Refinancers kickstart flailing mortgage market

June 10, 2011

Reduced house prices and a steady cash rate gave home buyers the confidence to borrow in April, kickstarting an otherwise stagnant 2011 mortgage market. It’s the first recorded increase in the number of home loans taken out this year, according to Australian Bureau of Statistics figures.

A total of 47,342 mortgages were settled in April, up 4.8 percent on the previous month and 3 percent more than March last year. That equates to $13.8 billion borrowed in April alone, which is 6 percent more than in March 2011. The increase easily beat average forecasts for a rise of about 2 percent.

The bounce comes after three consecutive months of declines, yet leaves the number of new home loans taken out still down about 8 percent on December 2010 levels.

Market rebound or stabilisation?
These figures are more consistent with a stabilisation of the market, rather than a total turnaround, Citi economist Paul Brennan said in a media release.

“Both building approvals and housing finance are consistent with a flat near-term outlook for housing activity at around mid-cycle levels,” he said.

He said further improvements in housing finance would likely be short-lived, as they would prompt the Reserve Bank of Australia to lift interest rates higher.

Nevertheless it’s a sign that borrowers were more confident than they were a few months ago, according to RateCity chief executive Damian Smith.

“There are many Australians out there who have been waiting for the right time to dive into the property market or refinance to improve their home and it’s possible this time has arrived,” he said.

Refinancing up, first timers down
The biggest boost in the market was among refinancers, with 20 percent more switching to new mortgages in April 2011 compared to the same time last year. The total value of refinanced loans increased too – up 26 percent in the year to April 2011 to a combined $3.7 billion.

First-time buyers were still a little shy in April making up just 15.8 percent of all borrowers, which is down from 16 percent the previous month. It’s a downward trend that has trailed off over the past two years. In April 2009 first home buyers accounted for more than 28 percent of all mortgages settled in the month.

But in dollar terms first home buyers borrowed more in April 2011 than the previous month. The national average first home buyer loan size grew by $6000 in one month to $285,400, although it’s still $4000 less than in April 2010.

As for the rest of the market, the national average loan size increased by $4000 to $290,400 from March to April this year.

Smith urges borrowers to prepare for a rate rise, which may increase financial stress on those borrowing larger sums particularly those with their first mortgage.

“It’s much riskier for borrowers to take on more debt during an up-cycle of interest rates so borrowers need to make sure they are prepared,” Smith said.

“While it’s great to see more borrowers switching lenders and taking advantage of bargaining power, a jump in interest rates with a bigger debt means even higher repayments.”

That’s because even a 25 basis point rise could mean an increase of $48 per month on a $300,000 home loan with the current benchmark basic variable rate of 7.17 percent (the average of the four major banks).

Related mortgage links

• Low Interest Mortgage
• Best Home Loans
• NAB wins Money magazine’s 2011 Home Lender of the Year award
• Luxury home market slumps
• Loan-To-Value-Ratios
• Compare Home Loans

Compare home loans in Australia