Economists were predicting a 0.3 percent increase in home loans but total finances for housing for October went up by 2.2 percent to $20.901 billion. These numbers reflect the status of the housing market before the Reserve Bank of Australia increased the official cash rate from 4.5 to 4.75 percent after six months of non- movement.

In the mean time, economists predict that the official cash rate will not move for a while but upward inflationary pressure due to a stronger economy can push up the cash rate again. The figures for October are decent but it does not factor the latest RBA cash rate increase yet and it is more interesting to see the figures for November.

Nonetheless, October’s figures are a little above expected though first home buyers only comprise of 15 percent of the total home loans and it impossible that this percentage will rise given that the First Home Buyers Grant has ended and interest rates have increased. Thus, it is expected that investors will take advantage of the market’s situation.

Figures for October were better than expected but the increase reflects stronger conditions in the labour market as well and the October figures is a positive sign before the cash rate increase kicked in.

Now that the holidays, the election and the grand finals are done, property sellers are once again busy getting their homes ready for sale. The competition in the market is not as tight though for property prices in the major cities have either decreased, remained the same or increased only minimally.

There is a possibility that the official cash rate that is maintained by the Reserve Bank of Australia will go up by as much as 5.75 to 6 percent by next year. This news is not welcome to those who have 25-year home loans for it will cause an increase in their monthly repayments. Households have no choice but to tighten their spending once the interest rate hike is official.

Speculations are brewing that the Australian property market is in a bubble. However, the growing economy and decreasing unemployment is keeping the market away from worse conditions. If you would still like to buy a property, it is important that you keep an eye on interest rates and ensure you know how much you can borrow.

RHG raised its standard variable rate by 39 basis points to peg their interest rate at 7.88 per cent. A report by the Sydney Morning Herald states that this home loan rate is higher than the other 110 Canstar Cannex-rated lending companies. This development comes a week after a NSW Supreme Court ruling revealed that RHG was in default with a creditor’s loan repayments.

The Morning Herald also reports that an interest rate that high shows the higher cost of home loan funding for non-bank lenders since the financial crisis.

In 2007, RAMS was sold to Westpac which is also known for high interest rate hikes. However, Westpac chairman Ted Evans stated earlier this month that these hikes are important to match higher funding costs. Also, Evans stated that having various interest rates from different banks gives customers the chance to compare the rates and find what is suitable for them.

He also added in an interview by the Australian Associated Press that market competition signifies that the scope of the company’s power is not abused and that the said competition is very much alive.

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Swift movements in the market began on December 1 after the central bank revealed the minutes of their meeting. These shake-ups were fueled even more after RBA Deputy Governor Ric Battellino’s speech.
Battellino said that rates can remain at its present rate by February due to the monetary policy’s positive stance that brought it to normal range. This comment by Battellino that he stated at the Australasian Finance & Banking Conference in Sydney surprised many market movers and this could trigger a slump in the Australian dollar under the US$90 level.

He also added that though the cash rate is still at a low 3.75 per cent, monetary policy was back at normal because the deposit’s current level, as well as the lending rates for business and housing, made the cash rate at 4.75 per cent before the crisis.

The RBA Deputy Governor’s remarks were delivered an hour after the Australian Bureau of Statistics released data that economic growth during the third quarter of 2009 is lower than the target level. This is due to the downfall of exports though imports are going up. Meanwhile, household demands and businesses purchasing more investments and equipments remain solid.

Also, the percentage of the financial market that is predicting another 25-basis point increase in February went down from 67 to 45 per cent.
Due to these figures, ANZ acting chief economist Warren Hogan reacted that the GDP numbers mean that there must be some urge to put interest rates back to neutral and that Battellino’s remarks can cause a major setback to having substantial gains in the cash rate in the succeeding months.

Hogan also added that the emergency setting of interest rates is now erased and the policy for it will be adjusted according to present conditions. Also, Westpac chief executive Gail Kelly told after their annual meeting that the RBA might raise rates very carefully next year though the cash rate level is not at normal yet.

However, Westpac chairman Ted Evans commented that recovery is still a long road ahead. He also defended their bank’s move to raise interest rates higher than that of the RBA’s. Evans explained that since interest rates are rising in the domestic and global scene, it is right for them to increase these costs to prevent the further weakening of their bank and of the Australian financial and economic system all together.

Evans also added that they have absorbed the rate increases rather than let their borrowers suffer it. He also claimed that deposit rates being held down or business rates being raised is unfair to subsidize home loan rates.

Information Source – RBA

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This statement was stated in an economic note that was released in Canberra. Swan added that the Rudd administration knows the need to make Westpac, Commonwealth Bank and ANZ feel the pressure of competition after the said banks raised their home loan mortgage rates more than the official cash rate.

With the RBA raising their interest rate to 3.75 per cent, Commonwealth Bank raised its interest to 6.61 per cent while ANZ and Westpac raised their rates to 6.66 and 6.76 per cent respectively. Meanwhile, the National Australia Bank followed the RBA’s 25-basis-points increase to bring their interest rate to 6.49 per cent.

With the collapse of the U.S. subprime shutting down a number of global securitization markets, the building societies, credit unions, home loan founders and smaller lending companies in Australia have fought for funding and market share. But though their competition might be eroding, the Big Four’s potential mergers with its smaller competitors are likely to be disregarded.

Competition and Consumer Commission Chairman Graeme Samuel stated that lesser competition means that the ruling companies can charge for higher prices. Because of which, Samuel said that potential mergers will be thoroughly examined.

With their intention of bringing competition, the government purchased $8 billion of the mortgage-backed bonds of the smaller lenders. Swan said that they have been buying mortgage-backed residential properties since November to increase the competition within the home lending industry.

This policy will ensure a steady flow of funds for the smaller lenders and greater competition against the big banks. According to a data by the Australian Prudential Regulation Authority, the Big Four had total deposits of A$861.6 billion by the end of August. This figure is triggered by the folding of smaller lending firms that have succumbed to the pressure of the financial crisis.

Despite that, the latest Australian Finance Group mortgage index reflects that home loan purchases went down for a second straight month due to the declining first home buyer activity and higher interest rates.

The average home loan value is now at $367,000. This 6.4 per cent increase proved to be the biggest hike since May 2009.

Among all states, Victoria has the highest mortgage value growth with 12.1 per cent. At second is NSW with 10.7 per cent while Western Australia’s mortgages rose three per cent. Average new mortgages in Queensland stayed the same.

Though there is an increase, AFG Sales and Operations General Manager Mark Hewitt claimed that confidence on home loans is still unstable.

Hewitt stated that though higher mortgages rates correspond to higher consumer confidence, home loan sales transactions in October and November went down. He also added that the recent interest rate hike by the Reserve Bank of Australia might have negative implications to possible mortgage customers for it can take out confidence with home loan deals.

November’s home loan transactions totaled 6,541. This is 8.36 per cent lower than October’s numbers. And while 13.7 per cent of the new loans were by first home buyers, it still is 14.4 per cent lower than the peak rate of March 2009.

Though there is a decline on the consumer end, property investors own a year-high 33.8 per cent of the new mortgages filed in November. The previous high was March’s 24.7 per cent.

Also, AFG pointed out that non-bank lending went up to 11.7 per cent in the third quarter of 2009. This rate is 4.2 per cent higher than the figure of second quarter of the said year.

This surge signifies a rising rivalry between the four major banks and second-tier lenders in the home loan sales market because of improved economic conditions. Because of this development, Loan Market Group executive chairman Sam White stated that non-bank activity will continually increase by 2010 and the four major banks will have a run for their money.