The largest mortgage broker in Australia said homebuyers are now abandoning the housing market, as interest rates climb up. This following the decline of its sales last month to a five-year low.
AFG, an Australian broker with a 10 percent market share, said a total of $1.5 billion worth of loans were sold last month, a fourth consecutive monthly decline. It is nearly half the $2.9 billion of sales in September, the month before the Reserve Bank began to fasten up its interest rates from record lows.
Although the property market is moving slowly this year, AFG said last month was the worst period since January 2005, stressing that the increasing interest rates are affecting the demand compared to the global financial crisis.
”We’ve seen a lot of data recently about rising house prices and increasing consumer confidence, all of which would suggest buoyant property markets. But the opposite is the case,” said Brett McKeon, AFG’s Managing Director.
He also said the 0.75 percent increase in interest rates since October 2009 had frightened potential buyers. ”Uncertainty about the future of rates is draining confidence out of the market.”
The broker said that the average mortgage in Australia was $350,000 and 57 percent of these are the standard variable rates. If rates increase by 25 basic points tomorrow, the minimum monthly repayment of such loans will increase by $55 to $2447.
As expected, the war between banks over how big an increase must pass on to their clients also increased at the weekend.
Wayne Swan, Australia’s treasurer leapt on National Australia Bank’s promise not to exceed any increase in official interest rates, a commitment that other lending institutions failed to make.
”Any other bank that thinks they can get away with gouging their customers on rates can expect the same severe community backlash that Westpac, in particular, along with CBA and ANZ, suffered before Christmas,” said Mr. Swan.
Economists expect that lending will move between 4.5 and 5 percent this year, as official interest rates return to its neutral level and first-time homebuyers play a smaller role.
Figures from AFG confirmed this trend, showing that shares of first-time homebuyers dropped to 12.9 percent from 25.8 percent the previous year.