The calm before the storm: home lending up in March

The calm before the storm: home lending up in March

New figures released from the Australian Bureau of Statistics (ABS) show that new home lending rose slightly in the month of March.

This is likely to be the last recorded month-on-month rise for some time, with the impact of the coronavirus expected to see new lending figures plunge from next month.

Nevertheless, year-on-year new lending rose by an impressive 17.47 per cent, with the total value of new lending up by $2.9 billion compared to March 2019, according to the seasonally adjusted ABS data. Of this, $2.6 billion was from new owner occupier loans.

Value of new loans % change % change
Feb 2020 – Mar 2020 Mar 2019 – Mar 2020
Owner occupiers

1.17%

22.52%

Investors

-2.49%

5.26%

Total housing

0.18%

17.47%

Source: ABS lending indicator statistics for March 2020, released 6 May 2020, seasonally adjusted figures.

Number of new loans % change % change
Feb 2020 – Mar 2020 Mar 2019 – Mar 2020
First home buyers

1.33%

21.28%

Refinancers

-3.94%

10.60%

Source: ABS lending indicator statistics for March 2020, released 6 May 2020. Notes: Based on the number of new loans to owner occupiers using seasonally adjusted figures.

RateCity.com.au research director Sally Tindall said today’s result was the calm before the storm.

“These results cap off a year of growth in home lending, which followed the rise of the property market, particularly in Sydney and Melbourne,” she said.

“This is, however, the last time we are likely to see an increase in new home loans for a number of months, as the financial turmoil created by COVID-19 plays out in the property market.

“We are expecting to see an increase in refinance activity over the next couple of months, as some mortgage holders move to shore up their finances and capitalise on record low new customer rates, where they can.

“Interestingly the banks are telling us that a lot of people are switching over to fixed rates in increasing numbers, confident that we’re close to, if not at the bottom of the market.

“Many banks are offering significantly lower fixed rates than variable rates, so it’s not surprising they are increasing in popularity,” she said.

To fix or not to fix

Home loan rates are currently at historic lows. And as they say you can’t predict the bottom of the market, it’s anyone’s guess if they’ll continue to go lower.

If the low rate environment is making you consider fixing your home loan rate, hop on to your lender’s website and look at what low rate deals are available.

You can also use comparison tools, like comparison tables and calculators, to find potentially even lower fixed rate options and see how much you could save in mortgage repayments by making the switch.

There are advantages and disadvantages of a fixed home loan versus a variable home loan. One benefit of fixing is the chance to lock in a low rate before interest rates potentially rise again one day. Further, if you’re the type of person who likes stability in your budget, fixing your home loan rate means you’ll make the same home loan repayment amounts over the fixed rate period.

However, if rates were to continue to fall further, you would miss out on any rate reductions. Plus, if you want to switch to another home loan, there can be costly fees associated with breaking from a fixed home loan rate early.

Keep in mind that Reserve Bank of Australia (RBA) Governor, Philip Lowe, did say that RBA doesn’t intend to enter negative cash rate territory. However, that doesn’t mean banks can’t cut its own interest rates further.

Pros:

  • Locking in a low rate
  • Stability in budget

Cons:

  • Miss out on possible rate reductions
  • Potential break fees

Lowest fixed rates on RateCity database

2-year fixed rate home loans

Home loan Interest rate (%) Comparison Rate (%)
Freedom Lend Freedom Fixed Home Loan

2.09

2.68

Reduce Home Loans Home Owners Dream

2.09

2.68

Well Home Loans Well Balanced Home Loan Fixed

2.09

2.44

Source: RateCity.com.au. Note: Figures based on lowest $350,000, 2-year fixed owner-occupier home loans paying principal and interest.

3-year fixed rate home loans

Home loan Interest rate (%) Comparison Rate (%)
Reduce Home Loans Home Owners Dream

2.09

2.64

Well Home Loans Well Balanced Home Loan Fixed

2.09

2.41

ING Orange Advantage Home Loan

2.14

3.62

Source: RateCity.com.au. Note: Figures based on lowest $350,000, 3-year fixed owner-occupier home loans paying principal and interest.

5-year fixed rate home loans

Home loan Interest rate (%) Comparison Rate (%)
RACQ Bank Choices Fixed Home Loan (QLD only)

2.49

3.76

ING Orange Advantage Home Loan

2.54

3.5

Ubank UHomeLoan

2.59

2.91

Source: RateCity.com.au. Note: Figures based on lowest $350,00 5-year fixed owner-occupier home loans paying principal and interest.

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Learn more about home loans

Does the Home Loan Rate Promise apply to discounted interest rate offers, such as honeymoon rates?

No. Temporary discounts to home loan interest rates will expire after a limited time, so they aren’t valid for comparing home loans as part of the Home Loan Rate Promise.

However, if your home loan has been discounted from the lender’s standard rate on a permanent basis, you can check if we can find an even lower rate that could apply to you.

What is a fixed home loan?

A fixed rate home loan is a loan where the interest rate is set for a certain amount of time, usually between one and 15 years. The advantage of a fixed rate is that you know exactly how much your repayments will be for the duration of the fixed term. There are some disadvantages to fixing that you need to be aware of. Some products won’t let you make extra repayments, or offer tools such as an offset account to help you reduce your interest, while others will charge a significant break fee if you decide to terminate the loan before the fixed period finishes.

What are the different types of home loan interest rates?

A home loan interest rate is used to calculate how much you’ll pay the lender, usually annually, above the amount you borrow. It’s what the lenders charge you for them lending you money and will impact the total amount you’ll pay over the life of your home loan. 

Having understood what are home loan rates in general, here are the two types you usually have with a home loan:

Fixed rates

These interest rates remain constant for a specific period and are a good option if you’re a first-time buyer or if you’re looking for a fixed monthly repayment. One possible downside of a fixed rate is that it may be higher than a variable rate. Also, you don’t benefit from any lowering of interest rates in the market. On the flip side, if rates go up, your rate won’t change, possibly saving you money.

Variable rates

With variable interest rates, the lender can change them at any time. This change can be based on economic conditions or other reasons. Changes in interest rates could be beneficial if your monthly repayment decreases but can be a problem if it increases. Variable interest rates offer several other benefits often not available with fixed rate home loans like redraw and offset facilities and free extra repayments. 

What happens to my home loan when interest rates rise?

If you are on a variable rate home loan, every so often your rate will be subject to increases and decreases. Rate changes are determined by your lender, not the Reserve Bank of Australia, however often when the RBA changes the cash rate, a number of banks will follow suit, at least to some extent. You can use RateCity cash rate to check how the latest interest rate change affected your mortgage interest rate.

When your rate rises, you will be required to pay your bank more each month in mortgage repayments. Similarly, if your interest rate is cut, then your monthly repayments will decrease. Your lender will notify you of what your new repayments will be, although you can do the calculations yourself, and compare other home loan rates using our mortgage calculator.

There is no way of conclusively predicting when interest rates will go up or down on home loans so if you prefer a more stable approach consider opting for a fixed rate loan.

What is the Home Loan Rate Promise?

The Home Loan Rate Promise is RateCity putting its money where its mouth is. We believe that too many Australians are paying too much for their home loans. We’re so confident we can help Aussies save money, if we can’t beat your current rate, we’ll give you a $100 gift card.*

There are two reasons it pays to check your rate with the Home Loan Rate Promise:

  • You can find out how much you could save on your home loan by switching to a loan with a lower interest rate
  • If we can’t beat your current rate, you can claim a $100 gift card with our Home Loan Rate Promise*

What is the difference between fixed, variable and split rates?

Fixed rate

A fixed rate home loan is a loan where the interest rate is set for a certain amount of time, usually between one and 15 years. The advantage of a fixed rate is that you know exactly how much your repayments will be for the duration of the fixed term. There are some disadvantages to fixing that you need to be aware of. Some products won’t let you make extra repayments, or offer tools such as an offset account to help you reduce your interest, while others will charge a significant break fee if you decide to terminate the loan before the fixed period finishes.

Variable rate

A variable rate home loan is one where the interest rate can and will change over the course of your loan. The rate is determined by your lender, not the Reserve Bank of Australia, so while the cash rate might go down, your bank may decide not to follow suit, although they do broadly follow market conditions. One of the upsides of variable rates is that they are typically more flexible than their fixed rate counterparts which means that a lot of these products will let you make extra repayments and offer features such as offset accounts.

Split rates home loans

A split loan lets you fix a portion of your loan, and leave the remainder on a variable rate so you get a bet each way on fixed and variable rates. A split loan is a good option for someone who wants the peace of mind that regular repayments can provide but still wants to retain some of the additional features variable loans typically provide such as an offset account. Of course, with most things in life, split loans are still a trade-off. If the variable rate goes down, for example, the lower interest rates will only apply to the section that you didn’t fix.

Why does Westpac charge an early termination fee for home loans?

The Westpac home loan early termination fee or break cost is applicable if you have a fixed rate home loan and repay part of or the whole outstanding amount before the fixed period ends. If you’re switching between products before the fixed period ends, you’ll pay a switching break cost and an administrative fee. 

The Westpac home loan early termination fee may not apply if you repay an amount below the prepayment threshold. The prepayment threshold is the amount Westpac allows you to repay during the fixed period outside your regular repayments.

Westpac charges this fee because when you take out a home loan, the bank borrows the funds with wholesale rates available to banks and lenders. Westpac will then work out your interest rate based on you making regular repayments for a fixed period. If you repay before this period ends, the lender may incur a loss if there is any change in the wholesale rate of interest.

What is a comparison rate?

The comparison rate is a more inclusive way of comparing home loans that factors in not only on the interest rate but also the majority of upfront and ongoing charges that add to the total cost of a home loan.

The rate is calculated using an industry-wide formula based on a $150,000 loan over a 25-year period and includes things like revert rates after an introductory or fixed rate period, application fees and monthly account keeping fees.

In Australia, all lenders are required by law to publish the comparison rate alongside their advertised rate so people can compare products easily.

How do you determine which home loan rates/products I’m shown?

When you check your home loan rate, you’ll supply some basic information about your current loan, including the amount owing on your mortgage and your current interest rate.

We’ll compare this information to the home loan options in the RateCity database and show you which home loan products you may be eligible to apply for.

 

What is a variable home loan?

A variable rate home loan is one where the interest rate can and will change over the course of your loan. The rate is determined by your lender, not the Reserve Bank of Australia, so while the cash rate might go down, your bank may decide not to follow suit, although they do broadly follow market conditions. One of the upsides of variable rates is that they are typically more flexible than their fixed rate counterparts which means that a lot of these products will let you make extra repayments and offer features such as offset accounts.

How do I apply for a home improvement loan?

When you want to renovate your home, you may need to take out a loan to cover the costs. You could apply for a home improvement loan, which is a personal loan that you use to cover the costs of your home renovations. There is no difference between applying for this type of home improvement loan and applying for a standard personal loan. It would be best to check and compare the features, fees and details of the loan before applying. 

Besides taking out a home improvement loan, you could also:

  1. Use the equity in your house: Equity is the difference between your property’s value and the amount you still owe on your home loan. You may be able to access this equity by refinancing your home loan and then using it to finance your home improvement.  Speak with your lender or a mortgage broker about accessing your equity.
  2. Utilise the redraw facility of your home loan: Check whether the existing home loan has a redraw facility. A redraw facility allows you to access additional funds you’ve repaid into your home loan. Some lenders offer this on variable rate home loans but not on fixed. If this option is available to you, contact your lender to discuss how to access it.
  3. Apply for a construction loan: A construction loan is typically used when constructing a new property but can also be used as a home renovation loan. You may find that a construction loan is a suitable option as it enables you to draw funds as your renovation project progresses. You can compare construction home loans online or speak to a mortgage broker about taking out such a loan.
  4. Look into government grants: Check whether there are any government grants offered when you need the funds and whether you qualify. Initiatives like the HomeBuilder Grant were offered by the Federal Government for a limited period until April 2021. They could help fund your renovations either in full or just partially.  

Who can enter?

Any Australian resident who is over 18 and currently has a personal home loan is eligible for our Home Loan Rate Promise. See terms and conditions.

Can first home buyers apply for an ING home loan?

First home buyers can apply for an ING home loan, but first, they need to select the most suitable home loan product and calculate the initial deposit on their home loan. 

First-time buyers can also use ING’s online tool to estimate the amount they can borrow. ING offers home loan applicants a free property report to look up property value estimates. 

First home loan applicants struggling to understand the terms used may consider looking up ING’s first home buyer guide. Once the home buyer is ready to apply for the loan, they can complete an online application or call ING at 1800 100 258 during regular business hours.

How does ANZ calculate early repayment costs?

If you have a fixed interest home loan, you’ll pay ANZ home loan early exit fees for partial or full repayment of the loan amount before the end of the fixed interest rate duration. These fees are also payable if you switch to another variable or fixed-rate loan.

The ANZ mortgage early exit fees can vary and you can get an estimate from the lender before you decide to prepay the loan. However, the exact early repayment cost can be determined when you prepay the loan.

The early exit fees are calculated after considering factors like the prepayment amount, the period left before the fixed-rate duration ends, and the change in the market rates since the beginning of the fixed-rate period. The early exit fees may not be charged if you’re paying off a smaller amount. You can check with ANZ to see how much you’ll have to pay.