HIGHER MORTGAGE RATES ON THE WAY

As unemployment rates remain lower than  expected, Australia

 leads the way again, increasing rates before any one else.

 

 

To a great many people a rising rate of interest comes as no surprise and the majority of

mortgage holders  have been factoring a more normal level of mortgage rates into their

upcoming budgets.The proportion of new borrowers who have spread their finances too 

fine are not likely to represent a great proportion of the market due to the fact that banks

have been exceptionally risk averse in their lending criteria, generally requiring at least a 

10% deposit and a demonstrated track record of genuine savings without any defaults.

Economists seem to be in line with the financial markets with most stating an additional 50

basis points to be added to the cash rate before Christmas this year. First home buyers now

represent only 24.7% of all owner occupier housing finance commitments, down from the

recent peak of 28.5%. For this reason the mortgage default rate is likely to remain low,

which is currently less than 5% of all mortgages that are in arrears. Housing finance

commitments for property investors were up by 7.6% in August this year,  highlighting

the increase in investor numbers in the market as first home buyers wind back after the

boost wind down. If financial markets are anything to go by we are likely to see the cash

rate lifted in both November and December bringing the official cash rate up to 3.75% 

and the average variable mortgage rate to around 6.5%. This is also having an effect on

the Australian dollar as overseas investors cash in on the higher rate. The increasing of

interest rates will have an effect on demand in the first home buyer segment the most as

this is by far the most price sensitive segment of the market currently.Australia is seeing

more second and third home buyers and a great number of investors enter the market. 

First home buyer demand is winding back as the boost to the First Home Buyers Grant

has now been reduced to half and the fall back of first home buyer numbers is more than

likely to continue. It is expected the overall affect on the housing market from 3 successive 

increases is not likely to be massive. In all likelihood Australia should see investor numbers

continue to increase over the rest of 2009 and into 2010. Additionally, Australia is likely to

see the continued trend of more upgraders returning to the market as both these segments

are much less price sensitive to rate rises. This is important to have the upgraders buying as

it generally means they have a home to sell, creating stock that currently is not there.

Locally we have seen sales go through the roof literally. As soon as well priced homes

hit the market they are under offer within days, in some cases hours. The rental

market has seen a reduction in the numbers of applicants turning up for inspections.

Rental values have also stabilised at this point as well.