Rise in home loans signals recovery

A 4.4 per cent rise in home loans in May suggests the housing market is starting to pick up after the slowdown earlier in the year following November’s rate rise.
The number of home loans approved in May rose 4.4 per cent, to a seasonally adjusted 49,437, official data shows. Economists’ forecasts had centred on a 4.5 per cent rise in housing finance commitments for the month.
The Australian Bureau of Statistics said total housing finance by value rose 2.9 per cent in May, seasonally adjusted, to $20.497 billion.

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ANZ economist David Cannington said May’s figure meant there had been two months of fairly positive data after the sharp downturn early in 2011.
‘‘The initial softening after the November rate hike is fading out of the market,’’ he said.
He added that the numbers suggested investors were coming back to the market after the drop off earlier in the year.
Mr Cannington also said bank lending had returned to be the highest in about two years, suggesting a recovery from the global financial crisis.
Refinancing had also recovered. ‘‘Competition between banks, that’s made it attractive for mortgage holders to refinance,’’ he said.
ANZ had revised its outlook for interest rates and now didn’t expect a rate rise from the Reserve Bank of Australia until February.
‘‘That will be a boost for housing finance,’’ Mr Cannington said.
The RBA increased the overnight cash rate to 4.75 per cent last November.
ICAP senior economist Adam Carr said the second consecutive month of improvement supported the view the economy was on the path to recovery, after its first quarter disaster induced slowdown.
‘‘It suggests to me that the soft patch in Aussie economic growth was really just disaster distortions and the underlying momentum remains strong,’’ Mr Carr said. ‘‘The consensus view is that the soft patch was more fundamental than structural and I think the evidence is showing that that is not the case.’’
Mr Carr said he expected a ‘‘fairly strong second half’’ in which interest rates remained on hold.
‘‘I think that it is quite obvious the Reserve Bank is not going to be hiking rates while sentiment is so poisonous,’’ he said.

INTEREST RATE ANNOUNCEMENT

In welcome news for borrowers, the Reserve Bank has decided to keep rates on hold at 4.75 per cent.

The move comes on the back of recent figures showing Australia's housing market remains soft, and the number of jobs advertised has fallen.

"This is great news for mortgage holders," says property expert Carolyn Boyd. "With the new financial year rolling around, many householders are facing increases in other expenses such as power and gas, and the last thing they need at the moment is to have to pay more interest."
Those who can afford to do so though, should always pay more off their mortgage, Boyd says, as it provides a buffer against further rate rises, and can help to free households of mortgage debt sooner.
Each 0.25 per cent interest rate rise adds another $60 to the monthly cost of an average Australian mortgage.
The official interest rate is now 4.75 per cent. Mortgage holders on variable interest rates are being charged a standard variable rate of about 7.83 per cent by their lenders.

GET IN NOW BEFORE ITS TOO LATE!

Thinking of taking out a home loan in the near future? Then it’s a smart move to secure the finance as soon as possible. If you wait for a few more months, you could run the risk of not being able to borrow the money you need.
A new report from Merrill Lynch argues that recent spikes in the cost of key consumer items — including petrol, food and electricity —  means the big four banks will have little choice but to reverse their current stance of relaxing lending standards to attract home loan customers.
After tightening lending criteria at the start of the global financial crisis, banks have been progressively lowering the bar as they fight for mortgage customers. Most of them have done this by increasing the maximum amount they are prepared to lend against the value of a house, or the loan-to-valuation ratio (LVR).

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Merrill Lynch rates the ANZ as having the most conservative LVR policy. It will lend 92 per cent of the price of a house to new borrowers, compared with 95 per cent for the National Australia Bank and 97 per cent for Westpac Banking Corporation and the Commonwealth Bank.
At the height of the financial crisis in 2008, all the major banks cut their maximum loan ratios to about 90 per cent.
If the banks do a U-turn and return to the practice of requiring an LVR of 90 per cent, it will spell trouble for two major groups of buyers: investors who are looking to buy properties while house price growth is sluggish and home owners keen to upgrade their living space.
First home buyers already face tremendous difficulties in saving for a home deposit. They will receive a second financial body blow if a more cautious loan assessment regime takes hold.
When you apply for a loan, banks apply an interest rate buffer to your income to ensure you have enough capacity to repay the loan if further interest rate rises occur.
They also calculate a borrower’s average living costs to determine what they can safely lend. But Merrill Lynch research analyst Matthew Davison says household budgets are increasingly coming under pressure because of sharp rises in living costs.
Banks already put a big discount on living costs when assessing disposable income for borrowers. But this assessment process is likely to change as internal bank borrower models are upgraded and new responsible lending laws begin to have an impact on housing lending.
‘‘We believe the strain on the household budget is too big to ignore and banks don’t accurately measure household costs,’’Mr Davison says.
He says these pressures could prompt the banks to update household budget models, thereby tightening mortgage lending standards. Any change to lending models is likely to result in a smaller average mortgage and to slow the pace of lending.
Kristy Sheppard, a spokeswoman for the national mortgage broking group Mortgage Choice, notes that lenders are applying ‘‘more scrutiny over each loan application’’ than previously, partly as a result of the new National Consumer Credit Protection Act.
‘‘In terms of lending criteria, we haven’t seen any tightening up,’’ she says. ‘‘We have seen an LVR of 95 per cent become standard and a number of special offers have been released into the market because lenders are trying to boost their home loan volumes.’’
But Mr Davison says loose lending  standards are unsustainable, particularly in light of the credit protection laws that put the onus on lenders to assess whether borrowers have the capacity to make repayments.
He expects borrowing criteria to soon be tightened, with major consequences for the housing market.
‘‘We believe the end result will contribute to a correction in house prices,’’ he says.

RESERVE BANK INTEREST RATE ANNOUNCEMENT

Mortgage holders got what they were hoping for today - a stay on interest rates.

The Reserve Bank decided to keep rates on hold at 4.75 per cent despite recent news that inflation was running higher than expected.

The official interest rate is now 4.75 per cent. Mortgage holders on variable interest rates are being charged a standard variable rate of about 7.83 per cent by their lenders.

Mortgage holders should always try to pay extra off their loan to give themselves a buffer in case rates do rise. You can wipe 17 months off the average new mortgage and save $30,085 in interest by paying an extra $60 per month, or about the equivalent of a 0.25 per cent rate rise.

Reserve Bank Interest Rate Announcement

Mortgage holders were given a boost today when the Reserve Bank decided to keep interest rates on hold.

While the move is hardly a surprise, it will still be welcome news for people paying off a mortgage.


Each 0.25 per cent interest rate rise adds another $60 to the monthly cost of an average Australian mortgage.

The official interest rate is now 4.75 per cent. Mortgage holders on variable interest rates are being charged a standard variable rate of about 7.83 per cent by their lenders.
Mortgage holders wanting to pay down their debt faster should take the opportunity to pay a little more off their loan now. On a new 25-year $370,000 mortgage, if you paid an extra $60 per month, or about the equivalent of a 0.25 per cent rate rise, you could clear your mortgage 17 months sooner and save $30,085 in interest.

Reserve Bank Interest Rate Announcement

It was a case of steadying the ship as expected when the Reserve Bank met today and decided to keep interest rates on hold at 4.75 per cent.

The move comes on the back of comments by the Reserve Bank Governor Glenn Stevens last month that rates would stay on hold in the near future.

"Mortgage holders will be breathing a sigh of relief," says Domain.com.au blogger Carolyn Boyd. "Even though today's decision looked like a forgone conclusion, there is always an element of doubt."

Each 0.25 per cent interest rate rise adds another $60 to the monthly cost of an average Australian mortgage.

The official interest rate is currently 4.75 per cent. Mortgage holders on variable interest rates are being charged a standard variable rate of about 7.83 per cent by their lenders.

By keeping rates on hold the Reserve Bank has presented borrowers with an opportunity to beat their lenders at their own game, and pay more off their mortgages before the next rate rise, which is now expected to be quite late in the year.