DTI Archives - Zippy Financial

First Home Buyer Numbers Halves in time | Zippy Financial

The landscape for first home buyers has undergone significant changes recently. With a notable decrease in the number of first home buyers entering the market, potential opportunities have emerged for those looking to purchase their first home.

Current State of the Property Market

Recent trends indicate a shift in the property market dynamics. Factors such as rising interest rates and economic uncertainties have contributed to a decrease in first home buyer activity. This change has been reflected in property prices and buyer demographics, reshaping the market in several ways.

Impact of Economic Changes on First Home Buyers

The halving of first home buyer numbers can be attributed to various economic factors. Changes in lending criteria, increased interest rates, and the overall economic climate have made it challenging for first home buyers to enter the market. This has led to a decrease in first home buyer loan applications and approvals. Exploring alternative financing options such as personal loans may be considered by those facing challenges in the current lending environment.

Opportunities for Prospective Buyers

With fewer first home buyers in the market, there is now less competition for properties. This situation presents a unique opportunity for those still looking to purchase their first home. Potential buyers may find more room for negotiation, potentially leading to better deals and more favorable terms.

Strategies for Capitalizing on Current Market Conditions

For those looking to take advantage of the current market conditions, several strategies can be employed:

Conduct thorough market research to understand local trends and identify undervalued properties.
Negotiate aggressively, leveraging the reduced competition in the market.
Explore various first home buyer loan options to find the best fit for your financial situation.

Government Incentives and Support Programs

Despite the challenges, there are still government incentives and support programs available to assist first home buyers. These programs can provide significant support, making homeownership more accessible despite the current market conditions.

Eligibility Criteria and Application Guidance

Understanding Eligibility Criteria: Clarify common requirements like income thresholds, property value limits, and residency conditions.
Navigating the Application Process: Provide guidance on documentation, timelines, and submission procedures for a smooth application process.
Professional Assistance for Applications: Recommend seeking guidance from professionals like mortgage brokers for informed decision-making.

Maximizing the Benefits of Government Initiatives

Strategic Integration with Financial Plans: Encourage aligning government incentives with long-term financial goals, contributing to a robust financial strategy.
Continuous Monitoring for Updates: Stress the importance of staying informed about policy changes for adapting strategies and maximizing benefits.
Educational Resources and Workshops: Suggest leveraging workshops and resources provided by government agencies for in-depth understanding and navigation.

Long-Term Market Outlook

The long-term outlook for the property market remains positive, with expectations of stabilization and growth. Prospective first home buyers should consider this outlook in their planning, balancing immediate challenges with future opportunities.

Expert Financial Advice for Navigating the Market

Navigating the current property market can be complex, especially for first home buyers. Seeking expert financial advice from a mortgage broker can provide clarity and guidance, helping you to make informed decisions and find the best path to homeownership.

The decrease in first home buyer numbers presents both challenges and opportunities in the property investment market. For those considering purchasing their first home, now may be an opportune time to explore your options and potentially secure a favorable deal.

FAQ

A: The number of first home buyers has decreased due to repeated cash rate hikes by the Reserve Bank of Australia (RBA). From May to December, the RBA lifted the cash rate from 0.10% to 3.10%, making it more challenging for first-time buyers to enter the market.

A: The decrease in first home buyers means less competition in the property market. This gives potential buyers more bargaining power and a better chance to negotiate favorable prices.

A: Property prices have softened in most parts of the country over the past three months, except for regional South Australia and regional Western Australia.

A: National median weekly rental prices rose by 4.3% in September 2022, making it potentially cheaper to buy than rent in some areas.

A: Yes, the government’s First Home Guarantee can offer mortgage insurance waivers and low deposits of 5% to eligible first home buyers.

A: If you’re ready to buy, it’s advisable to consult with a mortgage broker to understand your borrowing capacity and mortgage options. This will help you make an informed decision and potentially get a better deal.

Phone: 1300 855 022
Email: clientservices@zippyfinancial.com.au

Zippy Financial is an award-winning mortgage brokerage specialising in home loans, property investment, commercial lending, and vehicle & asset finance. Whether you are looking to buy your first home, refinance or build your property investment portfolio, the team at Zippy Financial can help find and secure the right loan for you and your business.

About the Author:

Louisa Sanghera is an award-winning mortgage broker and Director at Zippy Financial. Louisa founded Zippy Financial with the goal of helping clients grow their wealth through smart property and business financing. Louisa utilizes her expert financial knowledge, vision for exceptional customer service and passion for property to help her clients achieve their lifestyle and financial goals. Louisa is an experienced speaker, financial commentator, mortgage broker industry representative and small business advocate.

Connect with Louisa on Linkedin.

Louisa Sanghera is a Credit Representative (437236) of Mortgage Specialists Pty Ltd (Australian Credit Licence No. 387025).

Disclaimer: This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. This article is not to be used in place of professional advice, whether business, health or financial.

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Good News for First Home Buyers: Saving for a Deposit Got Faster

Data from the lending watchdog reveals that almost one in four new mortgages are risky. How are they deemed risky? It’s got something to do with your debt-to-income ratio or DTI.

Your DTI might sound complicated, but it is simple to work out. Your DTI is a measurement used by lenders that compares your total debt to your gross household income.

The formula is… total debt / gross income = debt-to-income ratio

Here is an example:

If you are seeking a $700,000 home loan (and have no other debt), and you have $160,000 in gross household income, then your DTI is 4.375 – a ratio that most lenders would be comfortable with.

Why Do Lenders Care About Your DTI?

The December quarter data released by the Australian Prudential Regulation Authority (APRA) shows 24.4$ of new mortgages have a DTI ration of 6 or higher. At the 6+ ratio, APRA (the banking watchdog) deems these loans as risky, and they are keen to see the percentages of these loans that lenders approve to start to come down. That is because they have been steadily rising for a while now.

For example, in the September 2021 quarter, new mortgages with a DTI of 6 or higher were at 23.8% while in the December 2020 quarter, it was just 17.3%.

Why Has the Percentage of Risky Loans Risen?

The recent rise in high DTIs has most likely got a lot do with the phenomenal price growth (and resulting FOMO) we have seen across the country over the past 18 months.

Data released by the Australian Bureau of Statistics shows that in the 12 months to December 2021, residential property prices rose 23.7% – the strongest annual growth ever recorded.

So, with the property prices increasing at such a sharp rate and people stretching themselves to their limits to buy into the market, it has resulted in upwards pressure on high DTI percentages. The good news is that as the property market starts to cool, so too should the growth rate of risky DTIs.

How Much Can You Safely Afford to Borrow?

There is a fine line between maximising your investment opportunities and stretching yourself beyond your limits. It is important to stress-test what you can borrow in the current financial landscape and also against any upcoming headwinds that are tipped to hit borrowers, such as interest rate rises and possible tightening lending standards.

Everyone’s financial situation is different. Some lenders will consider your circumstances and accept a loan application where a DTI is higher than 6.

What is Debt-To-Income Ratio (DTI)?

The Debt-To-Income (DTI) ratio is a measurement used by lenders to compare your total debt to your gross household income. The formula for calculating DTI is: total debt / gross income.

Why Do Lenders Care About DTI?

Lenders use the DTI ratio to assess the risk associated with a mortgage application. A high DTI ratio is considered risky, and lenders are keen to see the percentage of such loans come down.

What is Considered a Risky DTI Ratio?

According to the Australian Prudential Regulation Authority (APRA), loans with a DTI ratio of 6 or higher are considered risky.

Why Has the Percentage of Risky Loans Increased?

The rise in high DTI ratios is likely due to the significant growth in property prices, causing people to stretch their financial limits to buy into the market.

How Can I Safely Afford to Borrow?

It’s crucial to stress-test your borrowing capacity against current financial conditions and upcoming changes like interest rate rises. Some lenders may accept a loan application where the DTI is higher than 6, depending on your circumstances.

How Can Zippy Financial Help Me Understand My DTI?

Zippy Financial can help you find out your borrowing capacity and options, and map out a financial plan tailored to your needs.

If you’d like to find out your borrowing capacity and options, get in touch with us today. We would love to sit down with you and help you map out a plan.

Phone: 1300 855 022

Email: clientservices@zippyfinancial.com.au

About the Author:

Louisa Sanghera is an award-winning mortgage broker and Director at Zippy Financial. Louisa founded Zippy Financial with the goal of helping clients grow their wealth through smart property and business financing. Louisa utilises her expert financial knowledge, vision for exceptional customer service and passion for property to help her clients achieve their lifestyle and financial goals. Louisa is an experienced speaker, financial commentator, mortgage broker industry representative and small business advocate.

Connect with Louisa on Linkedin.