As we head into 2012 pondering where the housing market is headed – will it be down 10 per cent as some commentators are expecting, or will others be on the money with predictions of 5-7 per cent growth – there is some interesting news emerging about home loans.

Out today are figures showing mortgage holders are increasingly being lured by fixed rates.

Despite predictions about one, two or even three rate cuts coming over the next six months, a growing number of homeowners are locking in their rates now. Data from the Australian Bureau of Statistics shows fixed loans grew from 10.6 per cent of new housing loans before the most recent rate cut in November to 11.1 per cent.

And mortgage broker AFG reveals that 19.2 per cent of loans arranged through its business in December were issued at fixed rates, a big jump from 8.2 per cent six months earlier.

An odd move you may think given all the predictions are for official rates to fall further this year. But CommSec economist Savanth Sebastian argues people are simply getting in at what they can afford.

“It’s more about ensuring you can purchase a place within your budget and within your limits," he says. "While the risks are to the downside [for rates to fall], I think the fixed rate market has already priced in a couple more rate cuts,” he says.

In addition “even though the Reserve Bank will cut rates, the banks need to pass it on. So the fixed market is looking very attractive, not only do you need a couple more rate cuts [for variable rates to match fixed] but you need it all to be passed on as well to justify where the fixed market is.”

Many homebuyers may also be wary that should there be a swift change in the economy, rates can easily shoot back up. 

“We saw straight after the GFC how rates rose, it certainly would have caught some home buyers that were on the edge in terms of repayments, so at least this way they can sleep easy,” says Sebastian.

Further news on the home loan front could point to a slightly more positive year for property than last, where we saw prices fall across the board. Australian Bureau of Statistics figures have revealed that the number of new owner-occupier housing loans rose by 1.4 per cent in November while the value of loans rose by 2.2 per cent.

However, home loans aren’t being drawn down – rather potential buyers are simply getting their finance sorted and sitting back and waiting until the right time to buy.

So while for the past eight months there’s been consecutive jumps in the number of home loans being approved, in November the value of loans that had actually been drawn down was two per cent lower than a year ago, and commitments not advanced were almost 11 per cent higher than the previous year.

With all the concern about the state of the US and European economies, it’s little wonder buyers have been taking a cautious approach.

So just what will entice all these cashed-up potential home buyers to jump? Could a February rate cut be enough?

CommSec’s Sebastian thinks so. “Even the thought of rate cuts should prompt activity levels to increase over the next few months,” he says.

Story source: www.domain.com.au

Ongoing discount loans lose momentum

Borrowers’ preference for fixed rate home loans is continuing at an unrelenting pace regardless of recent cash rate cuts, national loan approval data from Mortgage Choice has revealed.

Fixed rate loans accounted for 24% of all new home loan approvals during December 2011, up from 21% in November and well above the 12-month average of 15%. Demand for this loan type has risen for seven consecutive months, increasing 13 percentage points since May 2011.

Company spokesperson Belinda Williamson said, “Consecutive cash rate cuts in November and December 2011 have not swayed Australian borrowers’ desire for fixed rate loans.”

“It is possible borrowers’ need for certainty around their home loan repayments, coupled with the affordability of fixed rate loans are the driving forces behind demand for this loan type.

“During December fixed rates were significantly lower than variable rates, in some cases the difference was one percentage point or more.

“Our loan data shows fixed rates are now more in demand than they have been in over three and a half years at the expense of variable rates, which have lost popularity among new borrowers.

“Customer demand for variable rate loans fell from 79% to 76%, well down on the 12-month average of 85%. The most popular variable rate home loan with new borrowers, ongoing discount rate loans, slipped from 44% to 41%, also well below the 12-month average of 35%.”

Basic variable loan demand rose marginally to 15% of all approvals in December, up from 14% in November while standard variable loan demand fell slightly to 16% from 17%. Interest in line of credit loans dropped to 3% from 4% and the uptake of introductory rate loans was steady at 1%.

For more information visit: www.mortgagechoice.com.au

The Reserve Bank of Australia board has cut the official interest rate by 25 basis points to 4.25 per cent, giving mortgage holders and borrowers a pre-Christmas reprieve.

The RBA announced the rate cut at 2.30pm AEDT today following the board’s final meeting for the year.

It’s the second interest rate cut in as many months after the RBA lowered the cash rate on Melbourne Cup day in November.

In a statement issued with the announcement, RBA Governor Glenn Stevens said there had been "considerable turbulence" in financial markets and said financing conditions had become more difficult.

"This, together with precautionary behaviour by firms and households, means that the likelihood of a further material slowing in global growth has increased," Mr Stevens said in a statement accompanying the decision on Tuesday.

Economics analyst Ross Greenwood said Europe’s debt crisis would have been a significant factor in the RBA’s decision.

"The Reserve Bank indicated that it is still concerned about the European economic situation and the prospects of a global slowdown hurting Australia and its export markets," Greenwood told ninemsn.

While it’s good news for mortgage holders and borrowers, Greenwood cautioned consumers not to expect the banks to pass on the full interest rate.

Analysts were divided about whether the RBA would cut the rate today, with a survey of 14 economists conducted by AAP revealing seven tipping a cut, and seven predicting rates would stay on hold for another month.

Story source: www.ninemsn.com.au

Economists are divided on whether borrowers will get a second interest rate cut in as many months on Tuesday.

Seven of the 14 economists surveyed by AAP say the RBA will cut the cash rate to 4.25 per cent from 4.5 per cent on December 6.

On Melbourne Cup day, the Reserve Bank of Australia (RBA) cut the cash rate from 4.75 per cent, saying that recent information suggested inflation had been contained.

With inflation no longer a problem, the bias for the RBA is now firmly leaning towards rate cuts, with 10 of the 14 economists forecasting rate cuts by the middle of 2012.

Citigroup head of economics Paul Brennan is expecting the RBA to cut rates on Tuesday, despite expectations of strong economic growth in the September quarter.

"We see this as a policy of least regret given that the outlook for global growth has continued to weaken in the past month to well below trend," Mr Brennan said.

"We see scope to lower the cash rate to the bottom of the neutral range over the next few months, which would imply a cash rate of four per cent over the next three months."

The biggest risk to economic growth comes from Europe, which may well go into recession, or start another financial crisis, as several members of the euro struggle to meet debt repayments.

There are also local risks to economic growth.

In the past month the RBA, Treasury and the Organisation for Economic Co-operation and Development (OECD) have cut economic growth forecasts for 2012.

In addition to that, official figures for October showed a 10.7 per cent fall in building approvals and retail spending only rising 0.2 per cent.

On the other hand Australia’s mining boom is still going strong, with the sector making its biggest ever contribution to economic growth.

Nomura Australia chief economist Stephen Roberts said he doesn’t expect the cash rate to move for the foreseeable future unless something bad happens overseas.

"My forecast is that they are going to leave it at 4.5 per cent," he said.

"I’m assuming they will hold it neutral all the way through to the end of 2012 but my proviso is if Europe generally does go to hell in a handbasket, then they can drop interest rates a long way."

NAB senior economist Spiros Papadopoulos said the RBA won’t cut on Tuesday but by early next year the pressure will build for another rate cut.

"Obviously there’s a risk that they might cut interest rates next week, given everything that’s been happening offshore in the last couple of weeks," he said.

"On balance, given the fact that the domestic economy has been holding up okay we don’t think they need to rush in to cutting rates."

Story source: www.ninemsn.com.au

Top tips to saving more this Christmas

As households prepare their budgets for festive season shopping splurges, now is an ideal time to unwrap the financial strategies that help borrowers gain greater control over their home loan situation, according to Australia’s largest independently-owned mortgage broker, Mortgage Choice.

Company spokesperson Kristy Sheppard said, “Ensure Christmas costs don’t hamper your ability to meet home loan and/or other debt commitments, by proactively managing your money. It’s not hard.”

“Staying on top of financial obligations, in conjunction with careful pre and post silly season budgeting and planning, will without a doubt put you in a better position to achieve your property goals sooner. It should also give you more confidence to properly enjoy the festive season.”

Here are five tips to help improve your mortgage management in the countdown to Christmas:

‘Tis the season to bring budgeting back on track. Get your Christmas and new year budget underway if you haven’t already. Be sure to include seasonal spending estimates for gifts, treats, catch ups, celebrations and other holiday outings.

‘Tis the season for a home loan health check. Are you making the most of your loan? There may be features attached to it you are not utilising or are paying a premium for. A regular home loan health check is a great way to see if you are making the most of your existing loan or if you are better suited to a different lender and/or product. Before switching, carefully weigh up the pros and cons by comparing loan features, rate, repayment type and frequency, accessibility, fees and more.

‘Tis the season to keep repayments steady, despite recent rate cuts. If your loan’s interest rate has recently dropped, get ahead by continuing to repay at the original, higher rate. For example, take a loan of $300,000 at 7% over 30 years. If your rate reduces by 0.25% to 6.75% and you keep repaying your loan as if the interest rate was still 7%, you could shave over two and a half years off your loan term and save more than $54,000 in interest owed.

‘Tis the season to go one step further and round up repayments. If the monthly repayments on the above mentioned loan maintained at the higher rate are rounded up from $1,996 to $2,100 from day one, it is possible to cut a further three years and seven months off the loan term and save an additional $55,000 in interest owed (if all loan aspects remained the same). The total savings would equal $109,000 in interest and a reduction in the loan term to 24 years and 8 months.

‘Tis the season to turn up the frequency of repayments. Depending on your loan and lender, dividing your monthly minimum repayment in two and making fortnightly repayments instead may also save you interest owed and reduce the loan term. There are 12 months and 26 fortnights in one calendar year; by paying fortnightly, you make the equivalent of 13 monthly repayments. The savings on the above mentioned loan equal almost $100,000 in interest and almost six years off the loan term.

For home loan tips, trends, facts, data and other information, visit MortgageChoice.com.au,

With the Reserve Bank serving up a rate cut, it’s a smart move to keep your repayments at the same level. Many lenders don’t automatically reduce your repayments when rates fall.

That doesn’t mean, of course, that you’re not getting a cut in interest rates – just that your weekly or fortnightly (or monthly, but don’t pay monthly, it will cost you more in the long run, as explained below) repayments stay the same.

That’s smart because automatically you’re paying an extra $45-$60 (or whatever it equates to on your mortgage) a month, which will see you get out of the debt-jail sooner.

And with house prices stagnant or falling, the one smart way to make money out of your property is pay it off more quickly and reduce the overall cost of acquiring it.

It has, of course, always been the best way to do things. Ask any pre-baby boomer and they will tell you that.

But in the heady debt-fuelled days of recent past it seemed too easy that you could buy a place, sit it out, burn up the redraw facility on the loan on cars, clothes and overseas holidays, and still double your money in a decade. However, after such big run-ups in house prices, everything has softened and we’re not likely to see similar increases in home prices anytime soon.

Not that a slowing housing market is necessarily bad – despite the general pall it throws over things. Investors may want those days to return but most people can see that steady prices are a lot healthier.

Houses, after all, are primarily for living in. There are other money-making vehicles out there that don’t put the cost of basic shelter out of the average person’s reach.

And the slowing housing market also – in part – took the pressure off the Reserve Bank to keep hiking rates after last year’s Melbourne Cup.

When it comes to the cost of acquiring a home, you can do it the expensive way – borrowing the money (as most of us have to do), or the really, really expensive way (borrowing money and taking forever to pay it off).

The Figures

Let’s assume you’re paying 7 per cent on your mortgage now and you’ve borrowed $500,000 to buy your place. Pay it off monthly over 25 years and you’ll fork out a total of about $1,060,147.

Add another $60 a month to your repayments and you’ll be up for a total over the life of the loan of $1,031,230, saving $28,918.

Pay down an extra $200 a month, or about $50 a week, and suddenly you’re up for a six-figure total instead of a seven, of about $975,321. You’ll also save an impressive $84,842. And you’ll walk away from the shackles of that mortgage more than three years earlier.

Of course your mortgage might not be $500,000, so to find out how it works in your situation check out some of the online calculators such as this. It’s worth bookmarking the site and going back to it every time you need a bit of motivation to pay down the mortgage faster.

And another trick – now well known by many – is to pay fortnightly and not monthly. You’ll end up thousands of dollars ahead by taking advantage of the fact there’s 12 months in the year, but 26 fortnights, meaning you make one fortnight’s repayment more per year than you would if you were paying monthly.

Story by Carolyn Boyd www.domain.com.au

Fixed term mortgages hit 3.5 year high in October

Basic variable rates were the most popular with new home loan borrowers only 11 months ago, but today they have been far surpassed by ongoing discount rates and fixed rates, according to loan approval data from Mortgage Choice, Australia’s largest independently-owned mortgage broker.

At that time, the no-frills product type accounted for 34% of the broker’s new approvals. Today, this sits at less than 16%, the second lowest point since Mortgage Choice began recording such data in January 2003.

Fixed rates are now more in demand than they have been in well over three years, and although the popularity of ongoing discount rates dropped for the first time in October they remain by far the most popular home loan with new borrowers, accounting for more than 43% of approvals.

Company spokesperson Kristy Sheppard said, “When comparing our October loan approval data to that extracted one year ago, it’s remarkably obvious how much the industry has changed in reacting to subdued housing finance demand and a relatively positive interest rate outlook.”

“Then, basic variable rate was the loan of choice at just over 34% of approvals. Standard variable rate followed with just under 34%, then ongoing discount rate at 17% and fixed rate at 11%.

“That situation has now flipped. New borrowers’ appetite for fixed rate loans is at a three and a half year high of 20% of approvals and ongoing discount rate loans account for 43% of approvals.

“In an environment of rising living costs and economic uncertainty it is unsurprising borrowers are taking advantage of the relatively low fixed rates and attractive variable rate discounts offered by lenders hungry for business.”

The popularity of standard variable, line of credit and introductory rate home loans all fell in October, to 15%, 4% and 1% of approvals respectively. Basic variable demand rose slightly to 16%.

Note: Mortgage Choice currently writes one in 25 new home loans in Australia, equating to approx. $10 billion in approvals per year, hence it provides a clear insight into borrower preferences. The 19 year old mortgage broker has a loan book of over $42 billion.

The housing sector is stabilising as talk of an interest rate rise wanes and Australians are encouraged to borrow more, economists say.

The number of home loans approved in August rose 1.2 per cent to 50,965, official figures show. Economists’ forecasts had centred on a 1 per cent rise in housing finance commitments for the month.

August was the fifth straight month that housing finance commitments had risen.

The Australian Bureau of Statistics said total housing finance by value rose 1.0 per cent in August, seasonally adjusted, to $20.848 billion.

JPMorgan economist Ben Jarman said the figures showed the housing sector was stabilising rather than rebounding.

‘‘It certainly means it’s not falling into a hole,’’ Mr Jarman said. ‘‘In the last few months worth of data, the housing finance figures have benefited from the perception that the RBA won’t be doing much in the near term.

‘‘So, if you went back to the start of this year, the RBA didn’t hike rates but there was all the forecast and all the language were making noises that you would get a couple of hikes this year.

‘‘Those aren’t being delivered and things offshore have turned a little bit sour.

‘‘What you’ve seen in the last few months in the home loans data is these fading expectations are helping out and people are coming back and they are happy to take on new debt.

‘‘We’re kind of calling this a mini-rally, but don’t think that this is the start of a tear away in the housing market.

‘‘There’s still a lot of uncertainty globally and that’s what’s keeping the RBA on the sidelines.’’

Mr Jarman said JPMorgan still expected the RBA not to change the cash rate from its current 4.75 per cent until at least the middle of 2012.

‘‘You’ve got a lot uncertainty offshore counterbalancing the domestic inflationary situation here and we see the RBA not doing very much for a while.’’

ICAP senior economist Adam Carr said August’s housing finance figure was a good result and continued a 13 per cent increase in lending since April.

‘‘The pattern we’ve witnessed over the last year is that home lending is posting a dramatic improvement after a GFC induced slump, interrupted only by the floods and the disasters,’’ Mr Carr said. ‘‘Now we’re back on track.’’He expected housing finance data to continue to be strong in the coming months.

‘‘Financial conditions are not too tight, we’ve had an easing in financial conditions (and) lending rates are going sharply lower.

‘‘Don’t forget the unemployment rate is low and income growth is strong, so the prospects are really good.’’

The data also highlighted why a cut in the cash rate was not needed, he said.

‘‘The reason I say that is because the economy is healthy – we don’t need one or two rate cuts.

‘‘We’re either going to get 100 basis points worth of cuts or more because Europe collapses and we have another GFC or, I would imagine, we get none.

‘‘That’s because retailing is accelerating, home lending is accelerating, approvals are accelerating and the unemployment rate is low.

‘‘To argue that we need one or two rate cuts is just absurd.’’

AAP

Source: www.domain.com.au

The central bank has decided to keep the cash rate unchanged this month and has opened the door for possible future cuts.

The decision was expected, with all 15 economists surveyed last week by AAP predicting the Reserve Bank of Australia (RBA) would keep rates on hold at 4.75 per cent on Tuesday.

The central bank’s board last raised the rate from 4.5 per cent in November 2010.

But the focus was on the statement accompanying the decision, in which RBA Governor Glenn Stevens indicated he was less concerned that inflation would accelerate.

"The path for inflation may now be more consistent with the two to three per cent target in 2012 and 2013," he said.

That meant rate cuts were now on the table.

"An improved inflation outlook would increase the scope for monetary policy to provide some support to demand, should that prove necessary," Mr Stevens said.

UBS interest rate strategist Matthew Johnson said the RBA appeared to have downgraded its growth and inflation forecasts.

"I think that the bank has gone from thinking that things were too strong a couple of months ago, to being around trend now," Mr Johnson said.

"If there’s a further deteriorating, they’ll ease policy."

He said the statement prompted investors to buy bonds, on expectations that the central bank may soon cut the cash rate.

The December 10-year bond futures contract rose to 95.985 (implying a yield of 4.015 per cent) from 95.96 (4.04 per cent) just before the RBA released its statement at 1430 AEDT.

The Australian dollar dropped to a one-year low 94.65 cents after the statement.

Mr Johnson said Mr Stevens’ statement suggested the bank would be watching unemployment figures very closely, as a gauge of inflationary pressure on the economy.

"But we’re a few months away from having to make that decision."

Mr Stevens said conditions in global financial markets continued to be "very unsettled, with uncertainty increasing about both the prospects for resolution of the sovereign debt and banking problems in Europe, and the outlook for global economic growth."

However, economic activity in China and Asia was continuing to expand, he said.

CommSec chief economist Craig James said Mr Stevens’ statement showed the RBA had become more open to the possibility of lower rates.

"For the first time since the global financial crisis, the Reserve Bank has opened the possibility of rates being trimmed to support the economy," Mr James said.

He said the focus now shifts to October 26, when the Australian Bureau of Statistics releases consumer price index (CPI) data for the September quarter.

The CPI is a key measure of inflation and is used by the central bank in setting its monetary policy.

HSBC chief economist Paul Bloxham said the RBA’s statement was more dovish than recent ones.

"The RBA is keeping a steady hand on the wheel and is more concerned with the inflation outlook," he said.

Mr Bloxham noted that while the European and US economies were slowing, Asia, and particularly China, were going strong or, at least, easing at a steady rate.

Story source: www.ninemsn.com.au

A FRESH round is likely to begin in the mortgage price war with Commonwealth Bank pledging to beat any advertised rate among its three big rivals.

The pledge has hallmarks of the ”unbeatable” campaign launched by National Australia Bank in New Zealand, a move that spurred on home lending but crunched margins among banks.

The move has been timed with the spring sale season, traditionally the most active period in the Australian housing market.

Intense competition has already emerged among banks across fixed rate loans, with some starting to price fixed rates lower than variable rates.

But CBA’s push extends to both fixed and variable rates and will remain in place until the end of September. The move is expected to draw a swift response from rivals National Australia Bank, ANZ and Westpac.

CBA’s executive general manager of retail products, Michael Cant, said the move was aimed at providing borrowers with competitive home loan deals.

”Our guarantee to beat our major competitors means we’re putting our money where our mouth is,” Mr Cant said.

Sluggish global economic growth, worsening debt market problems, as well as doubts about the Australian outlook have sparked predictions of cuts to official cash rates.

Source: www.domain.com.au

The Reserve Bank surprised many when it decided to leave the cash rate unchanged at 4.5 per cent this month, despite the market pricing in a greater than 70 per cent chance of a rise.

It has now been five consecutive months since the last rate rise in May, which is good news for the property market.

Sydney property activity for spring has been solid with September recording a healthy 66 per cent clearance rate with total sale values up on this time last year driven by a surge in listings.

Almost 2300 properties are listed for auction this month, compared with 1625 for the same period last year.

It seems vendors are taking advantage of the traditionally strong spring selling season combined with the impetus to act now before the next phase of interest rate rises begins and dampens buyer enthusiasm.

It’s no longer clear whether the next move upwards will be in November or if the Reserve Bank is likely to wait until the new year to start raising rates again.

According to the RBA, the average standard variable mortgage rate offered by the banks in September was 7.4 per cent.

Regardless of when interest rates start to move again, most economic forecasters are expecting at least another 1 per cent by the end of next year.

Take into  account comments from the banks about their struggle with increased funding costs, and it would be prudent to expect an additional increase on top of official cash rate movements.

So by the end of 2011, it’s possible that standard variable mortgage rates will be at 8.5 per cent or higher.

So what can mortgage holders do to gain some protection?

Many will already be thinking about potentially fixing part, if not all, of their mortgage.

Up until the last month, there was some uncertainty over the path of official interest rates due to some weak economic data at home and abroad.

This affected future views of interest rates in the market, and these in turn influenced how banks set their
fixed mortgage rates. According to RBA data, fixed-rate mortgages have been at similar levels as the standard variable rate since July, the first time since early 2009.

The latest housing finance figures (August) show the proportion of owner-occupiers taking out fixed rate home loans was less than 4 per cent, and actually fell slightly from July.

That is, more than 96 per cent of new loans in August were variable.

There is always a risk in fixing a mortgage and picking the right time to do so. The last time the proportion of new loans being fixed rose significantly occurred in March 2008, when the standard variable mortgage rate was
9.35 per cent, just shy of the peak four months later.

At this time, 24 per cent of all new loans were fixed, according to the ABS.

Now may be the right time to at least consider the option of fixing a portion of your mortgage.

With further rises on the cards, the opportunity exists to lock in a three-year rate now which may well be below the standard variable rate in a few months.

Anthony Ishac is the general manager for the Fairfax Media-owned Australian Property Monitors.

Top tips to get you home sooner
It is estimated that 469,000 households will be suffering some degree of mortgage discomfort by December and the number of those in severe stress (facing a potential sale, foreclosure or forced refinance) could be as high as 267,000*.

How can borrowers at risk of mortgage stress reverse the trend, save money and own the property sooner?

Spokesperson for Mortgage Choice, Kristy Sheppard said, “There are shortcuts that can help borrowers avoid mortgage stress, reduce their loan term and the interest paid. It’s about taking control of their finances by managing their mortgage instead of letting it manage them.”

“Avoiding mortgage stress is often a greater challenge for new borrowers, many of whom are adapting to a budget for the first time. Of course, some common causes of mortgage stress are higher interest rates and rising living costs. However, another very common cause is over-indulgence in post-mortgage debt.

“Mortgage Choice’s 2010 Recent First Homeowner Survey revealed 15% of respondents had taken on within the first two years what they saw as ‘significant’ post-mortgage debt. Of those, 70% had spent between $0 and $20,000, 26% had racked up between $21,000 and $50,000, and 4% had really splurged, with extra debt of $51,000 or more.

“If these borrowers and others facing a similar situation want to better their mortgage situation they need to be proactive in their repayment strategy. By maintaining regular repayments above current interest rates, being disciplined in keeping to budget, making extra contributions, fully utilising the loan facilities available and regularly ‘shopping around’, borrowers can potentially fast track their way to outright ownership.”

Australia’s largest independently-owned mortgage broker, Mortgage Choice recommends these top tips:

Contribute to your change
Paying a little extra every month can have a big impact in the long run. Based on a loan of $300,000 at 7% over 30 years, if you round the monthly repayments of $1,996 up to $2,050, the loan will be repaid approximately one year and eight months earlier, saving you over $25,000 in interest.

Make a dent
Making a lump sum payment (big or small) into a loan can make a substantial difference. If you deposited your tax return of, say, $500 into the above mentioned loan, it would reduce the overall term by one month and the total repayments by just over $2,350. Doing so annually would make a significantly larger dent.

Make the most of loan features
Loans with offset accounts enable borrowers to link a savings account with their home loan account and ‘offset’ or use that amount to reduce the interest accumulated on their mortgage. For example, if a borrower has $5,000 in an offset account, then on a $300,000 loan (at 7% interest pa) the term would be reduced by around 1 year and the borrower would save over $33,000. It’s worth enquiring about but be aware there could be an ongoing cost for keeping the account, such as a monthly fee.

Don’t settle for second best
If you went for a premium loan you may be repaying at a higher interest rate for facilities and features you don’t need or use. Consider refinancing to a more basic product offering a lower interest rate – your repayments will be lower, and therefore you’ll be able to afford to pay your loan off quicker. When refinancing to a new loan and/or lender, be aware you may incur exit fees.

Give your loan a check up
If you already have a home loan, look at doing a home loan health check regularly because the mortgage market changes all the time. You might be able to get a better package now.

Keep your eye open for bargains
You might also investigate your eligibility for a ‘professional package’ home loan, where you can receive a reduced interest rate, no application or other fees, gold credit cards, and home insurance and other product discounts and benefits.

South Australians and Victorians tend to keep their options basic, whilst Queenslanders prefer to spice it up the most. What state you live in can determine just how you choose to do it. Borrow money that is.

South Australia

It’s often said that South Australians like to saviour the good things in life – food and wine.

Sex too, if you are to believe South Australian men, of whom 64 per cent told La Trobe University researchers that they had an extremely physically pleasurable relationship, much higher than the 45 per cent of Melbourne fellas and 44 per cent of Sydney blokes in the same survey.

(Interestingly, the percentage of women in all cities who agreed that they also had such a relationship was 31 per cent, 38 per cent and 36 per cent, respectively, but I digress…).

When it comes to housing loans, though, South Australians prefer plain vanilla. An astounding 69 per cent of all new loans through broker Mortgage Choice in South Australia are for a basic package.

Mortgage Choice spokeswoman Kristy Sheppard says basic variable loans can appear more affordable but have fewer features at the borrower’s disposal. They tend to be more popular with people on lower incomes and less experienced borrowers who are still finding their feet in mortgage land.

“This state’s demand for ‘no frills’ loans, which tend to have a lower interest rate and fees, says a lot about the conservative nature of South Australians,” says Sheppard. “SA residents tend to be good savers and are careful with their money.”

The broker recently surveyed South Australians who were planning to buy their first home before next February and found more than one-third (35 per cent) will have a deposit of 20 per cent or more to contribute towards their purchase.

This was the highest of any state and well above the national average of 29 per cent. Admittedly they have a lower bar to reach – Adelaide has the lowest median house price of the mainland capital cities.

Victoria

Victoria also shows a strong preference for basic variable loans though this has occurred only over the past 18 months. Before that, demand for basic and standard variable loans from new borrowers was pretty much neck-and-neck.

“Victorians are more cautious with their money, are strong savers and tend to be better informed about budgeting, managing their money and the mortgage process,” says Sheppard. “With Victoria predicted to experience exceptionally strong population growth in the coming years, it will be interesting to see where the demand for different loan types heads – will the state’s residents become less conservative?”

Standard variable loans are often priced slightly higher than basic variable loans, they tend to offer greater flexibility and features such as access to “professional packages” that, for a fee, provide a discounted rate and other benefits.

Western Australia and Queensland

Residents within the resource states tend to be the biggest consumers of loans with all the options.

“WA and Qld residents are happy to make slightly higher repayments in return for ‘bells and whistles’, which indicates they are less risk-averse and perhaps more capable of dealing with interest rate rises,” says Sheppard.

WA and Qld also have younger aspiring first home buyers, and more young people buying solo than in other parts of Australia. Many plan to buy their first home before they turn 30. In the other mainland states, the highest proportion of buyers-to-be are 30 years and over.

NSW

NSW tracks closer to the commodity boomers than it’s western and southern neighbours. A flood of first home buyers after the Federal Government’s first home owners boost was introduced in October 2008 has driven demand for basic variable home loans.

Before that, the preference was for more flexibility. Now it’s pretty much even-stevens with basic variable more in demand, but only by five percentage points.

Perhaps it’s got something to do with mortgage size. Almost one in three potential first home buyers in NSW intending to take out a mortgage of $400,001 or more, according to Mortgage Choice’s 2010 First Homebuyers Survey. This was the highest percentage for any state and noticeably higher than the national average of 24 per cent.

Story by Carolyn Boyd Fairfax Digital

Overall lending for property is on a slide and on the surface that looks like bad news for property investors. But a deeper look at the numbers suggests there is an upside.

Australian Bureau of Statistics figures show the number of home loans dropped by 3.4 per cent in March, following a 1.8 per cent fall in February. It’s the eighth fall in the past nine months.

Approvals for investment loans, however, are going the other way with a 3 per cent jump in March. Looking over the longer term, the trend becomes clearer with investment loans up by 24 per cent on this time last year and home loan approvals down by 30 per cent from six months ago.

When combined with a demographic analysis of an area, lending patterns can give us a very good indication of what is likely to happen to property prices in these markets.

For example in a suburb such as Glebe in Sydney’s inner west about 55 per cent of all property is owned by investors.

Investors target this kind of area because there is a strong tenant demand due to the closeness to the city, university, shops and cafes.

A significant jump in investment lending is a clear sign investors are active in the market. When this happens they compete for property in places such as Glebe and put significant upward pressure on prices.

About 45 per cent of people in Glebe own the property they live in so there will be a level of softening demand from buyers but it will be compensated for by the investors.

This differs greatly from an area such as Kellyville in Sydney’s north-west. Investors control only about 13 per cent of property in this area.

Although it is a great area to live and raise a family in, Kellyville does not have the kind of infrastructure that tenants are looking for. Therefore demand from investors is weak and will have minimal impact on property values.

However, about 85 per cent of property in Kellyville is owned by people who live in their property so the drop in owner-occupier loans is likely to have a significant impact on demand.
If interest rates continue to climb and demand continues to soften, the chances of property values falling are increased.

The property market is made up of various sub markets that can be pulling in different direction at the same time. As an investor, it is vital to understand which market you are getting yourself into and how to interpret the raw data that will affect the growth pattern of the property you wish to buy.
America’s favourite investor, Warren Buffett, once said: "I’d rather be vaguely right than precisely wrong."

Once you get your head around how to interpret raw data you will have a greater chance of being "vaguely right" and therefore a successful investor.

Mark Armstrong is a director of Property Planning Australia, www.propertyplanning.com.au