Property News

Market for home loans hits the wall

8 January 2007

The market for mortgages is drying up, with the nation's largest brokers claiming home loan approvals plunged 30 per cent last month.

The Australian Finance Group said yesterday NSW had taken the brunt of the December downturn, falling 37 per cent on a month-on-month basis.

Not even booming Western Australia escaped the freefall, with the number of new mortgages down 33 per cent.

Queensland fell 28 per cent, and there was a 31 per cent drop in Victoria.

While December numbers are traditionally down in the lead-up to Christmas, analysts said the AFG figures indicated the number of people taking out mortgages was well below the seasonal averages.

Property analyst Adam Lim said the numbers pointed to a buyers' market this year, in which capital city house prices could fall by 20 per cent.

"It's certainly going to get worse," the Melbourne researcher said.

AFG, which manages $32billion in home loans, said its sales in NSW were 6 per cent down on December 2005, while in Victoria the figure was 8 per cent. The group's general manager of sales and operations, Mark Hewitt, said the latest data challenged the idea of a two-gear economy in which resource-rich Western Australia and Queensland led the nation.

"From a mortgage perspective that model could be losing its relevance," he said.

"Both Western Australia and Queensland have come down from their red-hot levels, and we're seeing the same signs of caution appear in those states as in NSW and Victoria, with consumers worrying about property markets in general and interest rates in particular."

The actions of the Reserve Bank appeared to take their toll in NSW, where the average mortgage peaked at $384,000 in October, but fell to $376,000 in December. In Victoria, the fall was more marked, dropping to $268,000 after a September peak of $294,000.

Average mortgages even fell in Western Australia, ending the year at $325,000 after a September peak of $341,000.

According to AFG, the near-record levels of fixed-rate loans reflect concerns over rising interest rates. In December, 22.5per cent of all loans were fixed, compared with 18.9 per cent a year ago.

Despite the fall in home loan applications, some people have found themselves with little option but to push on into the property market.

With a 2 1/2-year-old child and a baby due in three months, Rachelle and Michael Gibson, of Geelong in Victoria, are un happy about the prospect of further interest rate rises.

But they need to put a larger roof over their growing family, which is why they joined more than 70,000 home-buyers who obtained mortgages in December. Mr Gibson, a Deakin University IT manager, and his wife, a stay-at-home mother, took out a "substantial" mortgage to buy their second home in waterfront Rippleside, regarded as one of Geelong's most up-and-coming suburbs.

"Even though the local market isn't all that strong, we're going to be there for the next six or so years, and by that time we should be able to make a nice profit if we decide to sell," Ms Gibson said.