First home buyer loans surge as grants kick in

First home buyer loans surge as grants kick in
Peter Martin
January 15, 2009

EMERGENCY moves to boost first home owners' grants have paid off with a surge in first home buyer mortgage applications as professional investors desert the market.
- First home mortgages surge- Grant impact flowing through- Newly constructed houses popular

Figures for November, when the grants were doubled to $14,000 for buyers of existing houses and tripled to $21,000 for buyers of new houses, show that first home buyer applications surged almost 18 per cent, taking the first home buyer share of total loans to its highest point in seven years.

In addition, the size of a typical first home loan jumped $4700 to $269,200.
"This is an extremely positive first indication that the Government's moves are having an impact," said Commonwealth Bank economist James McIntyre. "Coupled with lower interest rates and improved affordability, first home buyer activity is likely to continue to improve further."

Loans to buy newly constructed houses jumped 9 per cent in November, far exceeding the jump of 1.1 per cent in the number of loans to buy existing houses.
It is the third month in a row in which the number of loans to buy houses climbed after eight consecutive declines.

It follows interest rate cuts in September, October and November — for a total drop of 2 per cent — which were followed by a further cut in December of 1 per cent.

Westpac is forecasting further cuts that will take the Reserve Bank's cash rate to 2.75 per cent from its present 4.25 per cent. This would push standard variable mortgage rates below 6 per cent for the first time since 1970.

Dun and Bradstreet forecasts released yesterday predict zero economic growth in Australia through 2009, an outcome that would pressure the Reserve Bank to push interest rates lower.
The international survey describes Australia's economy as "stagnant" in the September quarter "even before confidence in the global economy floundered in October 2008".

Demand for fixed-rate mortgages has all but dried up in anticipation of further interest rate cuts. Only 2.5 per cent of the mortgages issued in November were with fixed rates, down from 24 per cent in January.

Investment housing loans slumped a further 6 per cent in response to financial turmoil, sparking talk of a "rent squeeze" because there are fewer landlords.

"This is a real concern for the state of the private rental market," said Housing Industry Association chief executive Chris Lamont.

"Without affordable rental housing the number of households in rent stress could climb by a further 80,000."

Mr Lamont called for incentives to boost investment in affordable housing. He said that without them there would be an increase in the demand for public housing and potentially a further increase in homelessness.