Smaller mortgages are the trend with Australians nowadays as house prices soften in Australian capital cities.

Australians have been observed nowadays of borrowing less as homes for sale prices slide.

This trend has further cemented to the Australians the culture of reducing debt which was brought about by the global financial crisis.

According to the data from AFG, Australia’s biggest mortgage broker, people who were pulling out mortgages in June signed up for smaller loans proportional to the value of their property, which are loans representing a lower percentage of their property’s value than at any time during the previous six months.

With prices of design house sliding, Australians are borrowing lesser amounts which are in proportion to their property prices.

Statistics reveal that the average loan to valuation ratio (LVR) was 64.2 per cent nationally and the average LVRs is declining in NSW, Victoria, South Australia and the Northern Territory.

As house land package prices soften, Australians are signing up smaller mortgages. And in June, it was revealed that the average mortgage size across Australia was $384,042, which is about 1.1 per cent lower than the previous month.

All throughout the states, the average mortgage size waned except in NSW and Western Australia, where a growth of 0.5 per cent and 3.3 per cent, respectively, was being observed. However in WA, the average mortgage size increased from $399,000 to $412,000.

Meanwhile, as a positive sign of the gradual recovery of Queensland from last summer’s floods and natural disasters, mortgage sales reached the same level in June as they did in the corresponding month a year earlier for the first time in five months, which indicates confidence in the market is returning.

However, the residential property landscape still remains unresponsive, with the annual housing credit growth showing a slow down to almost 6 per cent, as compared with an average 14 per cent over the past 34 years.

Likewise, a slowdown in household credit and in most values of assets including housing was also noted.

However, the central bank gave borrowers another chance for respite, in which the overnight cash rate was left at 4.75 per cent.

Meanwhile, Jonathan Mott, a UBS analyst, told clients last week that the housing credit growth was expected to slow down with further thanks to the recent pressure on household budgets caused by higher interest rates and utility, food and petrol prices.

UBS predicts that the housing credit growth will slow down to 4 per cent by the years 2013, and the personal lending will fall to 2 per cent.

Good News

People who are intent on borrowing or refinancing are being offered many deals due to the fact that big banks are jostling in to grab another 1.7 per cent share of the mortgage market in June from smaller competitors.

AFG’s general manager of sales and operations, Mark Hewitt, says that big banks now have 82.1 per cent of the market as these major lenders are hungry for business.

Meanwhile, non-major banks took 21.3 per cent of the refinancing deals and 23.8 per cent of first home buyer mortgages in June.

The big four have gained more toeholds since March, due to the fact that 25 per cent of first display homes buyers and borrowers who are seeking to refinance have chosen to borrow from a smaller bank or non-bank lender.

Australia has been known to have the largest dwellings in the world and these houses are noted to be of high quality, with the average Australian house estimated at 214 square meters.

Now, the sizes of Australian houses have shrunk as potential home buyers are being offered new house and land packages that is a quarter the size than what was supposed to be before.

The shrinkage is blamed on the changing household preferences.

As Australian households are now apparently demanding lower maintenance homes, home builders, looking to meet the market, now offer more affordable house-and-land options, with lot sizes being squeezed into a less than 200sq m lot for the first time.

Likewise, backyards which have been reducing in size for decades and in recent times have been swallowed by a pool and deck may shortly disappear.

The downsizing trend in the homes for sale is said to have surged in the US since the global financial crisis and has sprung up in Western Australia, South Australia as well as in Victoria.

Australian house builders are now making certain that they are ready for the arrival of rear-loaded blocks or laneway, which are lots where a garage is built at the back, allowing car access via a laneway.

The era of the McMansions had ended as small lots are now in demand.

However, though changing household preferences could be one of the causes of this shrinkage, the main reason behind this shrinkage unfortunately is attributed to the government’s urban consolidation policies since the early-2000s which includes the implementation of urban growth boundaries around Australia’s cities as well as more restrictive zoning.

These policies have significantly driven up the prices of fringe land, which have both compelled the move to smaller block sizes in order to maintain some appearance of affordability as well as pushing-up the prices of new and pre-existing display homes.

Affordability as well as Livability

With this recent development, potential home buyers are likely to see house-and-land packages being offered at a price around $320,000, which is quite affordable.

Three-bedroom homes with an ensuite, double garage at the back, walk-in robes and a drying court are also likely to be offered.

Plans on introducing a range of affordable housing and smaller block sizes into its communities are also on the works.

Australian developers are aiming for affordability as well as livability in building these new houses. A more efficient block size situated near parks, public transport, places of employment and other amenities will more likely make people less reliant on their cars.

Though home builders admitted that yards would likely disappear and “terrace” block sizes would be as small as 7.5m by 25m (187sq m total), the loss of the yard  have only followed a trend where people are contented to have low-fuss outdoor areas and are happy to pursue social and sporting interests away from home.

The rise of the small block houses is said to be inevitable as smaller house and land packages would open up the market and would be a better use of resources.

Australia’s Gen-Y, otherwise called the young Aussies, has broken the mold.

Once typecast as being fixated with carefree spending and sponging off their parents, these Gen-Yers have flown out of its pigeonhole as the currently ongoing high property prices have changed them from being Generation Egocentric into Generation Prudent.

According to a recent survey conducted on mortgage-holders with the age under 30, it reveals that of the thousand respondents surveyed, 71 percent claimed that they never have rented a property.

Young Aussies were found out that they won’t leave home for they want to save for their own property.

Of the 1000 Gen-Yers surveyed, 76 percent of respondents have admitted that they have stayed at home longer than they would have liked in order to circumvent paying rent, for the purpose of saving for a home loan deposit as they hang on to the great Aussie home ownership dream that is buying their own dream house.

More Australian Gen-Yers are opting to stay home longer with parents or some are even staying with their grandparents, in a phenomenon hailed as the “Famwich”, in order to save for a deposit.

With the soaring prices on house and land packages, Australia’s Generation Y has adopted the strategy of extended living in parental homes which is said to have become a common financial strategy among younger people nowadays.

A long-standing trend towards extended living in the parental home before leaving to rent have been increasingly observed as Australia’s Gen Yers are utilizing this to save for their own home instead of renting.

According to the survey findings, the long-standing trend is strongly being observed in Sydney, Perth and Melbourne, of which concerns about housing affordability are most prominent.

Australia’s Gen-Yers Shun Luxury Purchases

On another note, according to a recent survey conducted by McCrindle Research for realestate.com.au, young Aussies are also becoming sensible in their spending as the survey data reveals that 91 percent of respondents are prepared to spend less on discretionary purchases such as brands and luxuries, 76 percent on entertainment and recreation and another 76 percent on car upgrades in order to reach their goal of owning a house.

Furthermore, the survey also said that most of the respondents are willing to give up a swimming pool, extra space or multiple bathrooms. However, three-fourths of the respondents are not willing to forgo modern ‘necessities’ such as health care and private education.

The survey further revealed that overall national confidence about housing affordability was relatively subdued, and ambiguity about the future had resulted to financial conservatism among the youths.

However, despite the disheartening vista of decades of paying mortgage, Australia’s Gen Ys are found out to have the most positive outlook of any age group about being able to buy a home design in the future.

Even David Chalke, a social commentator, said that Gen-Yers are better educated, more connected and informed, are active savers, and smarter than the previous generations.

Likewise, Mr. Chalke also added that young Aussies aged 18 to 31 are now more determined and more focused on their future and are better prepared to work hard and budget.

RAMS has responded to this trend by designing a new home loan product, “Fast Track”, that enables first home buyers to get into the housing market sooner with parental help, while avoiding mortgage insurance.

RAMS chief operating officer Susan Bannigan says it’s hard enough getting children to leave the family nest.

“But when they say they want to stay at home to achieve a serious financial goal, it’s incredibly difficult to say no,” she said.

“For them it’s a win-win situation.”

And of course, money to pay the utility bills and groceries grows on trees.

Previously, only a deposit and a full-time job are the standard requirement needed to get a home loan, but not with this day and time. Today’s lenders are requiring much more.

What you need to get a home loan? (what lenders want to know)

Today’s financial instability has brought a prospective home-buyer’s complete financial history under the microscope, as home loan lenders try to determine whether they are ever going to get their money back.

A potential display homes buyer’s credit history: credit cards, personal loans, HECS/HELP (Education Contribution Scheme/Higher Education Loan Programme) debts as well as their rental history are being completely and thoroughly checked out before any approval is granted to home buyers.

The number of lenders with home loan requirement needing only a 3 percent deposit has doubled to 5 per cent since January, according to ratecity.com.au, a financial comparison website. Many lenders are still wary and keen to avoid the kind of risky loans that had given rise to the global financial crisis.

Now lenders are more than ready to comply with new responsible lending practices.

Prospective buyers of house plan designs are advised not to take up the banks’ offers of increasing their credit-card limit, under any circumstances, as this would become the basis for refusing them of their home loan.

Banks are now wired to consider the worst-case scenario, as many bad home loans have gone unpaid as, according to a survey done last April, more  than one in five Australians are struggling to repay debt due to the increasing costs of living.

Furthermore, according to a credit-risk manager at one of Australia’s big four banks, one of the biggest determinants of whether a bank will offer a home loan is an applicant’s credit scores, which is acquired through credit agency Veda Advantage.

Likewise, banks also discriminate on postcodes.

Bills payment history, meaning bills that are not paid on time, are also being thoroughly checked and evaluated for any pattern as well as an applicant’s employment history; that is whether applicants have been in steady jobs for longer than six months and their assets and liabilities.

Banks are now being thorough in their credit history check, with stricter and stiffer home loan requirements and guidelines being implemented.

What do potential home-loan borrowers need to do?

With today’s stricter home loan guidelines and requirements, potential home-loan borrowers need to take action now to ensure that there are no hidden obstacles that could prevent the granting of their home loan in the future.

A Smartmove professional mortgage adviser advises:

• if you suspect of any previous misdemeanors on your file, get a copy of your credit report from Veda Advantage. This would allow you to overcome any issues that may arise in the credit-application process.

• take measures to keep your credit file clear by undertaking a My Veda Alert subscription, which would also protect you against identity theft.

• update all your current or potential creditors — company, personal or otherwise—to all changes to your address details to make certain that bills don’t get lost.

• make sure to pay your bills on time and, if possible, set up direct debits for bill payments in order to keep your credit file as clean and tidy as possible.

Following the recent release of Australia’s State Budget last week, the next month and a half would be a crucial decision time for people who are planning to buy a house as first home designs buyers are being offered by the federal government with a $10,000 Building Boost for newly constructed properties valued up to $600,000.

The $10,000 Queensland building boost grant is intended for any person or corporation who is intending to buy or build a new home for the purpose of living in, or for renting it out for investment purposes, for homes valued less than $600,000.

The Building Boost Grant was aimed to rekindle Queensland’s struggling housing construction sector which was caused by a combination of declining property transfers and the economic impact brought about by the summer’s natural disasters.

The government wants to encourage people to buy or build new house plans in order to jumpstart the declining property market.

However, as the building boost grant is not intended to pay for a building contract, as well as to any owner home builders who is on the business of building homes and the home was built for sale in the course of that business, this would persuade home buyers to holdup signing an off-the-plan sale or building contract until August 1, as grant is only going to be available this coming August 1.

Meanwhile, existing home owners who want to upgrade or downsize to another property faces a stamp duty (transfer duty rate) increase of up to $7175.

Buying or Building?

With the recent development in the property market, many people would now be encouraged to buy or build new homes. With this, it is now necessary to learn the pros and cons of buying and building a house.

Buying Pros

Potential home buyers can:

• have a wide range of options or choices of ready-made houses to choose from
• have the opportunity to compare different features until they find exactly the right combination at the right price
• have seen the actual house design so they will instantly know what their house really looks like
• have a bargaining advantage as competitive is the property market nowadays, house hunters can now have the chance to drive a tough bargain and get the best deal possible, as there are many other options out in the market now

Buying Cons

Potential home buyers:

• may have to make concessions with regards to the house features you want
• may not find the perfect or the dream house that you want since you didn’t design it yourself.
• may need to spend money in order to make updates or repairs
• may need to make an offer that is more than the listing price if you get involved in a bidding war

Building Pros

Potential owner home builders:

• have control over all the features and options that they want in a dream house
• can customize their dream house according to their wants and needs
• can monitor the construction process so you will know if the house is built to your liking
• can have the opportunity to equip your house with the latest technologies and design
• house, fittings and appliances are all new

Building Cons

• Building a house is generally more expensive and may cost more than buying a house.
• Building a house often takes longer time and construction project gets delayed
• Building a house is more complicated for it will take considerable time and effort as well as it can be stressful for you have to deal will all the people who are part of the construction team.

Recently, a new report was released from Fitch Ratings, a global ratings agency which details mortgage performance by postcode, showed that mortgage delinquency rate in Western Australia has increased while Queensland has made history as Australia’s worst state for mortgage defaults.

The Fitch Ratings report showed that a rise of 1.99 percent, from 1.94 per cent, was being observed from the mortgage delinquency rate in the six months to March in WA while Queensland was recorded with the highest number of mortgage holders that are in debts at 2 percent.

This means that there is an increase in the number of Aussies all across the country who are struggling to pay their mortgages.

The report further revealed that 2315 including Nelson Bay is reported to be the worst-performing postcode in the country showing one in 18 mortgages or 5.6 percent are at least a month overdue.

Likewise, New South Wales (NSW) is home to five of the 10 worst-performing regions in the nation, with Fairfield-Liverpool as the worst-performing region in Australia, having one in 35 mortgages at least a month overdue and Victoria is home to five of the 10 best, with Mill Park and Brighton East as home to Victoria’s hardest-suffering home loan customers.

In the top 20 worst-performing postcodes in the country are Rockingham, Mandurah, Casuarina and West Swan.

Queensland’s Logan city is recorded to be the worst district in Australia for mortgage delinquency with 2.1 per cent of mortgage holders in default beyond 30 days.

At Fault

With borrowers experiencing significant financial distress resulting in mortgage stress seen spreading all across the country, the blame is attributed to the summer flooding as well as the interest rates increases, including one in November.

The statewide rising trend of mortgage stress is expected to further negatively influence the prices of home designs by pushing down declining house prices as “mortgage stress” sales increase.

Prices in house plan will again be forced to be lowered, softening the property market as many “mortgage stress” house owners will be forced to sell their houses.

Though the impact of interest rate increases takes time to be seen, “mortgage stress” home plan owners still are affected for they are worried for another interest rate increase.

With Australian homeowners impacted with the recent summer floods and interest rate hike and an expected interest increase in June, they are now more than ever under stress with their mortgage payments as some borrowers are in arrears by one or more payments.

All Time Low

With the recent development, Australia’s economy is now mixed and struggling.

With NAB’s Index of Business revealing further grim news for the domestic economy, it has reached its lowest ebb since early 2009 when the economy was still spinning from the shock of the global financial crisis.

Used to measure business conditions based on measures of trading conditions, profitability and employment, the NAB’s index has recorded near-record low levels across all three sectors.

Conditions in retail, manufacturing, wholesale and construction are still very poor.

However, the mining sector continues to save Australia’s economy as mining conditions outperformed all other industries.

According to data from the global survey by mortgage insurer Genworth that was in the news lately, Australian homeowners are among the most indebted in the world.

The survey’s respondents were home owners and aspiring first homebuyers in eight countries namely Australia, Canada, India, Ireland, Italy, Mexico, the United Kingdom and the United States.

Though the Australian homeowners are amongst the most indebted people in the world, however the data of the new research shows that most Australian homeowners had no trouble in meeting monthly repayments on their mortgage in the last year.

The survey shows that on average, 45 percent of homeowners’ after-tax income was used in paying off debts that is well above the average of 38 percent in the other countries surveyed.

The survey also shows that thirty-nine percent (39%) of Australians, that is one in five Australian homeowners, surveyed were using more than half of their after tax income to service debt.

According to a statement made by Ellie Comerford, chief executive of Genworth Australia, Australian homeowners are the most relaxed about being highly leveraged where survey data show that one in three Australian homeowners are comfortable borrowing more than 80 percent of their home’s value, which is the highest proportion of the eight countries surveyed.

Of the five Australian homeowners interviewed, four of them said that they had no difficulty in meeting their mortgage repayments in the last 12 months.

However, the surveys show that more than one-third of respondents said they were comfortable borrowing more than 80 per cent of the value of the property when buying a house, which is the highest rate in any country surveyed.

Next in the comfort rating for high debt were the Italians and Canadians.

Otherwise, 45 percent of Australian homeowners surveyed have overpaid on their repayments, which is well above the average of 26 percent in the other surveyed markets.

Australian homeowners have no trouble in meeting these mortgage payments because of their high level of confidence in their domestic economy, with the survey data showing the level of confidence in the domestic economy among Australian homeowners surveyed was higher than the total survey average, with 37 percent expressing confidence in Australia’s prospects, in comparison with the 30 percent in the remaining countries.

Otherwise, the average age of first home buyers in Australia was 28.6 as of March, and had risen at a faster rate than the average age in the other countries surveyed, according also to the research data.

With Australians being spared a rise in official interest rates since November, when rates were raised a quarter of a percentage point to 4.75 percent, Australian homeowners have no difficulty and are comfortable paying their mortgages.

With the recent development, home builders are also quite confident that the property market would soon stabilize as Australian homeowners become more confident with the economy.

With the weak economic data, including monthly employment figures, pushing out expectations for the next Reserve Bank interest rate increase, Australian homeowners as well as house builders are at ease with the recent standing of the property market.

AUSTRALIA’S construction industry has stalled, which shows a high vulnerability to a hike in interest rate.

Just recently in the news, it has been shown in a report that Australia’s construction industry has shrunk for the 12th consecutive month.

According to a survey, house-building activity has fallen for the twelfth consecutive month and now is vulnerable to further interest rate hikes.

House builders look to be threatened with a hike in interest rates as its house-building activity has stalled.

Figures from the Australian Industry Group/Housing Industry Association Performance of Construction Index shows that it increased by a seasonally adjusted 1.7 points in May to 39.6, which is below the 50 line that separates expansion from contraction for the twelfth consecutive month.

Home builders have stopped constructing new houses as a drop in building approvals was observed in April recently.

Though an expected contraction in March quarter growth in Australia’s construction industry occurred, it is still lower than what is anticipated.

According to the Australian Industry group director, Peter Burn, a clear withdrawal of the stimulus measures related with the response to the global financial crisis has been observed over the 12 consecutive months.

Data show that a contraction of all four sub-sectors has occurred in May, also showing a significant drop in apartment building, which was down by 5.8 points at 25.3.

A faster contraction in commercial construction was also shown in the May report data. This contraction reflects the rolling back of fiscal stimulus and the lack of force from private investment in projects including offices and retail premises.

Cause of Shrinkage

According to the report, most companies linked the ongoing shrinking in Australia’s construction industry to the passive market demand, which is said to be due to the shortage of new work that would have replaced the decreasing level of school building projects.

The reduction of Australia’s construction industry growth is also associated with the widespread flooding over the summer.

An economist also said that the small and medium-sized businesses which are considered the life blood of the housing industry are hassled by the burden of high costs and slower demand.

With the recent slump in home building approvals on top of the ongoing struggles of Australian households on impending higher interest rates, Australians nowadays appear to have put on hold their plans of building or renovating their homes.

The private sector demand is said to have not gained strength sufficiently which is said to be held back by higher interest rates and vigilance.

With these reasons, an ongoing weakness is being demonstrated in both house building and commercial construction, while a recorded 13 months in a row of negative figures was seen in the apartment sub-sector

As a whole, the construction sector seems to remain to be highly susceptible to any further interest rate hikes, though the Reserve Bank of Australia (RBA) 4.75 per cent cash rate is not expected to rise at the next board meeting on June even though an expected contraction in March quarter growth occurred.

The central bank has hinted recently that the cash rate may be on its way up, but is expected widely not to raise the rate in June

With the spiraling energy prices, new regulations and a coming price on carbon, Australia’s property owners, managers and listed property trusts are now forced to look seriously at their energy usage and levels of investment into energy efficiency solutions.

The increasing prices in energy and water have also forced potential home designs buyers to look into the benefits of buying green houses.

As defined by Wikipedia, “a Green home is a type of house that is designed to be environmentally friendly and sustainable, focusing on the efficient use of “energy, water, and building materials.””

Designed to conserve energy or water and improve indoor air quality, target recycled or used materials in order to produce less waste in the process, a green house or home might be the answer to the spiraling energy crisis.

According to Archicentre, the building inspection service of the Australian Institute of Architects, the ever increasing prices in energy and water will cause a heightened value of existing green homes and commercial premises.

As the running costs of the rising energy prices eating into every family budget and the bottom-line of every business, Australians have nowadays looked in the affordability of green houses.

The pressure of housing affordability as well as the initial building or purchase costs and the required services such as power, water and gas needed to run a home have become a massive concern for every Australians nowadays.

Prospective buyers of home plans are now concerned with the running costs of building a green house and the cost of maintaining them and are automatically factoring these costs into their balancing of their mortgages and other costs.

With these spiraling concerns, prices of green houses have been set to soar due to its demand.

Green houses are now in great demand. Though normal houses are not as pricey as green houses as well as these are not so difficult to maintain, green houses are still more environment-friendly and cost efficient with regards to energy.

However, the payback period for solar panels and other energy saving technology has shortened considerably with power costs in the past two years skyrocketing.

One of the biggest trends in new homes and renovations is the likelihood of the introduction of quality-based building inspections. The said inspection is said to be aimed to ensure that homes with a six or more green star design are actually built by home builders to the standard.

The government will also focus on the quality of construction of renovations and new homes in the future in relation to sustainability of green houses.

A survey data showed recently that Australian capital city dwellings’ values dropped by more than 1 per cent for the three months till April. This said to be due to the losses that occurred in the luxury property market.

With home values all across capital cities dropping by 1.2 per cent from the first quarter to April, Brisbane, Perth and luxury suburbs have continually pulled down the Australian housing market.

Latest survey data from RP Data-Rismark Hedonic Home Value Index shows that home designs in Brisbane fell by 3.1 percent while house designs in Perth fell by 3 percent for the quarter on a seasonally adjusted basis.

The combined capital city dwelling markets showed a drop by a seasonally adjusted 0.3 per cent in April, while values dived by 1.2 per cent in the three months to April.

Tim Lawless, RP Data’s research director, expounded that from the start of the year to April, a 5.4 percent loss was recorded over the homes is the most expensive capital city suburbs which helped drag down the overall property market.

Mr. Lawless explained that the luxury end of the housing market is showing its volatility, though all throughout the growth phase of the cycle, the highest capital gains were realized by the most expensive homes. However, as the market cools down, premium home values appear to be losing steam the fastest.

The slumping of the property market, specifically Brisbane and Perth’s housing market, is caused by the floods that occurred in January in the Brisbane area while the cooling down following Perth’s strong run between 2005 and 2007, respectively.

Since January, this is the first quarter that a string of natural disasters hit the country.

Likewise, the cheap suburb’s solid performance in the property market has competed against the popular claims that default rates are soaring up amid first time buyers, which the RBA recently rejected.

This development worried home builders as Australia houses for sale values for regional areas decreased by 0.6 percent for April on a seasonally adjusted basis and by 1.5 percent of the quarter.

Just this January, home values dropped by 1.4 per cent that caused capital city home values to also dropped 2.1 per cent for the three months to March.

The capital cities’ plummeting luxury property market values has caused a domino effect among the rest of the capital cities resulting to the continued pull down of the Australian housing market.

Losses in the luxury property market of the combined capital city dwelling markets of Brisbane, Perth and Melbourne caused by natural disasters, the cooling effect of the strong run of the property market between 2005 and 2007, and the faulty claims about default rates soaring up have overall caused great damage to the Australian housing market.

Losses in the luxury property market is said to be caused by premium home values rapidly losing steam as the luxury property market cooled down.

In the middle 60 per cent of suburbs, home values were down by 0.9 percent.

The slumping of luxury suburbs’ property market values has stunted the Australian housing market.