What to consider if COVID-19 has impacted your plans
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The Waiting Game - What to consider if COVID-19 has impacted your plans to buy a home this year

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The Waiting Game

For over a decade, Rabobank has been surveying Australians’ attitudes towards savings and debt through its Financial Health Barometer, surveying 2,300 financial decision makers aged between 18 – 65 each year. This ongoing research ensures Rabobank has an intimate understanding of the state of the nation’s finances and highlights areas where Aussies are looking to keep financially fit or might need education, insights and support.

One observation we have made through the latest Financial Health Barometer survey (which was polled in Q1, 2020), was that, prior to the current COVID-19 pandemic, there was a growing number of people looking to enter the housing market in 2020-21, with 29% of Aussies citing the intention to buy a new home in the next two years, eclipsing the previous high of 24% noted in our 2016 report.

Given the uncertainty around the changing COVID-19 situation and its impact on both the markets and economy, we enlisted trusted experts to help provide information for those people who may be re-evaluating their options and support them to keep on track.

Glenn Wealands, Head of Client Experience at Rabobank said that for people who were ready to go and looking to buy in the next six to 12 months, those dreams haven’t been dashed.

“Trying to predict what is going to happen to the property market and broader economy is a little bit like using a crystal ball at the moment."

“When looking at ten years of data from our Financial Health Barometer, the 2020 results show that a record number of Aussies were planning to purchase a home in the next two years. Now that the environment has changed, its naturally prudent for those who were intending to be in the property market in 2020 to review their current situation so they’re in the best spot with their money when the time is right.”

The Waiting Game

The waiting game

The big question on most people’s minds is ‘should I still buy, or should I hold off?’

There are range of factors that people need to consider before making that decision:

• What does the current property market outlook mean for me?

• Is there any change to my financial circumstances or income?

• Where should I hold my deposit if I choose to wait?

Nerida Cole, Managing Director, Head of Advice, Dixon Advisory
Nerida Cole, Managing Director, Head of Advice, Dixon Advisory

The market

Nerida Cole, Managing Director, Head of Advice at Dixon Advisory said, “the housing market may fall but when social distancing restrictions are fully lifted it also could turn quite quickly, so keeping your options open and having accessible cash will be important for buyers.”

• The rental market was the first component to suffer from the economic restrictions, this is expected to push down property market values.

• It’s currently a buyers’ market. You should feel confident that if you find a property you like and the seller does not come to party on price, another option at your price point won’t be far away.

• People looking to be owner occupiers will be in the driving seat. We may start to see more first home buyers enter the market as investors take a step back.

• Lenders are revising their lending criteria, with a focus on borrowers considered to be in high-risk industries, such as tourism, hospitality or retail1.

• If your finances have not been impacted, the banks are very much still open for your business but don’t be surprised if you are asked a few more questions about your current employment situation.

Review your game plan

With this in mind, Nerida suggests working with your financial adviser to map out your current path to purchase and your plan B.

A few tips to help you take stock:

• Don’t get tempted to take a larger loan than you can afford.

• The golden rule is aim for a 20% deposit – stick to at least that in this market.

• You’ll also want to make sure that you have additional savings of 3-6 months of living expenses in cash, in case of an emergency or drop in income.

• Work out a backup plan:

- Obviously, each individual’s situation will vary in the current climate. Be honest about your personal job security. If you feel there is low security for your industry or role, you should wait and defer taking on a big financial commitment.

- Even if you feel you have good security for your job, you never know what is around the corner. Your plan B needs to show how you can still make repayments if something does happen. For example, look at the loan set up with your bank, can you draw on your bigger than 20% deposit to make repayments? Or taking on a flatmate may help you boost your income and re-build your rainy-day savings account – however, don’t bank on this as rental demand is down in the current market.

- Personal insurance such as income protection is also critical when you have big financial commitments. Be aware these policies cover you for serious illness and disability – not job loss or redundancy. And always remember that Lenders Mortgage Insurance (LMI) protects the lender, not you.

Where should you hold a deposit?

If you have reviewed your strategy and decided to wait before buying, consider moving your deposit savings to cash. Nerida explains, “cash over shares should be your first choice if you’ve got a deposit ready to go or aim to purchase within the next five years. This will allow you to seize any opportunities that arise. For example, you could find your dream home quite quickly, so having that cash available will be crucial to make a purchase.”

Shares are a long-term investment and only suitable when you have at least a five-year window to set your money aside.

If you think you will buy in the next six-months, look at high interest savings accounts. If you’re looking at waiting to watch the market for more than six months, term deposit rates are also worth checking out.

Rabobank has two great offerings worth looking at in this space*:

• Its award-winning High Interest Savings Account has an introductory variable rate of 2.25% p.a for first four months up to $250,000. This ongoing high interest rate will keep your savings growing, you can read more here: https://www.rabobank.com.au/high-interest-savings-account/

• Its Terms Deposits offer competitive fixed interest with the choice of 1 month to five-year terms. Start with as little $1000, find more details here: https://www.rabobank.com.au/term-deposits/

*(It’s also great to know that when you bank with Rabobank, not only are you making your cash work harder for you, but you’re growing your savings with the bank that helps Aussie farmers grow).

In summary, if you are feeling uncertain, do your numbers again, talk a trusted adviser, but be prepared to wait. The time will allow you to save a larger deposit and take the pressure off future repayments when you are ready to buy - in the meantime, keep yourself liquid (i.e. in cash) so you can make your move quickly when the time is right.

ENDS

The issuer of the product is Rabobank Australia Limited ABN 50 001 621 129 AFSL no. 234700. Consider the relevant terms and conditions for the High Interest Savings Account and Term Deposit along with your personal objectives, financial situation and needs before making any financial decisions relating to the matters discussed in the article.

The views expressed, and any advice given, in the above article are those of the individuals, and do not necessarily reflect the views of Rabobank Online Savings, and we recommend you seek your own professional advice.

1https://www.domain.com.au/money-markets/coronavirus-prompts-sudden-lending-changes-for-hopeful-home-loan-borrowers-946784/

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