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How has COVID-19 impacted Home Loans for Doctors?

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Most of us have felt the full impact of living in a time of Covid throughout the last 18 months, but how has this affected Medical Professionals seeking financial assistance and home loans? It may be a little early to breathe a sigh of relief and many are still choosing (or are required) to do so through masks while we wait for the double jabs. General practitioners and other specialists were feeling the stress, not just from COVID-19, but also the broader economic fallout. The public hat is off to Australia’s health care workforce whom have been at the frontline of the COVID-19 pandemic. The medical profession is adapting to how they provide care amid the ongoing COVID-19 lockdowns as well as how the pandemic has shaped the future of healthcare.

Many surgeons lost work when non-urgent elective surgery was suspended and the demand for wider healthcare services dropped as social distancing restrictions discouraged people from leaving home, and public fears of contracting or spreading the virus kept people away from health facilities. Job losses and uncertainty throughout the community has also put increased financial pressure on household budgets and reduced the affordability of out-of-pocket payments for healthcare services.

The sector was quick to provide telehealth services during the pandemic, which now may become a permanent shift in how Australians receive healthcare with 84% of doctors believing telehealth should be permanently funded by Medicare.

How has the pandemic impacted bank finance to medical professionals?

Within the medico lending space, there were minor bank policy changes centred around due diligence by lenders around the impact of COVID-19 on job hours / pay. Financial assistance was provided to the medical professional sector with mortgage repayment pauses when required.

The main impact on borrowers has been the time it takes lenders to assess a loan application with many struggling to provide consistent and quick turnaround times.

Add in a property boom, record low-interest rates, cashback offers and a surge in refinancing activity and you have the perfect storm for service delays with some of the major banks reaching two months.

It has proven to be difficult to manage client expectations particularly when funding options are limited to the major banks when medico lending policy is required for approval.

So what’s next?

Unemployment has fallen to 5.6% as Australia added close to 71,000 jobs between February and March 2021 according to the Australian Bureau of Statistics (ABS). The Australian share market is buoyant reaching a 13-month high above 7000 points and the Australian dollar sits at a healthy 77c. Clearly, we are trying to work our way through many of the effects of the Coronavirus Pandemic and out of Australia’s first recession in 30 years.

The media is now full of property-related headlines, some on the positive side telling us how our property markets are surging and others on the negative side warning that decreasing affordability will limit our ability to get into the property market. The property market outlook is buoyant with a report released from ANZ Bank predicting house prices at the national level to rise 17% through 2021, before slowing to 6% in 2022.

The fear of missing out (FOMO), and historically low-interest rates have driven dwelling prices to record new highs. We have recently surpassed previous 2017 peaks and this means double-digit growth is on the horizon for many areas around Australia in 2021.

Interest rates aren’t the only factor holding up property prices.

Some things to keep an eye on:

1. Winding back of Government support packages

The government rolled out a number of stimulus measures to keep the economy moving when the full effects of the COVID-19 lockdown were realised. And while the stimulus packages kept people employed, the removal of these measures is something to watch.

JobKeeper, and less prominent HomeBuilder, were both phased out at the end of March and the First Home Loan Deposit scheme was tapped out. Actual net job losses from the ending of JobKeeper are likely to be low and the proportion of loans at risk is minimal, as demonstrated by the fact that the value of home mortgages still relying on payment holidays had declined from 11% in May 2020 to less than 1% by the end of February.

2. Lending rules

APRA (Australian Prudential Regulation Authority) may introduce some additional macroprudential measures to slow house price growth into 2022 as they have in the past. House prices in the past have been significantly affected by changes made by APRA to regulations around lending standards for residential property. APRA can decide to increase the interest rate buffers and reintroduce limits on high loan-to-valuation lending and restrict loans to customers with lower serviceability.

3. Shift in living patterns

Lower rates of immigration and the trend towards working from home are two factors contributing to the outperformance of regional dwelling prices.

The trend to decentralised working will be more resilient, and governments may even consider encouraging working from home as a way to take pressure off capital city prices.

Will mortgage rates go up in 2021?

Last November, the Reserve Bank of Australia (RBA) decided to make further adjustments to the cash rate, slashing it to an all-time low of 0.1%. The central bank then indicated that the rate would stay at that level for another three years. The move gives mortgage holders and potential home buyers a sense of certainty around variable rates.

To fix or not to fix?

Typically, only about 15% of mortgages have a fixed rate but this proportion has surged to about 30% of new home loans, after big reductions from the banks in response to the COVID-19 economic shock with many fixed rates dropping below 2%pa.

Fixed-rate mortgage rates ultimately reflect what is going on in the bond market, where banks, companies and governments borrow money. When bond yields rise, it means borrowing costs rise, too, and this gets passed on to bank customers who opt to fix their rate.

Recently, bond yields have been rising because the economic recovery has convinced financial markets that there is less need for extraordinary support from central banks. We may see further competition on fixed-rate mortgages between banks, which are also drawing down on a line of cheap credit from the RBA, for which they pay only 0.1%.

Picking the bottom is not the main goal. Borrowers can fix if they are happy with today’s fixed rates and want certainty of their repayments.

There are definitely risks to consider however as there is always a chance you could miss out on savings if fixed rates fall even lower, there are also costs involved when trying to get out of a fixed-rate mortgage before the term ends and it is not always possible to make extra repayments. However, there are some lenders who offer offset accounts against fixed rates.

Taking a fresh focus on your finances in 2021

In the wake of its December home loan price enquiry, the ACCC Chair Rod Sims said that a significant number of Australian home loan borrowers have not switched lenders for several years, yet they stand to save so much money by doing so.

Your financial situation and options can be better understood by talking with a lending consultant.  Click here if you’d like to arrange a no-obligation chat with a Consultant from the DPM Lending team.

Disclaimer: * The information contained in this site is general and is not intended to serve as advice as your personal circumstances have not been considered. DPM Financial Services Group recommends you obtain personal advice concerning specific matters before making a decision.

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