Mortgage Index – February 2010

47% SLUMP IN MORTGAGE SALES: AFG WARNS RBA ON ANOTHER RATE RISE

A dramatic slump in mortgage sales in January has prompted AFG, Australia’s largest mortgage broker, to warn the RBA that another rate rise in February would be a crippling blow to the country’s fast-shrinking property markets. AFG arranged $1.5 billion of mortgages in January – 47% less than the $2.9 billion it arranged in September last year and an 18.7% fall on its December sales.

The $1.5 billion figure for January is the worst figure the company has posted in any one month since January 2005.

In the past four months, mortgage sales have fallen steadily as first home buyers have exited the market, and upgraders have reacted to three rate rises in quick succession by freezing further borrowing.

AFG has over 2,100 member brokers nationally and over 10% of the total mortgage market (Source: ABS and AFG data).

Brett McKeon, Managing Director of AFG says: ‘The impact of three rate rises in quick succession has had a far more dramatic effect on property buying than anything we saw during the Global Financial Crisis. People are not moving or upgrading their family homes – they’ve slammed the brakes on borrowing.

‘We’ve seen a lot of data recently about rising house prices and increasing consumer confidence, all of which would suggest buoyant property markets. But the opposite is the case. The drip feed of rate rises is like water torture – people are anxious about when the next one is coming and how big it will be. Uncertainty about the future of rates is draining confidence out of the market.’

The AFG Mortgage Index showed refinancing edge higher again in January to comprise 36.2% of all new mortgages. Property investors were the only group of buyers to hold steady, comprising about a third of all new mortgages arranged.

Download – February Mortgage Index – National

Mortgage Index – January 2010

2 OUT OF EVERY 5 MORTGAGES FOR INVESTMENT AS NSW BUCKS NATIONAL DECLINE – DECEMBER FIGURES

Two out of every five mortgages arranged in NSW in December were for investment properties according to AFG, Australia’s largest mortgage broker. The AFG Mortgage Index shows that increasing interest in NSW property saw the state end the year with $180 million invested in properties in December 2009 – compared to $153 million in December 2008 – a 17% increase. AFG has approximately 10% of the NSW market (Source: ABS and AFG statistics).

However the overall mortgage market in December marked a third month of decline. In September AFG arranged $2.9 billion of mortgage finance nationally, but this figure fell to a low of $1.9 billion in December.

Mark Hewitt, General Manager Sales & Operations of AFG says: ‘We have been warning for months that three rate rises in a row was overkill for a vulnerable market, and the latest figures confirm our fears. Yes, December is traditionally a slower month than November, but what we saw last month was a 20% fall compared to an 8% fall in 2008. When you combine the effects of increasing, out of cycle lending rates and tighter credit criteria with an end to the first home boost, what you get is a combination of factors that constrains confidence. Property investors, able to take a long term view, are hoping to ride a new upward cycle in property values, but right now ordinary families are sitting on their hands rather than upgrading.’

The AFG Mortgage Index also shows that fixed rate mortgages fell to an all time low of only 2% of the total product mix, with 77% of buyers opting for variable rate mortgages, and the balance choosing equity or introductory mortgages. The 2% figure is the lowest ever recorded by AFG, which saw fixed rate products average 22% of the product mix in 2007, 12% in 2008 and 4.36% in 2009. Given that the market has factored future increases into fixed rate products, from a buyer’s perspective such products offer little perceived advantage in the current market.

Refinancing reached a high for the year, representing 35.5% of all mortgages arranged in December as customers reacted to out of cycle rate rises by some lenders.

Download – January Mortgage Index – National

Mortgage Index – December 2009

AVERAGE MORTGAGES HIT ALL TIME HIGH DESPITE CAUTIOUS MARKET – NOVEMBER FIGURES

The average new mortgage arranged in Australia in November reached $367,000, the highest on record, according to AFG, Australia’s largest mortgage broker. The AFG Mortgage Index shows that mortgage sizes have been on the rise since the middle of the year, having increased by 6.4% since May. Supporting recent reports of increasing property prices, average mortgage sizes have grown particularly strongly in Victoria – up 12.1% since May and New South Wales – up 10.7%, but less so in WA, where they rose by 3% and Queensland, where they have held steady since May.

November also saw the continuing re-emergence of property investors, who accounted for one in three of all new mortgages arranged (33.8%), the highest such figure all year, and well up on the one in four (24.7%) figure for March when investment reached its lowest point.

However, overall monthly sales of mortgages in November declined for the second month in a row, off the back of increasing interest rates and sharply declining First Home Buyer numbers. First Home Buyers accounted for just 13.7% of all mortgages arranged in November, compared to 28.1% at their peak in March this year.

Mark Hewitt, General Manager of Sales and Operations says: ‘Larger average mortgages and greater activity by investors are usually the signs of a confident market. But confidence is still fragile. October and November are seasonally strong months in the calendar, but we’ve seen two straight months of decline. In our view the RBA has gone too far too fast in ratcheting rates back up again. Yesterday’s unprecedented third monthly rise will do nothing to encourage ordinary families back into the property market.’

AFG Mortgage Index also shows a slight change in the balance of lenders from banks to non-banks during the past two quarters (Table 5) suggesting that second tier lenders are becoming somewhat more competitive as global credit conditions ease.

Download – December Mortgage Index – National

Mortgage Index – November 2009

MORTGAGE MARKET COOLS AS RATES RISE AND FIRST HOME BUYING FALLS – LATEST FIGURES

The mortgage market cooled in October as the number of first home buyers fell by 27% from September and the early October rate rise created caution among property buyers in general. The AFG Mortgage Index, published by Australia’s largest mortgage broker, shows that the total volume of home loans advanced to first home buyers fell from $489 million in September to $357 million in October. This contributed to an overall month—on-month contraction in the mortgage market of 11.5%, with the total volume of mortgages arranged by AFG falling from $2.9 billion in September to $2.6 billion in October.

The sharp fall in first home buyer activity was expected, given that September was the last month of the reduced federal grant. But AFG is the first company to quantify the drop. At their peak in March, when first home buyers were rushing to beat what they believed could be an end of financial year deadline, first home buyers comprised 28% of the total mortgages arranged by AFG – a volume of $732 million. By October that figure had halved to $357 million.

Mark Hewitt, General Manager of Sales and Operations says: ‘Most people were expecting a fall in first home buyer activity, so the decline, in itself, comes as no surprise. But the fact that the rate rise cycle kicked in at the same time delivers something of a double-whammy. With the second rate rise announced last week we’re expecting that there will be continued caution on the part of buyers.’

The AFG Mortgage Index shows that LVR’s – the value of loans expressed as a percentage of the value of properties – fell across Australia in October, confirming the exodus of first home buyers, who usually have smaller deposits and therefore high LVRs.

The decline of first home buyers was strongest in WA, where the volume fell by 35.5%. In Queensland the fall was 27.6%, New South Wales 26.2%, Victoria 22.3% and South Australia 13.1%.

Download – November Mortgage Index – National

Mortgage Index – October 2009

NO LAST MINUTE RUSH FOR FIRST HOME GRANTS – SEPTEMBER MORTGAGE FIGURES

Despite first home buyer grants being reduced at the end of last month, there was no last minute rush by first home buyers to buy property in September according to AFG, Australia’s largest mortgage broker. AFG Mortgage Index shows that loans to first home buyers actually fell slightly from 20.9% in August to 20.0% of all new mortgages arranged in September – a figure in line with the previous three month’s sales, and well below the peak of 28.1% recorded for first home buyers in March 2009.

Mark Hewitt, General Manager of Sales and Operations says: ‘There was a lot of anticipation about a surge of first home buying activity in September – but this never materialised. It suggests that most of the demand had already been pulled forward as a result of speculation prior to the federal budget that the increased grants would not continue.’

AFG Mortgage Index also shows that the average mortgage reached $360,000 for the first time ever in September. AFG reported the previous record high of $354,000 as recently as July. The additional rise last month supports the view that both consumer confidence, as well as house prices, are on the rise.

AFG Mortgage Index shows an upturn in investment loans from 27.1% in August to 29.8% in September. Having spent most of the first half of 2009 well below the long term average of around 30%, this latest figure confirms returning confidence among property investors.

Property investment in NSW was head and shoulders above the rest of the country in September, with a massive 33.4% of all new loans arranged for investors. This figure compares with 29.6% for Queensland, 28.0% for WA, 27.9% for Victoria and 26.9% for South Australia.

Download – October Mortgage Index – National

Mortgage Index – September 2009

TRADE-UP BUYERS RETURN TO MARKET – AUGUST MORTGAGE FIGURES

Property owners trading up their family homes are returning to the market after a period in the deep freeze according to AFG, Australia’s largest mortgage broker. AFG Mortgage Index shows that in August 2009, after property investors, first home buyers and refinancing were taken out of the mix, trade-up buyers accounted for 22.8% of all mortgages sold. This compares to a figure of just 14.3% six months ago, in February 2009.

AFG Mortgage Index also shows that loan to value ratios (LVRs), the value of loans expressed as a percentage of property value, eased slightly in August from 67.0% to 66.3%. This confirms a higher level of activity by people moving into their second or third homes, who tend to borrow proportionally less than other categories of property buyers.

Mark Hewitt, General Manager of Sales and Operations at AFG says: ‘The reemergence of trade-up buyers is a further encouraging sign that markets are beginning to normalize. Having said that, we’re not out of the woods yet. AFG would like to see more state governments following the example of WA where the Keystart model is continuing to provide access to funding for borrowers who may not qualify for loans with mainstream lenders. The actions of the WA government are helping underpin the long-term sustainability of the property market in WA and it would be great to see other state governments follow their lead.’

AFG Mortgage Index shows that fixed rate mortgages held steady in August at 5.1% of all mortgages sold, as the majority of property buyers steer away from fixed rate products which have costed in at least two future rate rises.

The grip of banks on residential lending remained near its all time high in the second quarter, with banks accounting for 89.1% of all mortgages sold, compared to 92.5% in the first quarter of 2009.

Download – September Mortgage Index – National

Mortgage Index – August 2009

$354,000 – THE AVERAGE SIZE OF A NEW MORTGAGE IN AUSTRALIA REACHES RECORD: JULY MORTGAGE FIGURES

The average new mortgage lodged in Australia rose to $354,000 in July – the highest figure on record, according to AFG, Australia’s largest mortgage broker. AFG’s Mortgage Index shows that average mortgage sizes have been on the rise since May this year, after falling to a low of $339,000 in January.

As other institutions report rises in house prices, the AFG data shows that borrowers in New South Wales, Queensland and Victoria are especially willing to take on more debt. Queensland’s average mortgage size hit a new record of just over $339,000. The average mortgage sizes for New South Wales ($407,000) and Victoria ($321,000), though lower than some of the peaks recorded in late 2008, are the highest for 2009, well up on figures for earlier this year.

The AFG Mortgage Index also shows a dramatic decline in the popularity of fixed rate mortgages, which fell from 8.3% of all mortgages lodged in June, to only 5.0% in July – a fall of almost 40%. Given that fixed rate mortgages now factor in future interest rate rises, the decline in consumer interest suggests that many buyers feel they may have missed the boat in locking in low rates earlier this year.

Mark Hewitt, General Manager Sales and Operations says: ‘As every week goes by we’re seeing growing signs of confidence in the property market. Recent reports of house price increases are stimulating the market as a whole, and encouraging investors in particular. That said, because interest rates remain at forty year lows, we’d encourage buyers to take into account the fact that their mortgages will almost certainly cost more to service as the overall economy picks up.’

AFG data confirmed the trend of investors returning to market, with 30% of all mortgages arranged for investors – up from a low of 24.5% in March. The investment trend was particularly high in New South Wales and Queensland, where 34% and 33% respectively of all loans arranged were for investors.

The share of first home buyers remained steady at 19% of the mortgage market.

Download – August Mortgage Index – National

Mortgage Index – July 2009

FIRST HOME BUYER ACTIVITY FALLS 30% – JUNE MORTGAGE FIGURES

Mortgage sales to first home buyers have fallen by 30.6% since their peak in March according to AFG, Australia’s largest mortgage broker. AFG Mortgage Index shows that 19.5% of all mortgages sold in June were to first home buyers – compared to 28.1% just three months earlier.

AFG was the first organisation to note a significant decline in first home buyer activity in its figures for May. June figures shows that this trend has been sharply magnified as the first home buyer sector returns to levels closer to the long term norm (between 10% and 15%).

Investor confidence continued to grow in June with the proportion of loans to investors rising to 29.0%, up from a low of 24.5% in March. AFG’s long term norm for this sector is in the range of 30% – 35% of all mortgages sold.

Loan to value ratios (LVRs) – loans expressed as a percentage of property values – fell significantly to 66.9%, down from a high of 73.7% in April. This confirms the trend of reducing numbers of first home buyers who usually have low deposits and therefore high LVRs. It is also as a result of lenders tightening their credit polices and reducing the maximum LVRs they will lend to.

Mark Hewitt, General Manager of Sales & Operations says: ‘We’re seeing a number of encouraging signs that the mortgage market is normalising. First home buying, investor activity and LVRs are all reverting towards the long term trend after a period of turmoil. But while confidence is creeping back into the market, the real concern is that over 90% of all home loans are controlled by just four institutions. The lack of consumer choice, and the implications that has for future pricing, is a real obstacle to the functioning of a healthy mortgage market.’

The AFG Mortgage Index also shows an increase in the proportion of buyers opting for fixed rate mortgages from a low of 2.5% in February to 8.3% in June. While more buyers are seeking to lock in low fixed rates, the vast majority of buyers still believe they are better off with variable rate mortgages.

Download – July Mortgage Index – National

Mortgage Index – June 2009

FIRST HOME BUYER PEAK OVER – BUT INVESTORS TIP TOE BACK : LATEST MORTGAGE FIGURES

The peak of first home buying activity is over according to AFG, Australia’s largest mortgage broker. Since the rush to secure federal government grants peaked in March, when 28.1% of all new mortgages were arranged for first home buyers, AFG has seen demand from the sector decline for two consecutive months to 24.8% in May. While the first home buyer figure is still well above trend, it suggests an end to the artificial boom created in the sector by the uncertainty around the extension to federal grants, and tougher credit guidelines now being applied by lenders.

But the AFG Mortgage Index also shows a rise in property investor activity. The proportion of mortgages advanced to investors has come off its all time low of 24.5% in March to 28.0% in May. The uptick indicates that low rates, good rental yields and the relatively strong performance of property over equities may be contributing to growing investor confidence.

The May data also shows that Fixed rate mortgages still comprise only 6.5% of all mortgages offered, roughly in line with the figure for April (6.8%) and well below the 66.4% of mortgage buyers who opt for variable rate home loans.

Mark Hewitt, General Manager of Sales and Operations says: ‘We are surprised by the relatively low take-up of fixed rate mortgages. It suggests that most property buyers are expecting more bad news on the economy which will in turn force interest rates down. While this may have an impact on variable rate mortgages, our view is that longer term fixed rate loans may have bottomed out. Many property buyers may have missed the boat already.’

The AFG Mortgage Index also shows that loan to value ratios (LVRs), the value of loans expressed as a proportion of house values, also fell to 70.0% in May from 73.7% in April, consistent with a reduction in the proportion of first home mortgages.

For the first time, the AFG Mortgage Index provides a table showing the relative market shares of bank versus non-bank lenders, sourced from ABS statistics. This shows that since the second quarter of 2007, banks increased market share from 79.7% to 92.5% of the market. The dramatic reduction in lending competition has been especially pronounced in the past year, with non-bank lenders seeing market share reduce from 15.5% in the second quarter of 2008 to just 7.5% in the first quarter of 2009.

Download – June Mortgage Index – National

Mortgage Index – May 2009

Sales of fixed rate mortgages bounced to a nine month high in April as more borrowers see the current cycle of rate cuts coming to an end according to AFG, Australia’s largest mortgage broker. The AFG Mortgage Index shows that 6.8% of all new mortgages arranged in April were fixed rate, compared to just 2.5% in February and 3.7% in March. While figures currently remain in the single digits, the change represents a discernable shift in consumer expectations of future rate movements.

The AFG Mortgage Index shows that mortgage sales across the country continue to be driven by the boom as first home buyers rush to take advantage of the Government First Home Owners Grant (FHOG) before it expires at the end of June. First home buyers comprised 27.7% of all new mortgage sales nationally, with New South Wales benefiting ahead of all other states – 33.8% compared to 27.3% in Victoria, 27.2% in WA, 27.1% in Queensland and 15.5% in South Australia.

Kevin Matthews, Director of AFG says: “Whilst the figures for April remain positive we are expecting the first home buyer numbers to trend strongly downwards in coming months. Lenders have recently amended credit policy meaning that many potential first home buyers will no longer qualify for loans without evidence of genuine savings. The vast majority of first home buyer loans fit into this category meaning the effectiveness of the FHOG is diminished substantially. This must be a major concern for government which has provided a deposit guarantee and other measures to support lenders, whilst partially relying on the FHOG to help stimulate the general economy. Whilst we support responsible lending we are very concerned about the impact that credit tightening will have on the market going forward”

AFG Mortgage Index shows that property investors continue to be cautious, with 25.4% of all new mortgages arranged for investors – down from the last peak of 31.4% in September, and a longer term trend of approximately 30% of the market. Investor confidence is highest in Queensland (27.1%) New South Wales (26.9%) and WA (25.6%) and lower in South Australia (23.1%) and Victoria (22.5%).

Loan to Value Ratios (LVRs) continue at their highest level on record (73.7%), 8% higher than a year ago, given the influx of first home buyers with small deposits into the market.

Download – May Mortgage Index – National