Mortgage brokers call for rate cut and first-home owners’ grant changes

Mortgage broking groups Mortgage Choice and Loan Market Group are calling on the Reserve Bank to cut interest rates next month to help encourage more first-home buyers back into the market. 

Mortgage Choice CEO Michael Russell says a rate cut is needed to stimulate the non-mining sector. 

“We’re already witnessing the extremes of a two-speed economy, evidenced in slowing demand for property and a struggling retail sector,” Russell told Property Observer

Russell also believes that if the government remains committed to the first-home owners’ grant, then it should look to “make it more equitable by indexing it to the median house price and backdating it to its first anniversary, July 2001”.

However, Bendigo and Adelaide Bank chairman Robert Johanson is opposed to the government intervening in the housing market and calls the grants “bad policy”, which unnaturally drive up the cost of housing.

"The government were just giving people money to get into new houses, which transferred the value to the sellers. It just puts costs up," Johanson says.

"I think it's a waste and a distraction," he says.

BIS Shrapnel senior manager Angie Zigomanis says first-home buyer incentives bring forward demand and consequently result in a drop off further on – as has been the case in Victoria.
Loan Market recorded a 20% drop in the number enquiries from first-home buyers nationwide during March. 

The fall was greater in New South Wales and Victoria with activity in those states down 25% and 23% respectively in March compared to February. Only Queensland bucked the trend with a 3% rise. 

Percentage change in first-home buyer enquiry March 2012 compared to February 2012 

















Source: Loan Market Group

Loan Market corporate spokesman Paul Smith says the decision by the RBA to leave rates on hold and the major banks lifting their variable rates in February has deterred first-time buyers. 

“There had been a revival in the first-home buyer sector late last year and early this year on the back of the RBA twice cutting the cash rate in November and December, 2011,” he says. 

“But the combination of official rates staying on hold and the banks raising rates independently of the RBA has caused some confusion in the marketplace as some buyers are unsure exactly where home loan interest rates are headed.”

Smith says many sectors of the economy would welcome an interest rate cut next week. 

A Loan Market consumer survey has found more than 70% of respondents expect the RBA to cut the official rate in March. 

“Although some progress has been made in the European debt crisis, and many economic indicators are within target, there remain stalled sectors that would benefit from an April rate cut by the RBA,” Smith says. 

“The RBA has noted that the banks no longer face the cost of funding pressures that caused them to lift their home loan rates independently of the central bank. 

“So if we get a cut in the cash rate on Tuesday consumers will be hoping their lenders follow suit and pass on the reduction in full,” says Smith.



Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer


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