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Record Interest Rate Cuts Fail To Pep Up Borrowings

home loansThe further interest rate cut offered by the RBA on the 7th of May has done little to encourage borrowing activity in Australia. Michael Yardney for the Property Update reports that despite luring circumstances, the mortgage market is not as active as it was before the Global Financial Crisis.

2-year fixed rate has dipped by as much as 33 basis points and HSBC’s rate is floating at 4.59%- too good to be true surely. Yet, the borrowing activity is nowhere commensurate with the kind of rates on offer.

Home loan figures are nothing to be jubilant about

From the dawn of the century till the GFC, there were 55000 home loans written each month on an average. The figure has not touched 50000 since the meltdown.

It is a cause for cheer (albeit a small cheer) that the home loans written in April 2013 are 5% more than the ones written for March 2013.

The April 2013 figure also compares favourably against the figure of last April- there is a hike of 17%. These figures however do not reflect a buoyant market sentiment.

40000 to 50000 loans being written each month

In the last 3 years, says Yardney, market should have bounced back from the extreme lows of the recession period. However, 40000 to 50000 loans per month is not exactly the kind of response you want to look at, with the kind of rates at the buyers’ disposal.

Perhaps the lenders need to give extra perks in forms of reduced upfront fee and lower processing charges, opines Yardney.

You can read the original article here.

Brightness is just around the corner

Yes, the home loan seekers are not really forward-deployed as of now but in my opinion, things are surely changing for the better.

Low interest rates are not increasing the loan writings as much as expected because despite being quietly optimistic, the buyers are still cautious.

This is the reason why they are not seeking mortgage reductions (which they can avail) despite the lower interest rates.

Their desire to pay off their home loans or increase their equities as quickly as possible is a testimony to the rough days they had faced 3 winters ago.

Consumer Sentiment Index is giving the right signals

However, the latest Consumer Sentiment Index certainly provides a few bright clues to the mindset of the buyers.

The FHBs, owner-occupiers and investors alike are expected to borrow more in near future because the Index reveals that more of them compared to the last year believe that prices will increase over all the market segments.

What is the single most valid reason in your opinion for the low borrowing activity?