Cheap Home Loans

Only a couple of days after the RBA made a decision to sit on interest rates for another month, one of Australia’s lenders has further reduced the already low fixed rates on their home loans in a bid to encourage home buyers into the market.

Yesterday CUA had announced that it will cut the interest on its three year fixed home loans to 5.95 per cent – 43 basis points below the average three year fixed rate loans currently being offered by the majors.

CUA’s acting GM, products and marketing Jason Murray said the lender was committed to offering its customers the best deal possible.

“Today’s rate cut announcement to our fixed rate home loan product suite means CUA now offers Australian home buyers among the lowest three year fixed rate home loan product in the market today,” he said. This will make the lender very competitive in the light of media reports that other lenders are looking at increasing the interest rate charged on all of their home loans to reduce the alleged costs of funding.

Westpac has generated significant complaints from borrowers because the bank has been unreasonably slow in adjusting home loan repayments  in line with announced interest rate reductions.

Westpac has had its share of negative publicity in the media when the bank had announced that it is intending to cut numerous jobs. According to the media, numerous Westpac customers have not had their home loans adjusted to new loan repayments even though rates were reduced over 2 months ago.

According Westpac announced interest rate cuts in November and December last year, borrowers with bank home loans have been advised that their repayments will be readjusted as late as March 2012, due to Christmas and holidays. Borrowers are not buying Christmas as an excuse and many are now claiming that if rates were to be increased, the bank would not wait for 3 months to pass on the increase to borrowers.

A Westpac spokesperson told Fairfax that customers could contact the bank to “amend their repayments earlier if they choose”. But Fairfax has claimed the delay in passing on the new repayments allows the bank to raise additional funding without borrowing from financial markets

Most of the significant players in the Australian home loan market are expecting to see 2012 as the year of home loan refinance. While there may be some interest generated in new property purchases by the decline in property prices, a significant aspect of the time spent by mortgage brokers with their clients is expected to focus on home loan refinance.

For example, over the last 12 months, Loan Market Group has seen a 16 per cent spike in refinancing enquiries.

This trend is expected to continue into the current year.

“With projections of more rate cuts by the RBA in the first half of 2012, mortgage brokers and lenders should see sustained growth in the home loan refinance market.

Mr Rushton from the Loan Market Group,  said that recent Australian Bureau of Statistics data showed a 17 per cent increase in home owners refinancing year on year to November 2011.

Historically speaking we see a spike in interest in home loan refinance whenever interest rates move radically in either direction. Given that 2012 is expected to see cheaper home loans through several rate cut announcements by the RBA, mortgage refinance inquiries are expected to increase.

It seems that today’s borrowers have lost interest in line of credit home loans with fewer such products being taken up by consumers than at any time over the past 13 years.

In November, 2011, only 3.7 per cent of home loans came with a pre-attached line of credit facility. This is well below the 10.2 per cent recorded in December 2005.

Line of credit home loans were extremely popular with mum and dad investors in the early 200s with many consumers relying on these to manage domestic budgets as well as investment loans. Borrowers would access the equity in their homes using line of credit home loans.

However as timed moved on so did the available home loan in Australia. Line of Credit products became more difficult to qualify for under the new NCCP legislation. Also these loans tend to be more expensive than the standard home loans with a free redraw facility. Many borrowers opt for home loans with an offset account and a redraw facility in preference to the old line of credit loans.

MFAA CEO, Phil Naylor does not hold much faith in the success of the proposed class action against banks for their practices with respect to home loans. The industry is very well regulated since the introduction of NCCP and it is highly unlikely that 300,000 home loans.

Earlier this week, a number of newspapers reported that a class action involving a potential 300,000 borrowers was being levelled at major banks, alleging that banks had offered home loans irresponsibly and not in line with legislation.

The class action, if mounted, would focus on first homebuyers and lower income households lured into the market by lower interest rates following the onset of the GFC and now struggling to repay.

Under the new regime all brokers and lenders are required to operate only within the guidelines of NCCP.

The class action will allege that some of these borrowers are experiencing severe financial hardship through no fault of their own, through being allowed to enter a loan contract that they could not afford.

The case is being mounted by retired international insurance broker Roger Brown, according to media, who has been quoted as saying the way banks have been lending has been “irresponsible”

St. George is one of several banks adding it’s voice to a list of leading economists who expect that economic uncertainty in Europe when coupled with declining retail sales in Australia and rising unemployment will prompt the Reserve Bank to deliver a 0.25% rate cut to home loans when it meets next in early February. Furthermore, this is likely to be one of several rate decreases during 2012 – making this the year of cheaper home loans.

The bank’s chief economist Besa Deda said in an investor note that there are likely to be at least two interest rate cuts in 2012. Certainly external factors will have a significant impact 0n any Rate decision made by the RBA.

“Ultimately, how much cutting the RBA does in this easing cycle will depend significantly on European developments,” Deda stated. “The deeper the European crisis, the more easing the RBA might need to do.”

We can hope that a couple of rate cuts will be sufficient to revive the Australian economy

Financial markets, on the other hand, are forecasting a cash rate of 3.5% by mid-2012 – ie potential decline to cost of home loans by another 75 basis points. This would imply that they are expecting the trouble in Europe to spread prompting the RBA to bring rates nearly as low as they were during the depths of the GFC when the cash rate was briefly at 3%.

Industry expectations are for a healthy demand for home loans in the 2012 calendar year. One of the most significant contributors to this are the drops in interest rate that have already occurred during 2011 and those that are still expected to occur during 2012.

The outlook for the coming year is quite positive for the home loan industry, despite the lows of 2011. This is good news for mortgage brokers, first home buyers and the building industry overall.

The Melbourne Cup day rate cut by the Reserve Bank of Australia (RBA) was a turning point for the market and the follow up December reduction will help boost activity over the summer.

As variable rates begin to come down, St George has announced a rate cut to it’s fixed home loans of 15 basis points.

St George will reduce its one, two and three year fixed home loans rates by 15 basis points, effective immediately.

The new interest rates will be offered for a limited time to new customers and existing borrowers looking to refinance their home loans to a fixed rate, the bank said.

“We’ve actually now cut our fixed home rates seven times since July,” chief executive Rob Chapman said in a statement.

Fixed rates have been falling for months as expectations of a fall in variable rates grew.

The RBA has cut the cash rate by 25 basis points at each of its last two monthly meetings, and the futures market is pricing in, or betting on, multiple cuts in the new year.

Fixed home loans are in the news again with lenders continuing to outdo each other with cheaper home loans being offered every few weeks.

This morning, Citibank announced it will reduce the rate on its three year fixed home loans to only 5.75 per cent, effective December 19.

Since July this year, the Citibank has cut 157 basis points from this particular product.

Speaking to The Adviser, Citibank’s head of broker distribution, mortgages Aaron Milburn said the lender was constantly reviewing its rates in order to provide the leading rate to borrowers.

The bank reviews it fixed rate loans every week to ensure that they are correctly priced in the current economic environment.

“At the moment, the yield curve is inversed so that the longer term rates are lower than the short term rates, giving mortgage customers an opportunity to lock in fixed rates lower than variable rates.

Borrowers are able to set and forget their home loans at very cheap rates.

The lender’s one and two year fixed rate home loans are now over 56 basis points lower than new to bank variable rates.

The number of home loans approved during October has gone up for a seventh month in a row prompting expectations that the property market will soon be turning around.

Home Loans rose 0.7 per cent for the month to 51,981, compared with a lower number of  51,639 in September.

Economists expectations were that home loans will remain approximately were they were.

The value of home loans for owner-occupiers declined by 1.2 per cent to $14.4 billion after seasonal adjustments. The value of home loans held by investors  declined by  5.5 per cent to $6.1 billion.

The number of new home loans especially by First Home Buyers increased by 0.1 per cent after seasonal adjustments, while home loans taken out to purchase existing dwellings increased by 0.9 per cent.