The Australian home loan: Now and in the future
In October 2017 Australians held $22 billion in housing finance and home loans, according to the Australian Bureau of Statistics (ABS). Fast forward ten years to October 2017 and the most recent data shows that number has increased by almost 50 per cent to $32.8 billion.
That increase can be attributed to a number of factors, but it’s mainly thanks to the astronomical property price increases we’ve seen of late. This has seen the mortgage become a part of everyday life, something that’s now as Australian as sunburns, flat whites and Shane Warnes’ right arm.
While the amount we borrow is rapidly increasing the interest we pay on each dollar isn’t.
Australian interest rates at near record lows
While the amount we borrow is rapidly increasing, the interest we pay on each dollar isn’t. With the Official Cash Rate (OCR) sitting at it’s lowest point ever, 1.5 per cent, Australians have been paying super low rates for years.
Standard variable rates were at near record lows in December 2016, when they averaged just 4.78 per cent, according to Finder. They’ve increased since then to sit at just over 5 per cent at the end of 2017, a figure which is still remarkably low.
Don’t let these low interest rates strip you of caution, however. It’s essential that you remember that they’ll go up at some point in the future, which will increase your monthly payments if you’re on a variable rate (or when you come off your fixed rate period). Leave plenty room in your finances when structuring your home loan so that you’re protected if they do happen to increase.
More rate increases coming in near future
Industry experts have been making noise suggesting a Cash Rate rise could be coming soon.
The OCR is the rate the Reserve Bank charges on overnight loans to commercial banks and is used to control and influence inflation, spending and the wider economy.
It directly affects the costs banks incur when lending money, making it one of the main factors influencing home loan interest rates. While nobody knows for certain what the Reserve Bank will do ahead of time, industry experts have been making a lot of noise suggesting a Cash Rate rise could be coming soon.
Most notably, a group of leading experts from the Centre of Applied Macroeconomic Analysis who call themselves the RBA Shadow Board, predicted the chance of an increase in 2018 was 76 per cent.
If this does occur, home loan borrowers Australiawide can expect a sudden increase in the cost of servicing their home loans. Speak to a mortgage broker soon to make sure you’re not vulnerable.
A rampant property market and growing home loan size
House prices in Sydney and Melbourne increased at near unprecedented rates over the last few years. While these are the country’s most extreme housing markets, they’re a stunning example of just how fast property prices have been going up. They’re also part of the reason why the average Australian home costs over $680,000, according to the ABS.
The rapidly increasing price of residential property has caused the average Australian home loan to balloon. In fact, the average size of owner occupier loans increased from $241,353 in October 2007, to a whopping $370,724 in October 2017.
With a little care and the right advice you could save thousands or more.
The rise of the mortgage broker
As the size of our home loans increases, so does the risk. This means that more care and expertise is now required when structuring and procuring a mortgage.
What’s more, thanks to the rise of price comparison websites and the transparency provided by the internet, consumers are more interested in shopping around to find the best deal. These sea changes have seen mortgage brokers’ market share increase to 55.7 per cent in September 2017, according to the Mortgage and Finance Association of Australia.
While home loan sizes may soon start to decrease along with the price of property, it’s unlikely that mortgage brokers will lose customers any time soon. The service they provide (including expert advice and providing access to loans from countless lenders) is invaluable to the modern Australian. It makes securing a mortgage easier, less stressful and in many cases cheaper.
If you’re looking to buy property or refinance in the near future, make sure you keep your eye on interest rates and enlist the help of a professional. With a little care and the right advice you could save thousands or more.