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

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 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 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.

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.

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 refinance my home loan?

Refinancing your home loan can involve a bit of paperwork but if you are moving on to a lower rate, it can save you thousands of dollars in the long-run. The first step is finding another loan on the market that you think will save you money over time or offer features that your current loan does not have. Once you have selected a couple of loans you are interested in, compare them with your current loan to see if you will save money in the long term on interest rates and fees. Remember to factor in any break fees and set up fees when assessing the cost of switching.

Once you have decided on a new loan it is simply a matter of contacting your existing and future lender to get the new loan set up. Beware that some lenders will revert your loan back to a 25 or 30 year term when you refinance which may mean initial lower repayments but may cost you more in the long run.

Who has the best home loan?

Determining who has the ‘best’ home loan really does depend on your own personal circumstances and requirements. It may be tempting to judge a loan merely on the interest rate but there can be added value in the extras on offer, such as offset and redraw facilities, that aren’t available with all low rate loans.

To determine which loan is the best for you, think about whether you would prefer the consistency of a fixed loan or the flexibility and potential benefits of a variable loan. Then determine which features will be necessary throughout the life of your loan. Thirdly, consider how much you are willing to pay in fees for the loan you want. Once you find the perfect combination of these three elements you are on your way to determining the best loan for you. 

What is a standard variable rate (SVR)?

The standard variable rate (SVR) is the interest rate a lender applies to their standard home loan. It is a variable interest rate which is normally used as a benchmark from which they price their other variable rate home loan products.

A standard variable rate home loan typically includes most, if not all the features the lender has on offer, such as an offset account, but it often comes with a higher interest rate attached than their most ‘basic’ product on offer (usually referred to as their basic variable rate mortgage).

Who offers 40 year mortgages?

Home loans spanning 40 years are offered by select lenders, though the loan period is much longer than a standard 30-year home loan. You're more likely to find a maximum of 35 years, such as is the case with Teacher’s Mutual Bank

Currently, 40 year home loan lenders in Australia include AlphaBeta Money, BCU, G&C Mutual Bank, Pepper, and Sydney Mutual Bank.

Even though these lengthier loans 35 to 40 year loans do exist on the market, they are not overwhelmingly popular, as the extra interest you pay compared to a 30-year loan can be over $100,000 or more.

What is a guarantor?

A guarantor is someone who provides a legally binding promise that they will pay off a mortgage if the principal borrower fails to do so.

Often, guarantors are parents in a solid financial position, while the principal borrower is a child in a weaker financial position who is struggling to enter the property market.

Lenders usually regard borrowers as less risky when they have a guarantor – and therefore may charge lower interest rates or even approve mortgages they would have otherwise rejected.

However, if the borrower falls behind on their repayments, the lender might chase the guarantor for payment. In some circumstances, the lender might even seize and sell the guarantor’s property to recoup their money.

How do I take out a low-deposit home loan?

If you want to take out a low-deposit home loan, it might be a good idea to consult a mortgage broker who can give you professional financial advice and organise the mortgage for you.

Another way to take out a low-deposit home loan is to do your own research with a comparison website like RateCity. Once you’ve identified your preferred mortgage, you can apply through RateCity or go direct to the lender.

What is breach of contract?

A failure to follow all or part of a contract or breaking the conditions of a contract without any legal excuse. A breach of contract can be material, minor, actual or anticipatory, depending on the severity of the breaches and their material impact.

What happens when you default on your mortgage?

A mortgage default occurs when you are 90 days or more behind on your mortgage repayments. Late repayments will often incur a late fee on top of the amount owed which will continue to gather interest along with the remaining principal amount.

If you do default on a mortgage repayment you should try and catch up in next month’s payment. If this isn’t possible, and missing payments is going to become a regular issue, you need to contact your lender as soon as possible to organise an alternative payment schedule and discuss further options.

You may also want to talk to a financial counsellor. 

How often is your data updated?

We work closely with lenders to get updates as quick as possible, with updates made the same day wherever possible.