Mortgage Loans, Home Loans, Bad Credit Home Loans

Although we have recently seen numerous cuts to fixed rate home loans – the trend is about to reverse.

New research from Mortgage Choice has found that for the first time in three months, there was a jump in the average weekly interest rate for three year fixed rate products – climbing to 7.37 per cent from 7.33 per cent.

The average one-year fixed rate also went up, to 7.03 per cent from 7.02 per cent, while the five-year fixed rate was steady for the second week at 7.81 per cent.

This compares to an average basic variable rate of 7.07 per cent and standard variable rate of 7.36 per cent, both of which have not changed for two consecutive weeks.

Most industry experts believe that it will not be long before most lenders start putting up their fixed mortgage rates to reflect the cost of funds.

“At 0.04 of a percentage point it’s not a large increase but it is one that leads us to question whether fixed rates are now on their way up,” Ms Sheppard said.

“Over the three months previous to this week our panel’s average three-year fixed interest rate had gone down by 0.46 percentage points. On a 30-year $300,000 principal and interest loan this is a monthly repayment difference of almost $95.”

According to a report in today’s Financial Review the Australian Banks are about to make a move on interest rates outside of any activity from  the RBA.

Banks are keen to increase rates to claw back some of the profits lost to date through higher costs of funding.

Deutsche Bank analyst James Freeman wrote in the report that he expects banks to lift interest rates by approximately 20 basis points above the RBA over the next six months.

The report comes as Treasurer Wayne Swan urged Australia’s big banks last week not to “squeeze customers by raising rates above any future movements by the independent Reserve Bank”.

If the banks do choose to move, it will contradict what Westpac’s chief executive Gail Kelly told borrowers earlier this year. However things change and over time there are always new reasons and new strategies introduced by the Banks to justify interest rate increases.

After announcing the bank’s $3 billion half yearly profit, Ms Kelly told borrowers in May that the bank had no intentions to move out of step with the RBA.

While Westpac’s bank funding costs and charges remained under pressure, Ms Kelly said the major was well-funded.

“It’s not on our agenda to increase our mortgage rates over and above what the RBA may do,” she said.

According to recent survey by the LoanMarket group, home owners are too lazy to refinance their mortgage or to take their loan to another lender.  They can not be bothered to do so even if there is a saving in terms of thousands a year.

The survey found 58 per cent of respondents said they would need to save at least $1500 or more a year to be motivated to refinance with another lender.

Loan Market Group believes that borrowers do not possess the knowledge required to make a decision to refinance. This is the role of the mortgage broker.

Borrowers can achieve significant annual savings by shopping their mortgage around and getting a better deal than one they currently have.

The online poll of 380 people found 42 per cent of those surveyed needed to see potential savings of more than $2,000 a year before considering switching loans.

While with some lenders exit fees to apply, in many cases the costs of the refinance will be recouped many times over through the  available savings.

In an effort to offer a competitive home loan product to the growing needs of the Australian self-employed sector, Adelaide Bank has launched a new low doc mortgage.

The mortgage is known as, Smartdoc Plus, and is said to be a solution based loan that allows self-employed people to purchase residential property, refinance an existing lo doc loan and consolidate their personal lending into a single home loan.

According to the bank’s general manager of thirds party lending Damian Percy, the new mortgage will be available for loans up to 70 per cent LVR and has the requirement of an income declaration from the borrower’s accountant.

“Low doc loans were introduced into the Australian mortgage market in the late 1990’s and Adelaide Bank was an innovator in the low doc market, adopting the product early and carving a niche among mortgage managers and brokers as a specialist in the field,” Mr Percy said.

“At the peak of its popularity in early June 2007, the low doc market was estimated at $38 billion, and Adelaide Bank held 12.3 per cent of the market with a $4.7 billion portfolio.

The Global Financial Crisis was blamed in great part on what was seen as irresponsible lending via low doc and high lvr products on offer in the USA. This has somewhat tarnished the image of low doc finance.

The Adelaide Bank sees that there is a genuine need in the community for a low doc home loan which enables eligible applicants to access mortgage funds without hefty mortgage insurance fees.

“Our intention is to provide a non-insured option for genuine self-employed borrowers who are yet to complete their financials. In our view, a simple accountant’s declaration represents a practical and efficient way to establish income in such circumstances, without requiring introducers to wade through reams of documents and become accountants themselves.”

According to figures provided by the mortgage broker Loan Market, home loan inquiries from first home buyers are on the rise – in fact there has been a 27.7% increase in inquiries during August 2010 as compared to July 2010.

The group said an easing of lending criteria from some banks has encouraged borrowers into the market.

Many lenders have announced increases to their maximum Mortgage LVRs in an effort to make their products more attractive to first home buyers.

“These are ideal conditions for first time buyers who have been less active since generous boosted government concessions such as the expanded First Home Owners Grant were wound back at the end of last year,” Rushton said.

The findings of Loan Market tally with those of mortgage broker Aussie, which reported a surge in first homebuyer activity since March, with a doubling of enquiries via its website.

Mortgage Choice spokesperson Kristy Sheppard said that consumer confidence in the housing market is quite strong, but there are still hesitations from first time buyers unsettled by affordability concerns.

According to representatives from Mortgage Choice, First Home Buyers should be looking to jump on the property train as soon as they can. Now that more lenders have introduced high lvr mortgages, the time is right. First Home Buyers no longer need to have a huge deposit before they can borrow.

Adelaide Bank has reintroduced lending up to 95 per cent LVR, while Westpac has extended its maximum LVRs to 92 per cent for new customers.

In addition, Mortgage Choice spokesperson Kristy Sheppard said house prices were beginning to stabilise, which means FHBs have not been priced out of the market.

“At present, we’re looking at higher than average property listings with lower than average competition between buyers. But it’s a cycle. As positive sentiment grows so too will demand, which may mean now is a good time to act. What prospective first homebuyers really need to do is explore their choices carefully – both property and mortgage wise – before leaping in too quickly.”

It isn’t just mortgages that have become more FHB friendly. Property prices also have stabilized. Growth is there but at reasonable levels. Auction clearance rates have also moderated, giving FHB a chance.

As more lenders are starting to introduce 95% home loans many are beginning to wonder whether we will be back to no deposit home loans before too long.  Weren’t such loans the reason for the collapse of the US property market?  If so, then why are we slowly moving back to the same.

Paul Caputo, the acting CEO of Genworth does not believe that either Genworth or the industry are likely to move back to 100 per cent LVR anytime in the near future.

“One thing we learnt from the GFC was that borrowers perform better when they have some level of savings. Their behaviour is very different to those that have no savings at all. In this respect, I don’t think we are going to see the industry move back to 100 per cent LVRs in the near future,” Mr Caputo said.

Not everyone in the Australian Finance industry believes that high lvr mortgages are a good idea.

Speaking at the JP Morgan and Fujitsu Australia Mortgage Industry Report media briefing yesterday, Firstfolio chief executive Mark Forsyth said while the industry is wary of moving back into the 100 per cent LVR space, there is always going to be one lender that wants to “ruffle some feathers”.

But even if lenders do decide to move back into the no-deposit home loan space as we had previously, qualifying for such a loan would be next to impossible and it would be little more than a marketing ploy to attract home loan applicants.

“Adelaide Bank announced it will reintroduce lending up to 95 per cent LVR, but each borrower has to meet a lot of requirements before they are entitled to the higher LVR,” he said.

Last month, Adelaide Bank announced that the new loan to value ratio would only be available to owner occupiers via the bank’s third party channel and mortgage managers.