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Low Rates Fuel Housing Demand

Low Rates Fuel Housing Demand

The Reserve Bank is now expecting a firmer economic recovery with monetary policy measures and government stimulus boosting the nation’s economy over the coming year.

House prices have increased in most cities and regional Australia over recent months, and despite declines seen in Melbourne the property market has generally remained resilient since the onset of the pandemic.

The availability of finance at low rates has been one-factor supporting demand for housing in Australia, the RBA said.

In its statement on monetary policy released Friday about its historic November meeting, the bank said that despite the somewhat better recent outcomes, a recovery was expected to be “bumpy and uneven, and highly sensitive to further virus outbreaks”.

The central bank, which introduced a package of measures at its Tuesday meeting, cut the cash rate target to 0.1 per cent—the lowest in Australia’s history, in its bid to support a recovery.

In January the official cash rate was 0.75 per cent, with the bank’s latest move signalling the third rate cut this year.

Each of the big four banks have responded to the RBA’s cut, with ANZ the last major to announce its response.

While measures were taken on fixed loan rates, CBA and ANZ said variable rates will remain unchanged, NAB and Westpac made no mention of changes to variable rates.

Australia’s housing values increased for the first time in five months, up 0.4 per cent in October, with Melbourne the only capital city recording a decline.

Finance availability at record low rates has been one-factor supporting housing demand, the central bank’s latest statement said.

“Consistent with this, new commitments for housing finance have recovered significantly, and housing credit growth has also picked up, most notably to owner-occupiers.”

In September Australians borrowed $17 billion to purchase or build new homes, a 36 per cent jump on the same time a year earlier.

Approximately half of the rise in September’s owner-occupier housing loan commitments was for the construction of new dwellings, a 25.3 per cent rise, which the ABS stats show are at historically high levels.

The Home Builder subsidy has also supported demand for new housing, despite the lower near-term outlook for population growth.

In its monetary statement, the RBA noted that rental markets remain soft, with advertised rents, especially for apartments, declining in major capital city markets Sydney and Melbourne.

After contracting by 4 per cent over 2020, GDP is expected to increase by around 5 per cent over 2021 and 4 per cent over 2022.

This would bring GDP back to its end-2019 level by the end of next year, still well short of the path expected prior to the pandemic outbreak.

Importantly, unemployment is now forecast to peak around 8 per cent this year rather than 10 per cent, although it is still tipped to remain around 6 per cent in two years’ time.

A shallower downturn is forecast over the September and December quarters of 2020 with a stronger rebound over the first half of next year.

Sourced from The Urban Developer

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Finance

How will the end of mortgage deferrals affect the housing boom?

mortgage deferrals

Australia’s red-hot property market has enjoyed extraordinary support from the federal government’s economic stimuli, wage subsidies and leniency in lending policy from the banks.

A key question now is how the market will adjust as this COVID-19 induced emergency support is wound back.

At the height of the worst peace-time recession in a century last year, banks pulled out all stops to avoid a meltdown in the asset that dominates their loan books: residential property.

Home loan and small business customers were given an option of putting their loan repayments on hold, and hundreds of thousands took up the offer. At the peak, banks allowed some $250 billion in small business loans and home loans to be put on hold.

These deferrals officially ended at the end of March and banks say the vast majority of affected customers have returned to making mortgage repayments. However, a small minority are still struggling – some may need to eventually sell their properties.

Commonwealth Bank provides a case in point. It says the overwhelming majority of people who deferred have returned to making repayments or restructured their loans. About 1.9 per cent are working with teams that help sell properties.

The bank has a moratorium on forced sales by owner-occupiers until September.

CBA retail banking group executive Angus Sullivan expects the end of deferrals would have a “very, very marginal” impact on the supply of homes for sale, as it would probably be overpowered by the stimulatory impact of ultra-low interest rates.

“I think the driver of the housing market, first and foremost, is probably low rates,” Sullivan says.

CBA’s rivals have experienced similar trends. National Australia Bank had 1037 deferred home loans at the end of February after allowing about 110,000 people to pause repayments last year.

“Given the significant number of customers who have returned to making repayments and additional support available, we don’t expect the end of deferrals to have a material impact on the housing market,” says NAB’s group executive for personal banking Rachel Slade.

Westpac has about 2000 loans in deferral – a tiny proportion of its mortgage book, while official figures last week showed ANZ Bank had 0.9 per cent of its housing loans in deferral at the end of February.

However, the end of mortgage deferrals could still weigh on some parts of the property market.

CoreLogic research director Tim Lawless says the risk from deferred loans has “significantly diminished,” though parts of the market dominated by investors could still feel the impact of deferrals ending.

Banks have not said where most of the remaining deferred loans are located, but Lawless says they are probably concentrated among investors, particularly in inner-city Sydney and Melbourne apartment developments. He believes banks would start being less patient with struggling property investors.

“Just reading between the lines, it seems like there will probably be less flexibility for investors,” he says. “It’s a net negative for the housing market but I think the impact will be quite localised.”

Like the banks, Lawless believes the broader property market has enough momentum to offset the impact of loan deferrals ending, but he does not think the pace of price growth can continue for much longer.

It is clearly not sustainable for Australia to continue notching up the fastest growth in house prices since the 1980s at a time when household incomes are not rising. It will simply get too expensive for buyers to keep bidding up prices.

The end of JobKeeper and other government schemes, including building grant program HomeBuilder, are also likely to temper the red-hot demand for housing in the months ahead.

 

Article Source: www.brisbanetimes.com.au

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Finance

New low as Homestar Finance cuts its two-year fixed owner-occupier rate to 1.74%

Homestar

Homestar is equal lowest with Reduce Home Loans for the lowest variable rate at 1.79%.

Homestar Finance is offering the lowest two-year fixed rate in the home loan market.

Homestar Finance has cut its two-year fixed owner-occupier rate by 14 basis points to 1.74%.

The rate cut move knocks Westpac from the top spot after it offered the lowest rate.

The increased rate competition was dubbed a “raging rate war” by the Mortgage Professional Australia website.

“This loan is the lowest two-year fixed rate on the market and also the lowest overall home loan rate available nationally,” RateCity research director Sally Tindall told The Australian.

“It also has one of the most competitive revert rates at 2.24%.”

Some 450 fixed mortgage rates have been cut over the last two months.

Homestar is also equal lowest with Reduce Home Loans for the lowest variable rate at 1.79%.

Greater Bank has the lowest fixed rate in the market, with its one-year fixed rate sitting at 1.69%, with the rate only available to customers in New South Wales, Queensland and the Australian Capital Territory.

 

Article Source: www.urban.com.au

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Finance

Warnings over proposed overhaul of responsible mortgage lending

mortgage lending

Record high mortgage lending to owner-occupiers, surging property prices and lenders offering low deposit mortgages could make for a perfect storm if the government’s attempt to repeal responsible lending obligations is successful, critics warn.

They say loosening responsible lending obligations would add fuel to the already hot property market and increase indebtedness, leaving home owners struggling to meet repayments if interest rates were to rise.

Figures from the Australian Bureau of Statistics for January show a 52 per cent increase in the value of new home lending to owner-occupiers compared to January 2020.

The government says repeal of responsible lending obligations is needed to free up credit, particularly to small and medium-sized businesses, and to remove red tape for lenders and borrowers. It says the protections for vulnerable customers are preserved.

The responsible lending obligations have been a bulwark of consumer protections since coming into effect in 2009. They require lenders to make credit assessments and approvals in accordance with the obligations and help ensure people are not being sold into unaffordable loans.

The government decided to pursue repeal of the obligations last year, during the depths of the COVID-19, after consultations with banks, as a way to get credit flowing through the economy again.

But with the economy staging a V-shaped recovery, house prices booming and mortgage lending for owner-occupiers at record levels, critics, including researchers, many consumer rights groups and some economists, say the responsible lending obligations are needed more than ever.

“It’s crazy to think the government is still pushing ahead with the scaling back of responsible lending obligations at a time when the property market is going through the roof,” says Sally Tindall, the research director at RateCity.

 

Article Source: www.brisbanetimes.com.au

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