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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 2020Mar 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 2020Mar 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 loanInterest 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 loanInterest 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 loanInterest 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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This article was reviewed by Finance Writer Alison Cheung before it was published as part of RateCity's Fact Check process.

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