Home buyers seek comfort of fixed loans

By AAP and the Herald Sun, 9 December 2010

JUST under 50,000 mortgages were taken out in October - the largest number since January - and a growing number of people sought the comfort of a fixed rate loan.

The Australian Bureau of Statistics (ABS) reported this week that 49,307 home loans were approved in October, a 1.9 per cent seasonally-adjusted increase compared to September.

Economists forecasts had centred on a 0.3 per cent increase.

The figures preceded November's unexpected jump in mortgage rates.

The proportion of homebuyers taking out a fixed rate loan of two years or longer grew to 6.9 per cent in October compared to 4.4 per cent in the September, the biggest number since July 2009.

Industry sources say the number of fixed rate loans grew even further in November in reaction to the average 40 basis points increase among major bank lending rates.

First homebuyers remained cautious in entering the market against the threat of rising interest rates, making up just 15.4 per cent of all loans granted in October, the smallest proportion since July 2004.

The Reserve Bank left the offical cash rate unchanged at 4.75 per cent at its monthly board meeting this week, and indicated that rates are likely to be stable for several months.

While rates are on hold and home loan approvals are showing signs of stabilising, property experts say buyers are likely to remain cautious for some time.

Rates on hold "for months"

Commsec chief economist Craig James said it was clear "investors and Reserve Bank officials alike don't expect significant rate hikes in the months ahead".

In the central bank's statement, Mr Stevens reiterated the historic strength of Australia's terms of trade and said private investment was picking up in response to high commodity prices.

But he said that there continued to be "a degree of caution" in consumer spending and borrowing, which had driven a "noticeable increase" in the household saving rate.

"Over the next few quarters, inflation is expected to be little changed, though it is likely to increase somewhat over the medium term if the economy grows as expected," Mr Stevens said.