What's in store for borrowers in 2012

As we move into a new year, it is my feeling that interesting times are ahead for both the Australian residential property and mortgage markets. 

There is no doubt that as uncertainty continues in global economies many Australian home owners will continue to hurt financially. 

However, the prevailing economic conditions are also heavily influenced by decisions made by the Reserve Bank of Australia, which moved to cut the official cash rate by 50 basis points over November and December – decisions that will no doubt help stimulate the property and mortgage markets. 

Recent labour force data released by the Australian Bureau of Statistics has certainly fuelled speculation that the Reserve Bank will move in February (at least), with many pundits predicting a potential cut of 25 basis points – bringing the official cash rate down to 4%. 

Such downwards movement in rates is helping to improve purchase conditions and levels of confidence for many of those Australians who are in a position to buy yet spent 2011 sitting on the fence. And with the rental market continuing to tighten across the country, many buyers, including both previous renters and investors, are moving to take advantage of fortuitous purchase opportunities and lending conditions. 

Therefore, circumstances that are highly concerning for many are also helping to improve prospects for others.  Interesting times ahead. 

So how can borrowers best approach mortgage management in 2012?

When to fix? 

Understandably, many of those people looking to obtain finance to purchase a property will be waiting for the possibility of further rate cuts so as to secure the lowest fixed-rate home loan package. 

While there is certainly the potential for fixed rates to come down with further rate cuts, it is my suspicion that the rates offered by lenders across the board will eventually bounce back up at some stage over the course of the year. 

If this happens, it will occur with little warning and could be quite substantial – with prospective borrowers missing out on good mortgage packages, resulting in larger monthly repayments. 

As such, I would advise that those borrowers who wish to fix do so, as rates are coming down – a mortgage professional will be able to provide guidance as to the best product and associated rate for your personal situation. 

Choose your lender wisely 

I would encourage those borrowers who may usually prefer to do their banking with the big four to contemplate the mortgage offerings of second-tier lenders. As the major banks ponder whether or not to pass on rate cuts in full, the mortgage products of many second-tier lenders generally present good propositions, and are certainly worthy of consideration if suitable for your personal situation. 

This goes for current mortgage holders as well – don’t discount the value that refinancing with a second-tier lender could have if your current lender declines to pass on any future rate cuts (be it one of the big four banks or another second-tier company). 

Take care with valuations when refinancing 

With some property values declining in various areas of the country across 2011, investors may find that when refinancing in order to expand a property portfolio, a valuation shows their position is not as strong as they had thought.  As such, it is essential that investors ensure they have adequate equity prior to making further purchases, and ideally should consult with a mortgage professional to ascertain their true financial position. 

Despite concerning conditions in global financial markets, the year to come should certainly present some attractive mortgage opportunities to those Australians who are financially positioned to make a property purchase.  I would urge buyers to seek the advice of a mortgage professional so as to be able to take advantage of attractive interest rates and to ensure that you end up with the best home loan for your circumstances.

Charles Tarbey is chairman and owner of Century 21.