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Australian Home Loans - What's Up With Today's Home Lending Market?

With interest rates at a 12-year high and lenders increasing their rates outside the Reserve Bank of Australia (RBA) cash rate cycle, many borrowers are understandably feeling wary. The cash rate is Australia's official interest rate and usually lenders only move mortgage rates in synch with it, but this hasn't been the case over last few months.

Economists are divided as to what will happen over the next 12 months, though most appear to believe the cash rate will remain fairly steady - no one can be certain though.

The March quarter inflation rate in Australia was above 4%, which far exceeds the RBA target range of 2-3%, however the RBA hasn't increased the rate for the past four months. It may be taking a "wait and see" approach until the effects of the last few rate rises are better understood.

Retail spending has come down and demand for credit has also reduced, as have building approvals. This would suggest that higher interest rates are starting to work, so hopefully there will be more positive news in the June quarter inflation report (to be released on July 23).

As for housing finance, the number of owner occupied housing commitments decreased in all states and territories in May 2008 compared with April 2008, with New South Wales down 7.4%. A number of Australian consumers could also be taking a wait-and-see approach before buying - and with good reason.

Nationally, the number of first home buyer commitments as a percentage of total owner occupied housing finance commitments increased from 16.9% in April 2008 to 17.3% in May 2008. This is great news as it shows these buyers are getting into the market despite the housing affordability challenge. Finally some good news for first home buyers!

On the flip side, the rental vacancy market remains historically tight. It averages 1.6% nationwide and, with net migration at a 20-year high, the outlook for residential investors who rent out property is positive, but for tenants it is not so. This trend is unlikely to turn around in the short term.

The current climate could provide an opportunity for those looking to enter the property market to do so by purchasing an investment property before buying a home. An increasing number of Australians are considering doing this in order to gain a foothold in the market.

If you're looking to buy an investment property, the current financial climate may well be appealing for you right now. For professional home loan service and advice please contact your local Mortgage Choice office today.

About the Author

Chris Smith works for Mortgage Choice in Melbourne, Australia. For more home loan information or to apply for a loan online please visit Mortgage Brokers Melbourne, Australia We can assist you with all of your home loan needs - plus we don't charge you for our service.

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