Borrowers with big deposits or equity in their homes can shave more than $50 a month off their mortgage repayments as banks ramp up efforts to win low-risk customers.
Research by financial comparison site, Canstar, shows up to half of all lenders are now offering discounts to borrowers with a sizeable deposit or home equity.
Canstar group executive of financial services, Steve Mickenbecker, said banks were seeking to counter the risk posed by falling house prices on the east coast.
Canstar’s Steve Mickenbecker says customers need to ask to get the discounts. Credit: METHOD
He said the discounts were being offered by many lenders in WA even though local property prices had not failed.
But Mr Mickenbecker said it was up to borrowers to request the discount from their bank, with lenders highly unlikely to volunteer the potential saving.
The new research shows that 49 per cent of banks are offering customers with a 40 per cent deposit – or equity in their home worth the same amount – a discount on their interest rate worth an average 0.21 per cent.
Do not wait for a bank to tell you because it rarely happens
Its research states that a $470,000 loan with these banks would normally be subject to an average variable rate of 3.69 per cent interest, if the borrower had an 80 per cent loan-to-value (LVR) ratio on a mortgage for a $587,000 house.
However, these same lenders would discount the rate to 3.48 per cent for the same sized loan for customers with a 60 per cent LVR, which is worth a saving of $56 per month in interest.
”When it comes to the discount, you have to take the initiative – do not wait for a bank to tell you because it rarely happens,” Mr Mickenbecker said.
“And a 0.21 per cent discount is a decent saving.”
The research shows a smaller interest rate discount – worth 0.13 per cent – is being offered by almost a third of lenders to customers with a 30 per cent deposit, or the same sized equity in their home.
Mr Mickenbecker said borrowers should consider switching lenders if their interest rate is too high.
“With the outlook for continued economic growth clouded in the face of rising interest rates, it is not surprising that lenders are competing harder for lower risk borrowers,” he said.
In separate research, RP Data research director Tim Lawless said interest rates may start to stabilize, or potentially reduce next year.
“(T)his could be the cue for housing values to find a floor,” Mr Lawless said.
“Similar to the trajectory of the upswing, this downswing phase could be a short but sharp one, depending on how high and fast interest rate settings go.”
While some Australians may rejoice at the idea of a drop in house prices, interest rate rises mean home owners face the prospect of their asset dropping in value at the same time their mortgage repayments steadily increase.
Key points:
House prices in Australia are dropping at their fastest pace since the global financial crisis
Those who bought houses at the peak now face a double whammy of dropping asset prices as rising interest rates
Financial counselors are anticipating a spike in demand as interest rates increase
And those who bought recently, at the peak of the market, are more likely to have the most left to pay off on their loans, meaning interest rate rises will cause them the most pain.
Bobby Graham bought a house in January in Hobart’s outer suburbs for slightly more than he had hoped to pay, after saving for the past five years.
Just months before his purchase completed, as late as October, the Reserve Bank of Australia was still saying it expected interest rates would not rise until 2024.
There have now been three months of straight rate rises, and another due today.
While he is not struggling to meet payments, Mr Graham says the changing circumstances have meant he needed to adjust something else — his expectations.
He has had to make tweaks to his lifestyle and reassess his living expenses.
“It’s the perfect storm — you pay the higher price because you bought at the peak of the market then there is an increase in interest rates,” he said.
“And it becomes obvious that everything else is becoming more expensive due to inflation.”
He described the increases in his mortgage repayments as “a bit of a kick”.
Mr Graham has had to re-examine his budget and adjust his expectations.(ABC News: Luke Bowden)
As part of his changes he has had to cancel several interstate trips planned for this year in a bid to save money and meet home and mortgage commitments.
“You pay so much of your income, just to maintain your house,” he said.
His advice to others in his situation is to take a thorough look at the household budget and adjust expectations.
Home prices dropping but interest costs going up
According to figures released on Monday by property analysis firm CoreLogic, median house prices in most capital cities are falling at a steady rate — and are expected to continue the trend.
In Hobart, there was a 1.5 per cent drop in house and unit prices in the past month, in line with similar falls in Sydney and Melbourne.
CoreLogic compares the downswing to the same drop experienced during the Global Financial Crisis in 2008 and the 1980s recession.
The RBA has increased interest rates for three straight months, with another increase expected this afternoon.(abcnews)
The Reserve Bank (RBA) is acting to stem inflation by increasing the cash rate, which in turn is being passed onto consumers via higher mortgage rates.
The RBA is expected to lift the rate again when it meets today.
The head of research at CoreLogic, Eliza Owen, warns potential home buyers while they may feel like they are buying a house at a discounted price, the reality of interest rate increases will see more spent on repayments.
“The interest you pay on the debt you take out will be more,” she said.
Financial counselors expect demand spike
Anglicare financial counselor Fiona Moore said people should call the National Debt Hotline if they were struggling.(Supplied: Anglicare)
Anglicare financial counselor Fiona Moore said home buyers had experienced years of high prices, with a lot of people borrowing money while interest rates had been low.
“With interest rates rising, and property prices decreasing, it’s going to cause a big problem,” she said.
Anglicare is expecting its client list to grow.
“People should rationalize their spending such as personal loans and credit cards and look at options to cut other payments down,” she said.
She said people who were struggling could also call the National Debt Helpline on 1800 007 007.
House prices in Australia are dropping at their fastest pace since the global financial crisis — and market conditions are “likely to worsen” as interest rates continue to rise, according to property analytics firm CoreLogic.
Key points:
Economists predict Australian house prices could fall between 12 and 20 per cent
The median property value dropped 8.5pc during the GFC
Rents have arisen 9.8pc in the past year
The latest data shows that the nation’s median property value has dropped by 2 per cent since the beginning of May, to $747,182 (a figure which includes houses and apartments).
“Although the housing market is only three months into a decline … the rate of decline is comparable with the onset of the global financial crisis (GFC) in 2008, and the sharp downswing of the early 1980s,” said CoreLogic’s research director Tim Lawless.
But he noted that, on average, prices had jumped 28.6 per cent from mid-2020 (the low point of the housing market during the COVID-19 pandemic) to April 2022 (when national prices hit their peak).
Regional Australia had an even bigger surge, with prices up 41.1 per cent in two years — as smaller towns outside the capital cities experienced a huge influx of city-dwellers seeking better lifestyles (as working remotely became the new normal).
“In Sydney, where the downturn has been particularly accelerated, we are seeing the sharpest value falls in almost 40 years.”
Property prices in Sydney, Melbourne and Hobart fell sharply in July.(CoreLogic)
The median price in Australia’s most expensive city fell by 2.2 per cent in July (taking its quarterly loss to 4.7 per cent). Despite that, an average house in Sydney still costs around $1.35 million, while an average unit may fetch about $806,000.
Melbourne and Hobart also recorded steep falls, with prices in both cities down 1.5 per cent last month, while Canberra prices dropped 1.1 per cent.
Prices in Brisbane and regional Australia fell 0.8 per cent (their first monthly decline since August 2020).
At the other end of the spectrum, Darwin, Adelaide and Perth were the only capitals where prices actually went up in July (by between 0.2 and 0.4 per cent). However, it has been a sharp slowdown since May, when the Reserve Bank began to aggressively lift the cash rate from its record low levels.
short and sharp
“I think this downturn will be similar to the global financial crisis in that it will be quite short and sharp,” Mr Lawless told ABC News.
Australia’s median property price fell by around 8.5 per cent over an 11-month period during the GFC, according to CoreLogic.
Adelaide property prices jumped 3.6pc in the past three months.(CoreLogic)
Mr Lawless said the property downturn is “accelerating”, and that he would not be surprised if “the current decline gets worse than what we saw during the GFC”.
He noted the main difference is that governments and central banks are currently determined to withdraw trillions of dollars worth of stimulus, in a desperate bid to lower inflation (instead of pumping it into the global economy, liked they did after the 2008 crisis).
Many analysts are predicting Australian property prices, on average, will fall between 10 and 20 per cent (from peak to trough) — with the two most expensive cities Sydney and Melbourne likely to suffer the biggest declines.
But even if the worse case scenario eventuates, it will not drastically improve housing affordability.
“If we saw say, a 15 per cent drop in national housing values, it would take prices back to where they were in about April 2021.”
How quickly (and by how much) prices fall will depend on how aggressively the RBA decides to lift its cash rate target in the next few months.
Brisbane and Adelaide tenants are experiencing the sharpest rent increases.(CoreLogic)
Since May, the RBA has lifted its cash rate target from 0.1 to 1.35 per cent.
If the central bank delivers another double-sized rate hike on Tuesday (0.5 percentage points), as widely expected, that would bring the new cash rate up to 1.85 per cent.
Buyers’ market and surging rents
“The market has moved to being very much more in favor of buyers over sellers now, especially in markets like Sydney and Melbourne,” Mr Lawless said.
“Buyers are getting back in the driver’s seat. They have more choice, and there’s less urgency.
“But for sellers, it means they need to be much more realistic about their pricing expectations, and they should expect there’s going to be more negotiation.”
Renters are also disadvantaged in the current property market. As their landlords’ mortgage repayments increase (and more foreign workers and students) return to Australia, rents have surged rapidly.
“Rental markets are extremely tight, with vacancy rates around 1 per cent or lower across many parts of Australia,” Mr Lawless added.
“If you consider the history of rents, it’s very rare to see dwelling rents rising at more than say 3 – 4 per cent per annum.”
But in the past quarter, the national average rent jumped 2.8 per cent — and they are up nearly 10 per cent in the past year.
Looking forward, Mr Lawless said renters may be under increasing pressure to rent out any spare bedrooms to more flatmates, look for cheaper rents in apartments (rather than houses), or “stay at home with mum and dad longer.”
“There’s definitely going to be some negative social outcomes from such high rents, which aren’t showing any signs of slowing down at the moment.”
