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

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