Relief for home buyers with smaller lenders

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Housing finance numbers have declined according to new research. RateCity investigates how Australians can make buying a home a reality as interest rates rise.

April 19, 2010

Buying a home is both one of the most rewarding and most stressful times in our lives. But as interest rates keep rising, this reality is becoming increasingly like a dream for some.

The Australian Bureau of Statistics (ABS) recently released data showing the total value of owner-occupied housing finance which decreased by 3.1 percent (trended) and seasonally adjusted estimates decreased by 4.4 percent in February 2010 compared to January 2010.

The cause for the decline in mortgage demand could have been resulted from the three interest rate rises last year as well as the conclusion of the generous First Home Owners Boost in December 2009. First homebuyers made up 18.1 percent of home loans granted in February 2010 compared to 20.5 percent in January 2010 according to ABS data.

And earlier this month, the Reserve Bank raised the official cash rate by 25 basis points, placing greater pressure on borrowers looking to purchase a home.

Smaller lenders stepping up the competition
For those who have had enough of playing sitting ducks and want to purchase their dream home sooner rather than later, smaller lenders may be a more attractive option according to research by RateCity.
Damian Smith, RateCity’s CEO, says he is not surprised that Australian borrowers are looking at smaller lenders.

“After a year or so when it was very difficult for smaller lenders to compete, we’re now seeing more aggressive interest rate pricing from them in an effort to restore market share.”

Currently the benchmark standard variable rate (the average of the major four banks) is 7.13 percent, whereas the remainder of the mortgage market’s average is 6.65 percent which is 48 basis points less.

“For an average home loan of $300,000, that’s a potential difference of $95 per month or $28,500 over the life of a 25-year loan,” says Smith.

As a result of the Reserve Bank raising the cash rate, over half of the 111 mortgage lenders analysed by RateCity moved their home loan rates during the first two weeks after the rate rise. RateCity’s research showed that the only bank that didn’t move their rates was the Adelaide Bank, and other lenders that didn’t move included Australian Central Credit Union, Maritime Mining, Teachers Credit Union and Power Credit Union.

To get your dream of home ownership a reality, here are a few tips:

  • Compare home loans online at RateCity to find some of the best deals in Australia and choose a product that suits your needs.
  • To increase your chances of loan approval you will not only require a good strong deposit of at least 10 percent of the purchase price but you will also need to be financially stable and prove your ability to meet mortgage repayments, especially if rates do rise as recently announced.
  • Reduce your debts and lower your credit card limits as this can impact the amount of money a lender will allow you to borrow.



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