Market recovery: More home buyers hitting the market

March 2, 2011

Mortgage applications in Australia may have hit their lowest point in eight years, but there are some indications a slow, upward climb has begun.

Veda Advantage’s quarterly Consumer Credit Demand Index found mortgage enquiries during the October to December 2010 quarter were up 3.4 percent compared with the September quarter.

While applications were down 16 percent over the same quarter in 2009, that fall was less severe than in July to September, when applications dropped 23.6 percent compared with the same quarter in 2009.

Veda Advantage’s head of consumer risk, Angus Luffman, says mortgage applications over the past two years had been demonstrably affected by the global financial crisis, declining in 2008 and then strengthening in 2009 during the government stimulus.

In 2010 applications wound back again, with mortgage demand falling by an average 19 percent across the 2010 calendar year to below levels seen in the middle of the GFC.

The biggest year-on-year fall was in Queensland, where home loan demand fell by 24 percent, while the smallest was in the ACT at 8.6 percent. However in December each state and territory saw a rise over the previous quarter, led by the Northern Territory with 8.7 percent.

Luffman says adding to the indicators of a positive trend was a 2.4 percent increase in consumer credit demand in October to December 2010 and a modest 0.4 percent increase for the 2010 calendar year.

“The first six months of the year saw a decrease in credit card applications as consumers focused on saving money, but the July to September quarter showed some signs that people were willing to start spending on credit again,” Luffman says.

“Demand for personal loans has been slower to pick up pace, with falls recorded all year, until the last three months to December when we finally started to see some recovery.”

He says it remained to be seen how the new consumer credit regulations that came into effect on January 1 would impact demand in all areas. Under the regulations, mortgage brokers, credit providers and finance companies now have to prove they have taken all reasonable steps to establish the consumer has the capacity to repay their loan and meet their financial objectives.

They are also required to prove the loan will not put the consumer in a position of substantial financial hardship.

So if you’re in the market for a home loan, while you can feel a little more secure that lenders will only provide you with a loan you can afford, don’t be too reliant on what lenders advice. Be sure to shop around to find a good value home loan and start by comparing deals on financial comparison websites like RateCity.

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