Mortgage war not over yet

With the Reserve Bank of Australia’s (RBA) official cash rate (OCR) stuck at a record low 0.25% since April, and unlikely to go any lower:

Mortgage rates have also collapsed to record lows, with bank discount variable mortgage rates hitting a record low 3.65% in June and bank 3-year fixed mortgage rates hitting a rock bottom 2.35%:

However, according to RateCity.com.au, many lenders continue cutting mortgage rates despite no further reductions in the RBA’s OCR:

RateCity.com.au data showed… 19 lenders cutting at least one variable home loan rate, and 22 lenders cutting at least one fixed home loan rate…

The market-leading two-year fixed home loan rate for new customers was Homestar Finance’s 2.06 per cent – almost a full percentage point lower than the same time last year (-0.93 per cent). The lowest variable home loan was Freedom Lend’s 2.17 per cent.

Sally Tindall, research director at RateCity.com.au, said “rates keep tumbling”.

“It’s been a record-busting month for mortgages as lenders leapfrog each other in a bid to offer the lowest-rate home loans,” she said.

“With refinancing on the rise, lenders have to keep whittling down their rates if they want to be in contention for these borrowers.”

Falling mortgage rates is obviously fantastic news for existing borrowers, since it frees up disposable income.

However, don’t expect the mortgage rate reductions to drive Australian house prices higher.

While lenders have lowered rates for existing borrowers with high levels of equity and strong incomes, they are tightening mortgage eligibility for new borrowers over concerns around unemployment and falling household incomes (see last week’s article).

Since property values are set at the margin when titles change hands, restrictions on credit should shrink the pool of potential buyers and the price they can pay, even amid falling average mortgage rates.

Other things equal, this mortgage tightening will put downward pressure on property prices.

In short, when it comes to property prices, availability of credit is far more important than the cost of credit.

Leith van Onselen

Comments

  1. LVO
    This site is now heavily censored even with informative posts with no adverse language

  2. You can’t keep lending to people who will never repay back the loan misallocation of risk by holding interest rates at zero the RBA are done. When credit spreads blew out in the GFC the RBA cut 4% in a few months To get us out of the global debt crisis, they used more debt to fix the problem global debt just increased in emerging markets Emerging markets are already defaulting now and the government debt defaults are going to spread to developed markets starting in Europe similar to when Austria started the defaults in 1931 Credit Anstalt Vienna defaulted, it was founded and owned by the Rothschilds so there was a global panic that the richest family in the world was going under it started an avalanche of sovereign defaults around the world and interest rates went through the roof, similar to Thailand, that company that triggered 1997 Asian financial crisis. The 30 year bond bull run of falling interest rates is finished. Interest rates are going to increase along with inflation.

    • call me ArtieMEMBER

      Thanks bcn.
      Please perservere with the comments, I enjoy them.
      The censor bots do happen, and so does occasional human-activated censoring. Write your comments in a text editor like notepad then copy and paste to MB. If they vanish, you still have a copy of your work to re-try after modification

  3. Mortgage rates of 2 to 4 per cent are high relative to real wage growth of zero or below. This didn’t matter so much when dwelling prices increase at a faster rate but is no longer the case.
    Anecdotes from the ‘burbs – my dealings with ADIs recently at a personal level – second tier/subsidiary (Bank of M, Bendigo) either desperate to retain funds or relieved to have mortgages repayment. Tier one – CBA desperate to retain $.