More borrowers choosing safety of fixed-rate loans as buyer activity picks up: John McGrath

More borrowers are choosing fixed loans and shopping around for the best refinancing deal as inquiries from buyers in Sydney and Melbourne show signs of picking up, according to McGrath Estate Agents boss John McGrath. 

In his latest market outlook for 2012, McGrath writes that the housing market remains in a state of flux due to global worries, recent job cuts and the out-of-cycle rate increases by the banks, but notes that “buyer enquiry is considerably higher, with more people attending opens in January and February”. 

He also highlights recent mortgage lending figures from mortgage broker AFG, which reported a 40% increase in national mortgage sales in January (up 14.5% in NSW) compared with the corresponding period last year, when natural disasters significantly impacted sales.

“The under-$1 million market is still the strongest segment, but there’s new interest up to $2 million and even beyond in Sydney and Melbourne where higher-end buyers weren’t around as much in 2011,” McGrath says.

“While it’s too early to tell whether this new enquiry will translate into sales, it’s logical to think that if enquiry is up and new mortgages are up then we will see a good start to the first quarter,” he says.

McGrath also notes the growing propensity for borrowers to choose fixed-rate loans and the increase in refinancing activity.

“Many borrowers are choosing the safety of two-year fixed loan rates as low as 5.8%. AFG says 18.6% of all new loans in January were fixed, more than double that of six months ago. Borrowers are increasingly shopping around with 50,000 people reportedly refinancing last quarter,” he says.

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According to McGrath, the banks’ decision to move independently of the RBA will cause some insecurity among borrowers.

“When the RBA drops rates, it’s a sign our economy needs a boost and in the past, home owners have been able to count on mortgage relief during these periods. But with the banks citing international pressures as the major determining factor for their home loan rates, consumers may no longer have the comfort of lower repayments when our economy slows,” he warns.

He also warns that unemployment remains a concern following jobs cuts by several big companies and could hinder a housing market recovery.

“While we’re not seeing rising unemployment on any major scale at the moment, if it were to blow out significantly from here it would likely have a damaging effect on property values and rents,” he says.

For investors looking for sound investment opportunities McGrath makes the observations:

• Buying residential real estate within 10km of the CBD in Sydney is an excellent choice, with outer suburban areas not doing as well as city hubs and the coastal belt

• Investors seeking higher rewards might look to south-east Queensland this year. We’re already seeing more activity on the Gold Coast, with investors coming from the local area, as well as Sydney, Brisbane and Melbourne

• Markets like the Gold Coast and Sunshine Coast were significantly oversold during the GFC and depending on the level of mortgage sales over the next 12 months, should have very strong upside when they begin a real recovery either this year or in 2013.
  
  
• We’re seeing a significant jump in enquiry in many of our markets, particularly Bowral, Ballina, Byron Bay, Wollongong, Thirroul, Newcastle, and the Gold Coast.