Record low interest rates still fail to entice borrowers back into property

Record low interest rates have failed to entice many new borrowers to the property market and existing borrowers to refinance their home loans, according to Australia’s leading financial comparison website RateCity.com.au (RateCity).

Almost all home loans across RateCity’s database of more than 100 lenders have seen reduced interest rates this year, with two-year fixed rates falling the most by 33 basis points on average.

Reductions haven’t slowed down this month off the back of May’s Reserve Bank rate cut, with RateCity recording 35 lenders that have dropped their home loan rates including all four of the major banks – ANZ, Commonwealth Bank, NAB and Westpac.

HSBC made the biggest cut to its two-year fixed rate this month, by 0.90 percentage points to 4.59 percent and now holds the lowest two-year fixed rate in RateCity’s database of more than 100 lenders.

Michelle Hutchison, Spokesperson at RateCity, said she is surprised by the weak demand by borrowers for the home loan market.

 “Despite efforts from lenders and the Reserve Bank, Australia’s home loan market activity is still not at the level it was before the GFC.

From 2001 to 2009, there were 55,000 home loans written each month on average. For the four years following, there have been less than 50,000 home loans written in any given month.

This shows that consumer confidence hasn’t returned to the level it once was and it will take more than a single rate change to entice borrowers back to the home loan market.”

The latest Australian Bureau of Statistics Housing Finance data released last week, analysed by RateCity, shows the number of home loans financed is at the same level as earlier this century, with 48,829 recorded in April 2013.

[sam id=34 codes=’true’]Despite April’s figures showing a 5 percent rise compared to the previous month and 17 percent higher than April 2012, the number of home loans financed has remained flat for the past three years, generally sitting between 40,000 and 50,000 per month.

There was a 12 percent uplift in borrowers fixing their home loan, with 21 percent of loans fixed in April compared with 18 percent in March. It was also the highest proportion of borrowers fixing their home loan in five years however, not as high as in 2007 when over 25 percent of home loans were fixed.

 “While interest rates are at the lowest levels we’ve ever seen, lenders may need to start offering better incentives for borrowers to attract them to the home loan market, such as reducing upfront fees or promotions to refinance,”

said Mrs Hutchison.

 “Many borrowers become complacent with lower interest rates, which is why only 32 percent of all loans financed in April were from borrowers switching lenders – a smaller proportion than most months of the past few years.

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Michael is a director of Metropole Property Strategists who create wealth for their clients through independent, unbiased property advice and advocacy. He's been once agin been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


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