The number of interest-only home approvals have dropped for the first time since 2009
If you’re thinking about picking up an interest-only home loan with the bank or applying with a less than 20% deposit, you may have to jump through a couple of hoops first.
New data from The Australian Prudential Regulation Authority (APRA) has shown a drop in the number of interest-only home loans being approved, falling from 36% to 30% - the first drop in seven years.
The decline comes in response to an announcement made by APRA earlier this year, where banks were asked to impose stricter rules when it came to ‘risky’ lending and keep interest-only loans under a 30% cap.
APRA also cracked down on low-deposit lending, which for Aussie buyers, may mean that their smaller deposit may no longer cut it.
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The data also showed a fall in the number of loans approved with a deposit of less than 10% of the property’s value.
Aussies with low deposits also face having to pay Lenders Mortgage Insurance (LMI), a payment required if a buyer has less than a 20% deposit.
“14% of mortgages are operating with LMI - that’s $52 billion in home loans each year. And it’s a cost that usually hits the most vulnerable buyers,” says Mozo’s Property Expert, Steve Jovcevski.
As the approval rate for smaller deposits continues to shrink and with the median house price in Sydney sitting at $1.17 million, Aussies buyers may need to get more creative when saving for a deposit.
Mozo's top tips for saving for a deposit:
Have a guarantor - As housing affordability grows more difficult, more Aussies are looking to use a guarantor to help secure a home loan. A guarantor involves using a parent or family member to mortgage a portion of their property as security for a loan.
Accessing the First Home Owners Grant (FHOG) - Depending on your state and their requirements, you may be eligible for the First Home Owners Grant (FHOG). This is a tax-free, one-off payment that could get you one step closer to getting approved.
Automating payments - According to UBank, automating payments is a simple way to save for a deposit as it removes the temptation to spend. Simply set up a regular transfer into your savings account each time you get paid.
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