Borrowers to benefit in home loan market slump

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April 4, 2011

The number of home loans written in February this year was the lowest in a decade, according to Australian Bureau of Statistics (ABS) figures. But there is some good news for buyers and those looking to refinance, which are set to benefit from growing competition in the lending market.

The ABS’s latest Housing Finance report revealed that the number of home loans written in February fell by 5.6 percent to just over 45,000 from the previous month. That’s down 7.2 percent since 12 months ago.

The biggest drop was seen in the number of first home buyers, which as a proportion of all home loans fell 14.9 percent, the lowest level since June 2004, according to ABS data.

Savings to be found in refinancing
As for those refinancing their mortgage, February figures fell to just over 14,000, which was a drop of 9.3 percent compared to January 2011. However, that number is a significant increase compared with the same period last year, up 7.9 percent.

Damian Smith, chief executive of RateCity, said there is opportunity for borrowers to seek savings on their mortgages this year.

“The average standard variable rate across more than 100 lenders monitored by RateCity is 2.55 percentage points higher than the official cash rate, and that ‘gap’ is 26 basis points more than 12 months ago,” he said.

Ask for a better deal
“But a wider range of rates also means there’s more room for lenders to negotiate on home loans,” Smith said.

So clearly if you don’t ask you’ll never get the biggest savings no matter how small the offer. Whether it’s a 10 basis point discount off your home loan rate or waived fees, every little bit helps and it can make a big difference to the overall cost of your mortgage.

For instance, the difference between a $300,000 mortgage with a variable rate of 7.10 percent and 7 percent could be $6000 over 25 years. Some of the top low interest mortgages available through RateCity for the same terms will save you even more, with eMoney’s Full Doc Variable, State Custodian’s Standard Variable and Pacific Mortgage Group‘s Variable home loans all offering rates below 6.9 percent.

Save for a better start
Increased household savings could give some first home buyers a better starting position within 12 months. And data from the Australian Prudential Regulation Authority (APRA) shows that Australians are already making an effort to do so, with almost $489 billion recorded by banks from deposits, up $38 million compared with 12 months ago.

“Some of these savings will be held by people who will enter the housing market for the first time in the coming two years,” Smith said.

“They will be in a much better position because of this – if a first home buyer can get as much as 15 percent deposit under their belt, they will have many more home loans open to them, and they’re less exposed to movements in interest rates.”


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