How mortgage market is going to change in the new year?

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The year 2016 held out a mixed bag for property buyers. As house prices soared, rate cuts by the RBA kept the properties affordable with lowest interest rates on home loans in years.
This was 2016.
How will the Australian loan market change in 2017? Will there be further rate cuts? Would the interest rates continue to dip or the property loving Australians are in for a rude shock?
A survey by online mortgage place HashChing reveals some shockers:
Conducting a poll over its database of brokers across Australia, the survey reveals some interesting insights for the coming year:
  • 89.47% of the respondents in the survey predict RBA to hold current rates while 64% vouch for a rate hike by the RBA at least once in 2017.
  • Out of the 64% brokers who are expecting a rate hike in 2017, 28.57% predict multiple rate hikes in the coming year.
  • Another interesting revelation by 79.37% brokers that the big four banks will make out of cycle rate hikes in 2017 is already coming true for property investors.
ANZ recently announced its decision to increase the variable loan index rate for property investors by 8 basis points, rising to 5.6 per cent. Stricter regulations by APRA around investment lending already had 36 banks increasing their investment loan rates since December 2015.
This does not mean that owner-occupiers are not hit. Following the trail of out-of-cycle cuts, while RBA maintained a cash rate of 1.5 per cent, earlier this month, ING Direct raised its standard variable rate by 15 basis points.
Borrowers are thus, more than ever, scampering to fix their loans while the rates are still low.
The cycle of demand and supply – Increased supply, decreased prices
The acute home shortage in Sydney is in stark contrast to the oversupply of homes, especially high rises, in Melbourne and Brisbane. This will further aggravate the issue of housing affordability in Sydney, sending home buyers scampering to other areas.
The new BIS Shrapnel’s 2016 Building Industry Prospects report predicts an oversupply of more than 24,000 homes across Australia. As per the report, all capital cities except Sydney will have an oversupply of homes, a situation that hasn’t occurred in ten years.
As the oversupply continues and household debt in Australia touches $1.9 trillion, lenders and financial experts worldwide are concurring that home owners in Australia have stretched themselves too far.
What makes the situation stranger is the fact that even though the construction boom in apartments drives the oversupply the demand for detached homes is on an increase.
It is anyone’s guess then where the prices for ‘off the plan’ property purchases and apartments may head. In fact, Core logic’s November Hedonic Home Value Index shows dwelling prices in Melbourne have fallen by 1.5 per cent.
According to Mr. Turnbull, the key to housing affordability lies in constructing more houses. A QBE report in August 2016 had stated that oversupply will indeed lead to dropping of unit prices in every capital city except Brisbane. The report further predicted a 6.2% drop in prices in Sydney in the near future, meaning the median dwelling price of a property in Sydney may drop to $700,000 from the current $850,000 by end of 2018.
Interest rate hikes: Trump effect on Australian mortgage market
Trump’s victory in the US presidential elections may mark the end of interest rate cuts in US. Meaning to change the federal interest rate policy, increased rates in US will soon have the remaining countries following suit.
Trump’s victory is already affecting Australian home owners and home buyers, threatening increased home loan rates soon. Several non-bank lenders have raised their variable interest rates in anticipation.
But what is fuelling this Trump effect across the ocean? The answer lies in the policies that Trump plans to implement; high spend on infrastructure and cutting down taxes will fuel inflation across the globe.
Mr. North of Digital Finance Analytics has warned borrowers to expect an interest rate hike of half to three-quarter of a per cent, whether or not RBA moves up the scale. Financial experts and brokers echo the sentiment across Australia. In the survey by HashChing mentioned above, 68.25% of the respondents expect the “Trump Effect” to impact the interest rates in 2017.
Increasing household debts, dropping property prices and increased interest rates – is the Christmas cheer completely lost on the mortgage market in Australia? Not really, there are still banks and non-bank lenders offering low rates and competitive home loan deals, but the New Year calls for more prudent home buying choices and decisions.

Whether you are looking to buy your first home, move home, refinance, or invest in property, a mortgage broker can help. Access loans from all the major lenders, get help with paperwork – plus there is no charge for this service. Get help from a local mortgage broker

Atul Narang

Atul is the founder and CIO of HashChing - Australia’s first marketplace for pre-negotiated home loan deals. 

Before starting HashChing, he was successfully running his own digital agency serving small to medium size enterprises. He is passionate about digital transformation of traditional business models and has been helping clients in strategising, building and launching online products since last 9 years.

HashChing is a FinTech business which is transforming the way Australians get their home loans and has been featured in the national media multiple times.

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