Borrowers snub home loans after rate hikes and lower incentives

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How will the fall in home loans impact your interest rate and your chances of securing a home loan? Jack Han reports.

March 1, 2010

Home loans have been on the decline in recent months, potentially due to the consecutive rate increases towards the end of 2009. With interest rates expected to rise even higher, borrowers are scrambling for more competitive deals.

The number of housing finance commitments for owner-occupied housing fell 5.5 percent (seasonally adjusted) in December 2009, from 58,359 in November to, 55,632, according to the Australian Bureau of Statistics (ABS). The value of housing finance commitments also fell, by 2.8 percent in the month to a total of $21.9 billion.

Because the value of home loans are falling more slowly than the number of loans taken, we are seeing thousands of smaller borrowers being squeezed out of the market by the interest rate hikes.

Another worrying trend is the fall of construction home loans approved for the building of new homes, which fell by 6.4 percent in December (seasonally adjusted). If this continues, it may cause a hike in the cost of building new homes due to less demand and competition.

The only positive progress was seen in home loans for new properties, which rose by 3 percent, and investment loans rose by 1.9 percent. However, being the smallest portion of housing finance commitments, this growth has been unable to compensate for the general decline.

So what does 2010 hold for potential home loan borrowers? Now that the Government Guarantee for lenders is set to end on March 31, smaller home loan providers will lose the protection they had during the global financial crisis. Without the fallback, small institutions may become as picky about borrowers, as borrowers are about lenders.

Borrowers should be coming to terms with the inevitable rate rises. Instead of putting off home loans altogether, they should be finding ways to acquire affordable homes, while saving money in the process.

Many Australians begin by comparing home loans online for cheap interest rates, to find new and competitive lenders during this time, who are keen to attract customers with better deals.

Don’t give up on getting your home because of a few hurdles. Even with rising rates and fewer incentives, housing affordability is still looking better than recent years. At the end of the day, the most important approval you need for your home loan is your own.


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