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Westpac has moved its interest rate floor to 5.75%, down from 7.25%, in response to APRA changes to how banks can assess mortgage borrowers. This follows moves from ANZ, which has changed its interest rate floor to 5.5% from 7.25%.
These moves from the major lenders follow changes to the banking regulator’s guidelines. APRA previously set interest rate floors, dictating that banks had to assess borrowers’ ability to repay loans on a 7.25% interest rate, but is now permitting the lenders to self-assess.
These changes to loan serviceability guidelines, combined with APRA lifting its restrictions on interest-only lending earlier this year, will make finance easier to access for Australian investors than it has been in previous years.
ANZ Banking Group was the first lender to pass on the benefit of the loosened lending limits that are tipped to greatly increase purchasing power for home-buyers.
An ANZ spokesman said APRA’s decision was sensible in the current low rate environment and the new rates would give more Australians the opportunity to buy a home or refinance their loans.
Housing affordability is the best it’s been in two decades with mortgage repayments now consuming the smallest proportion of earnings since 1999, the Housing Industry Association says.
Softer housing markets and a reduction in interest rates combined to improve affordability during the June Quarter, while average earnings have begun to improve modestly.
“For a home-buyer with an average income purchasing a median-priced dwelling, assuming a 10% deposit, mortgage repayments will consume the smallest proportion of their earnings since 1999,” says HIA senior economist Geordan Murray. “The main reason the HIA Affordability Index today is comparable with the level in 1999, despite house prices rising significantly faster than incomes, is that interest rates are 4.6% today compared with 6.7% in 1999.”
Murray says average earnings have increased by 113% over the last 20 years, while the median home price has increased by 228%. But lower interest rates mean the cost of servicing a loan has remained the same.
A major constraint on borrowing limits has been removed by the banking regulator APRA, allowing real estate buyers to borrow more. Comparison website RateCity suggests a household on an average income could borrow up to $77,000 extra, while an average full-time worker could borrow $66,000 more.
APRA has officially confirmed what was revealed in May – that it would scrap a rule introduced in 2014, which meant borrowers were assessed on a 7.25% interest rate. APRA will now require banks to test if customers can manage repayments with rates 2.5 percentage points above a loan’s current rate. Mortgage broker Louise Lucas of The Property Education Company says lender MyState has published a new assessment rate of 6.2%, while Westpac and St George will now assess at 6.5%.
“This is enormously helpful for anyone trying to get a loan,” Lucas says. “It will make a profound difference because loans will be assessed a lot more easily. It’s an awesome change.” UBS economist Carlos Cacho says households on an income of $200,000 a year could boost their loans by an extra $150,000 to $1.25 million if they gained a leading market interest rate.
Home-owners will make the biggest savings from the interest rate cuts by maintaining their mortgage repayments at the pre-cut levels. Mortgage broker Louise Lucas of The Property Education Company says borrowers who do this can get ahead of their payments and save money long-term.
Following the two recent rate reductions, most variable rate home mortgage holders are set to save more than $100 a month, says Sally Tindall of comparison site RateCity. “For many, it’s money they can spend paying off the winter electricity bills, buying groceries or on extra mortgage repayments,” she says.
But for those looking to make the most out of the recent cuts, it’s an ideal time to pay down their loan faster, says Steve Mickenbecker of comparison site Canstar.
The average variable rate listed by Canstar of 4.13% will have monthly repayments of $1,979 on a $700,000 mortgage over 30 years, he says. Before the two interest rate cuts, the typical rate was 4.3%. Anyone who maintains their current repayments would save more $13,383 in interest and pay off their loan 14 months sooner.
The housing recovery is gaining momentum as buyers, buoyed by better borrowing conditions, stake their claim in the market. SQM Research’s Louis Christopher says the recovery is real, based on rising buyer demand in a low-volume market. The preliminary clearance rate for Sydney auctions last weekend was 78% from the 552 homes listed, according to CoreLogic figures. In Melbourne, the preliminary clearance rate hit 70% across 388 auctions. Nationally, there were fewer homes taken to auction because of school holidays in most states and mid-winter listings typically lower. The 945 auctions listed for capital city markets returned a preliminary clearance rate of 70%, the fourth week in a row that clearances exceeded 60%.
Christopher says most market recoveries he’d observed since 2001 had grown from a low volume market. “I’m not in the camp that thinks this a bogus recovery because it is based on low volumes so far,” he says. “It is a real recovery. There are more buyers out there due to cuts in interest rates, the Coalition win in the Federal Election and the loosening of credit restrictions by APRA.”
The housing market is shaping for a stronger second half after the Reserve Bank slashed the official interest rate to a low of 1%, just 28 days after its previous cut.
Ray White chairman Brian White, who runs the nation’s largest real estate franchise, says the cash rate reduction to 1% is a further shot in the arm for the property market, which had already been showing signs of improvement.
The latest data from SQM Research shows that the housing markets in Sydney, Melbourne, Hobart, Brisbane, Perth and Adelaide all produced minor price rises in June, while new home sales are dramatically improving.
Developer Harry Triguboff says the rate cut will help the housing market’s recovery. “Of course it will be better, this all helps,” he says.
“Prices are starting to come back. They have hit the bottom already and they won’t go down any more.”
House prices in Sydney and Melbourne have posted their first monthly gains since 2017 in a sign the market downturn in our two biggest cities may be over.
Both SQM Research and CoreLogic recorded increases for the two biggest cities in June, while SQM also found uplift in Brisbane, Perth, Adelaide and Hobart.
CoreLogic recorded monthly rises for houses in Sydney, Melbourne and Hobart, and increases for apartments in those three cities as well as Darwin.
It was the first monthly increase in Sydney since the market peaked in July 2017 and in Melbourne since its peak in November 2017. CoreLogic says it’s an early sign that lower mortgage rates and improved sentiment are already having a flow-on effect.
“I’m not prepared to say the housing market’s going to come roaring back,” says CoreLogic’s Cameron Kusher. “But it’s been looking like the worst is over – we’ve been seeing consistently the rate of decline has been slowing and now we’ve seen positive results for the first time.”
Economic researcher Moody’s Analytics has forecast property price growth next year across every Australian capital city except Hobart.
Moody’s national index for home values has fallen for almost two years, but Sydney, Melbourne, Brisbane, Perth, Adelaide, Darwin and Canberra will all see a steady recovery in 2020, according to the Moody’s Analytics report. The Hobart property market, which has been the leader among the capital cities over the past two years, is projected to drop slightly in 2020 and 2021.
House values across Sydney are set for a 3.1% increase next year and a further 4.8% in 2021, with apartment prices to rise slightly higher at 4% and 6% in 2020 and 2021 respectively.
Melbourne will see a 1.3% upswing next year, followed by a healthier 6% in 2021.
“Overall, Greater Melbourne house values are expected to tick up in 2020, with Melbourne-Inner East and Melbourne-North East leading the recovery,” says Moody’s.
Consumers think now is the time to buy a house and expect house prices to rise, a new report shows.
The Westpac sentiment survey reports a “spectacular” rise in expectations of house price increases and a general improvement in sentiment from real estate consumers.
“Housing-related sentiment showed a clear response to the lowering in interest rates, although some of the gains were more muted than seen in past rate cuts,” says Westpac senior economist Matthew Hassan.
The time to buy a dwelling index showed a 1.8% rise to 116.9 points, while the house price expectations index recorded a “spectacular” 22.7% rise. “This is the highest level since August 2018,” Hassan says.
Award-wining buyers’ agent Rich Harvey of propertybuyer says sentiment has turned around significantly thanks to the election outcome, the APRA announcement and interest rate reductions.
“There’s certainly more positivity in the market,” Harvey says. “We are getting more inquiry and buyers are starting to re-activate their investment plans. The flipside is that the expectations of vendors have turned up as well.”
The RBA reduced the official interest rate to a historic low of 1.25% on 4 June. This, combined with a Coalition election victory and an easing of lending standards, has lifted market sentiment.
Domain economist Trent Wiltshire says the results are the early signs of a market turnaround.
“The combination of the house price expectations index and the time to buy a dwelling index suggest consumers think prices are at or close to the bottom,” he says.
Harvey says the improvement in sentiment is welcome, but he does not expect it to create a major revival in prices. “Until we start to see the effects of the interest rate cuts and APRA loosening some of the lending restrictions, I don’t think there will be a dramatic rebound,” he says.
Interest in rock-bottom mortgages have skyrocketed in the days since the Reserve Bank cash rate cut, according to comparison site Finder.
Following the drop to an unprecedented low of 1.25%, borrowers have acted swiftly to take advantage of low-rate loans. Traffic to home loan deals on Finder jumped by a staggering 654% in the 48 hours after the RBA announced the cash rate cut on 4 June.
Interest in variable rates on Finder grew by 564%, while there’s been a 369% spike in those looking to refinance.
Graham Cooke, insights manager at Finder, says the uptick shows Aussies are becoming increasingly savvy with their finances.
“It’s great to see Aussies being proactive and looking for better value.,” he says. “This historically low rate will open lots of eyes to just how good the current offers are – and that’s the case for variable and fixed rates, alike.
“Generally speaking, for those with an average home loan size of just less than $400,000, a 25 basis point drop could save you $60 a month or more. That’s more than $21,000 over thirty years.”
While the Big Four were quick to announce a rate discount following last week’s RBA decision, only two – CBA and NAB – have passed on the cut in full.
Many lenders had already reduced their rates in anticipation of the rate drop. In May, 49 lenders reduced rates on 778 different home loan products.
Cooke said now is the time to consider refinancing if your current rate is high.