Caution returns to the mortgage market
Each month we invite mortgage advisors around the country to give insights into developments in the residential real estate market from their unique perspective. Our latest survey has attracted 52 responses.
The main themes to come through from the statistical and anecdotal responses include the following.
Bank turnaround times for credit applications have blown out further.
More buyer caution is appearing amidst global uncertainties.
Borrowers overwhelmingly favour fixing two years now.
Compared with a month ago, are you seeing more or fewer first home buyers looking for mortgage advice?
The net proportion of mortgage advisors saying that they are seeing more first home buyers in the market has decreased this past month from a strong 49% to 21%.
As the graph shows, this is the lowest reading since early-July last year just before the Reserve Bank acknowledged weakness in the economy and signalled their intention to cut interest rates.
The fact that more advisors are saying they are seeing first home buyers is reflected in their comments which mainly indicate good loan demand. But those comments also indicate a rise in concerns about things such as the international economic environment. For the moment, it looks like strength in the market is on a waning trend.
Comments on bank lending to first home buyers submitted by advisors include the following.
Properties that previously might have not been taken as security are starting to be accepted.
Lower test rates, Low Equity Premiums being removed – helping get the numbers up.
It’s getting easier but turn around times are still the biggest bug bear. Some banks now allow us to use two boarder income for high LVR which is a big change from not allowing any not that long ago and boarders can make all the difference.
Compared with a month ago, are you seeing more or fewer investors looking for mortgage advice?
Only a net 2% of advisors this month have said that they are seeing more investors in the market. Barring the 0% reading of May last year this is the weakest result since -13% in August 2023.
Overall we can say that investor demand has generally looked more tentative than that from other buyers following the easing of monetary policy in August last year. That tentativeness is now manifesting itself in a preparedness of many to step back from the market as they assess what is happening internationally and where interest rates might be headed.
Comments made by advisors regarding bank lending to investors include the following.
Test rates are dropping, and easing of criteria i.e. rates and insurance no longer being double counted.
Policy is shifting a little, which allows for more clients to qualify for lending in this arena.
One major bank has opened up approvals for investors to 90% LVR for newbuilds. A non-bank lender now welcomes applications for investors 90% LVR for newbuild or existing properties
Compared with a month ago, are you finding lenders more or less willing to advance funds?
A net 21% of mortgage advisors have this month reported that they see banks as more willing to lend than before. This positive result continues a trend of improving credit availability since February 2023.
The ironic and troubling thing however is that at the same time banks are opening their doors to more lending, the time taken to process loan applications is blowing out. Many brokers have expressed deep frustration at this development which seems to be the result of a combination of lack of bank resources and a strategy to drive borrowers towards accessing lenders directly rather than through brokers.
What time period are most people looking at fixing their interest rate?
Two months ago only 4% of mortgage brokers said that borrowers preferred the two year fixed rate term over all others. Now, 77% say that term is the most highly favoured, as seen in the following graph.
This development likely reflects the appearance of 4.99% two year fixed rates. This graph shows the rapid decline in borrower preference for fixing one year or less recently.
The preference for fixing two years has soared.
Are more property owners asking about refinancing?
A still relatively firm net 27% of mortgage advisors say that they are receiving more requests from clients for mortgage refinancing. This reading is down from 53% last month, but as the graph shows this gauge can be quite volatile and we cannot say yet that refinancing demand is falling back to the weak levels of 2021-22.
