Mortgage market under pressure as rising rates spook buyers
CLANCY YEATES
February 1, 2010
AUSTRALIA'S largest mortgage broker says buyers are rapidly deserting the housing market as interest rates creep up, after its sales last month plunged to a five-year low.
Yesterday AFG, a broker with a 10 per cent share of the market, said it sold $1.5 billion worth of loans last month, the fourth consecutive monthly fall. This is almost half the $2.9 billion worth of sales in September, the month before the Reserve Bank started to ratchet up interest rates from record lows.
Although this time of year is generally slow for the property market, the broker said last month was its worst since January 2005, claiming rising interest rates were acting as a bigger dampener on demand than the global financial crisis.
''We've seen a lot of data recently about rising house prices and increasing consumer confidence, all of which would suggest buoyant property markets. But the opposite is the case,'' AFG's managing director, Brett McKeon, said.
Instead, Mr McKeon said the 0.75 percentage point rise in interest rates since October had spooked potential buyers. ''Uncertainty about the future of rates is draining confidence out of the market,'' he said.
The average mortgage was $350,000, the broker said, and 57 per cent of these were at the standard variable rate. If rates move up by 25 basis points tomorrow, as expected, this will increase the minimum monthly repayment on such a loan by $55, to $2447.
As expectations mount of a rate rise, the war of words over how big an increase banks will pass on to their customers also picked up at the weekend.
The Treasurer, Wayne Swan, leapt on National Australia Bank's promise not to exceed any increase in official interest rates - a commitment the other lenders failed to make.
''Any other bank that thinks they can get away with gouging their customers on rates can expect the same severe community backlash that Westpac, in particular, along with CBA and ANZ, suffered before Christmas,'' Mr Swan said in his weekly economic note.
Economists expect the pace of lending to slow this year as first-home buyers play a smaller role and official rates return to more neutral levels, thought to be between 4.5 and 5 per cent.
AFG's figures confirmed the trend, showing the share of first home buyers slumped to 12.9 per cent, compared with 25.8 per cent a year ago.
INTEREST RATES
Average mortgage in Australia: $350,000.
Proportion of mortgages at standard variable rate: 57 per cent.
Minimum monthly repayment if rates rise 25 basis points: $2447, up by $55.Source: AFG
CLANCY YEATES
February 1, 2010
AUSTRALIA'S largest mortgage broker says buyers are rapidly deserting the housing market as interest rates creep up, after its sales last month plunged to a five-year low.
Yesterday AFG, a broker with a 10 per cent share of the market, said it sold $1.5 billion worth of loans last month, the fourth consecutive monthly fall. This is almost half the $2.9 billion worth of sales in September, the month before the Reserve Bank started to ratchet up interest rates from record lows.
Although this time of year is generally slow for the property market, the broker said last month was its worst since January 2005, claiming rising interest rates were acting as a bigger dampener on demand than the global financial crisis.
''We've seen a lot of data recently about rising house prices and increasing consumer confidence, all of which would suggest buoyant property markets. But the opposite is the case,'' AFG's managing director, Brett McKeon, said.
Instead, Mr McKeon said the 0.75 percentage point rise in interest rates since October had spooked potential buyers. ''Uncertainty about the future of rates is draining confidence out of the market,'' he said.
The average mortgage was $350,000, the broker said, and 57 per cent of these were at the standard variable rate. If rates move up by 25 basis points tomorrow, as expected, this will increase the minimum monthly repayment on such a loan by $55, to $2447.
As expectations mount of a rate rise, the war of words over how big an increase banks will pass on to their customers also picked up at the weekend.
The Treasurer, Wayne Swan, leapt on National Australia Bank's promise not to exceed any increase in official interest rates - a commitment the other lenders failed to make.
''Any other bank that thinks they can get away with gouging their customers on rates can expect the same severe community backlash that Westpac, in particular, along with CBA and ANZ, suffered before Christmas,'' Mr Swan said in his weekly economic note.
Economists expect the pace of lending to slow this year as first-home buyers play a smaller role and official rates return to more neutral levels, thought to be between 4.5 and 5 per cent.
AFG's figures confirmed the trend, showing the share of first home buyers slumped to 12.9 per cent, compared with 25.8 per cent a year ago.
INTEREST RATES
Average mortgage in Australia: $350,000.
Proportion of mortgages at standard variable rate: 57 per cent.
Minimum monthly repayment if rates rise 25 basis points: $2447, up by $55.Source: AFG
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