The Australian home loan market changes regularly and coincides with major economic factors and government influences. Over the last month the nation has been adjusting to the latest Reserve Bank of Australia (RBA) drop in the official cash rate from 2.25 percent to 2 percent, and the announcement of the Federal Budget. It will take some time before these changes have an impact on the Australian home loan market, but based on the influence of historically low interest rates the most notable changes in the home loan market to-date have been higher building approvals, further increases in the capital value of Sydney property, homebuyer movement back to variable rate home loans, and greater investor activity in residential and commercial property. Let’s look at these major changes now.
Building Approvals are at Record Highs
Housing approvals over the last 12 months have continually risen. There has been a 16.3 percent, seasonally adjusted, rise between April 2014 to April 2015. The Australian Bureau of Statistics (ABS) state that out of 18,715 dwelling approvals nationally in April three states had an increase; New South Wales recorded 542 more approvals, Queensland 276, and Western Australia 175, whereas three other states only showed marginal dwelling approval increases. These states were the Australian Capital Territory which recorded an increase of 7 approvals, Victoria 4, and South Australia 1. However despite this, in comparison with rates 12 months ago, building rates are still much higher. Housing industry experts say this building growth is helping to alleviate housing affordability concerns and that this growth is welcomed in a time of low domestic demand.
Turning to the investment sector, CoreLogic RP Data state that commitments for the construction of new dwellings, based on year-on-year results, rose by 25.6 percent. However, out of $13.5 billion in commitments during April only $0.9 billion or 6.4 percent was for the construction of new homes. The remainder of $12.6 billion or 93.6 percent was allocated to the purchase of existing dwellings.
Sydney Home Loan Prices Rising Again
Home prices in Sydney grew again while other capital cities remained flat. CoreLogic RP Data state that Sydney recorded a 3 percent growth in Febraury, while nationally home prices rose by 1.4 percent. Canberra recorded a 1.9 percent growth, followed by Darwin at 0.9 percent, Melbourne 0.6 percent, Hobart 0.2 percent and Adelaide 0.1 percent. There was no gain in Perth and Brisbane recorded a loss. Over the last 12 months Sydney is the only capital city in Australia to show a double figured gain of 12.9 percent, Melbourne recorded a 5.6 percent growth.
Fixed Rate Home Loans are Not as Popular with Homebuyers
With the official cash rate dropping another 0.25 basis points to 2 percent many homebuyers are leaving their rates variable, rather than taking out fixed rate home loans. According to data, fixed rate home loans represented just 18 percent of home loans in March. This was a 2 year low. Historically speaking, fixed rate home loans hit a high of 33.06 percent, but have declined by 15 percent since December of 2013.
Investors are Dominating Home Loans
Investor home loans have increased considerably over the last 12 months say the Australian Prudential Regulation Authority (APRA). Data shows that investor home loans grew by 11.5 percent in 2014 to $454.7 billion. Whereas owner-occupier home loans grew by 5 percent over the same period to $851 billion. APRA are continuing to encourage lenders to reduce their investor loans so the lender reduce their risk. At present, the housing market accounts for approximately 70 percent of all bank lending, so while banks are exhibiting caution they are also reluctant to reduce too much home loan lending.
Commercial Property Purchases Will Increase in 2015
According to financial data collected by analysts, 2015 is going to be a good year for investing in commercial property. Analysts are predicting that more foreign investors will be taking advantage of the low Australian interest rates and dollar value, meaning that they can buy more for their money. According to the data, buying volumes for commercial property have been 70 percent higher over the last 2 years, when compared to the 2007 peak.
Cost-of-Living Set to Increase
With the Australian dollar falling in value some businesses will have to pay more for their stock. Some businesses will elect to absorb these additional costs, but others may have to pass these on to the consumer to recoup the added cost and make a profit. Therefore, financial experts suggest that those who are looking to buy a property should consider their financial circumstances before buying and make allowances for added costs so that they don’t overstretch their budget. This will then allow these home buyers to cover any increasing costs without any added financial stress.
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Written by eChoice
Since 1998, eChoice has helped more than 50,000 Australians secure a home loan through its network of over 25 lenders and hundreds of loans. Best of all our service is cost and obligation free!