RateCity looks at the surprise investment boom in the property market as higher rates push home owners out.
May 27, 2010
If you are in the market for an investment property now is the time according to recently released data from the Australian Bureau of Statistics (ABS).
The number of home loans for owner-occupied properties has dropped to the lowest numbers in nine years with 48,220 loans written in March this year (trended) according to the ABS report, which has caused a stir for investors, with a recorded increase in investment loans compared to February.
The total amount of fixed-rate home loans financed for investment housing increased by $69 million or 1.1 percent in March compared with February.
Despite the fact that investment loans are on the rise, the effect that several rate rises this year alone is having on home owners is evident with the total value of owner-occupied housing commitments (trended) decreased by 3.7 percent, or $534 million in March, following a decrease of 3.9 percent in February.
When comparing the number of owner-occupied housing commitments (trended) on a state level: Tasmania was the most affected, which saw a decrease of 5.9 percent in March compared to February; followed by South Australia, which dropped by 5.5 percent; New South Wales down by 5.1 percent; Queensland and Western Australia by 4.5 percent; Northern Territory by 3.3 percent; Victoria by 2.3 percent; and the Australian Capital Territory by 2.0 percent.
While the value and numbers of home loan applications have decreased, borrowers are taking on more debt, with the average loan size for first home buyers increasing by $1700 to $284,300 and the average loan size for all owner-occupied housing commitments climbed by $6700 to $281,400 between February and March.
RateCity’s CEO Damian Smith says borrowers need to be careful when purchasing a home. “An increase in the size of home loans taken on by Australians is a concern, especially for first home buyers who generally earn less money, and will have a harder time affording any increased mortgage repayments.
“That’s why it’s so important for people to compare deals online before they commit to a loan because a lower interest rate can mean big savings,” Smith says.
For instance, Smith says the average standard variable interest rate for investment loans is 7 percent however the best investment variable rate on RateCity is advertised for 5.99 percent by WAW Credit Union (as at May 20, 2010). Its comparison rate for a $275,000 loan is 6.02 percent and compared to the average rate of 7 percent, that could be a saving of $169 per month or over $2000 after one year.
“Make sure you do your homework and compare deals before setting out to buy an investment because it could mean a better return,” Smith says.