There have been a number of changes on the home buying front over the last month. These include a fall in the demand of fixed rate home loans, despite major Australian banks raising variable home loan interest rates, and property prices being tipped to fall in Sydney and Melbourne as the number of foreign investorsis expected to decline. Let’s look at what these change mean for you.
Demand for Fixed and Variable Rate Home Loans
According to data, fixed rate home loans account for only 13.88 percent of all home loans written in October, down from 14.41 percent recorded in September. This is the fourth consecutive month that fixed rate home loan numbers have fallen.
Mortgage industry experts say that while Australias major banks have announced that theyll be raising interest rates, most wont make their move until late November. Therefore, many experts are expecting a number of home loan holders may make the switch to a fixed rate in December or early in 2016.
Data suggests that the demand for fixed rate home loans is the weakest in Victoria. Which recorded a rate of just 8.65 percent for this loan type in October. Queensland recorded a rate of 12.36 percent and South Australia 12.76 percent. Fixed rate demand was strongest in New South Wales, where 17.31 percent of all home loans were fixed.
Variable rate home loans, on the other hand, are popular. Of this loan type, ongoing discounted products were in demand, with these accounting for 52.80 percent of all loans written in October.
The mortgage market continues to be competitive, despite recent changes. Lenders are said to be competing for their share of the market by offering low rates. This opens up a number of opportunities for those who are looking to buy a home.
How Changes in Property Prices May Influence Loan Types
Australian home buyers are concerned by the expected changes in property prices, which is anticipated to occur over the next 12-18 months. A number of real estate experts suggest that the Australian property market is vulnerable to a significant correction in home values due to home prices currently being over-inflated.
However, these declines in value are expected to be isolated to Sydney and Melbourne, where the market has been sky-rocketing in price due to the high number of investors, many of which are foreign. Home values in Darwin and Perth have already begun to adjust after the fall in mining investment. Over the last 5 years home prices in these regions have fallen by 7.4 percent.
While home values effect the capital grow of an investment, real estate experts pause to remind home owners that this only becomes an issue when you decide to sell a property. This is why they suggest that property owners hold off on selling. Instead, home owners should wait to sell when market conditions improve. This will ensure that the most amount of value is gained from the property.
Changes to Foreign Investment Rulings
While there is some concern over falling property prices and how this may affect foreign investment, there is greater concern over legislative change and the impact this will have on the number of foreign investors. Experts suggest that the number of Chinese investors may fall as a direct result of new regulations bought in by the Foreign Investment Review Board (FIRB).
The FIRB have stipulated that foreign investors must purchase new property, and while off-the-plan property is popular with foreign investors, the need for these investors to now have a 30 percent deposit may pose as a problem. This is due to the fact that many foreign investors signed a contract to purchase a property months before any changes in legislation occurred, so these foreign investors will now have to settle in the future under the new legislation which could catch them out. For instance, many of these foreign investors were prepared to pay a 20 percent deposit, as their original contract and loan terms would have stipulated, but when they settle they will now need to find an extra 10 percent. This could result in a dramatic decrease in foreign investment, especially for the Chinese who are currently in an economic downturn.
Experts suggest a fall in foreign investment in Australia could pose a number of outcomes for the market. While foreign investment is important for the market, too much participation can push-up property prices and result in an over-inflated market that restricts competition. Plus, foreign investors typically buy just one type of property which can result in an over-supply of that type of property.
If foreign investor numbers fall, then property prices may fall as demand dwindles, competition may also become fairer, but property make sit on the market for longer before it sells. Another possibility is that less investors will be able to settle on property, which could cause financial difficulties for developers and possibly economic woes for Australia in the future.
On the other hand, if foreign investors struggle to come up with their deposits and fail to meet legislation terms, then this could mean that there will be a number of affordable properties on the market. Some may even be sold for below market value so developers can recoup their costs.
Are you seeking to buy a home but are not sure whether to choose a fixed or variable rate? Dont guess which is better, instead contact eChoice, we can help YOU find the best home loan for you.
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!