a great option for first home buyers, happy to explain everything from your borrowing capacity and repayment options, to eligibility and conditions for the first home buyer grant. They’re also able to offer plenty of tips and advice if you’re thinking of building a new house of building a new house or apartment.
Their brokers can explain the various benefits and drawbacks of every type of loan in depth and they take the time to discuss the other fees and costs of buying a property like stamp duty, legal/conveyancing fees, building and pest inspections, lender costs and mortgage insurance.
Rioter Mark_74 also gave them a good rap, commenting “I highly recommend Joel Defazio from Casa mortgage services. He got me a good rate on my home loan in a timely manner and kept me updated at all times.”
Who did you pick?
Thanks to our commenters who have provided insightful feedback on the best and worst Canberra home loan providers.
If you believe we have got it wrong, please let us know.
Please comment below detailing your experience with Canberra based home loan providers. Who would you recommend? Who would you use again? Who would you steer clear of?