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The Five Things To Expect In The Mortgage Market In 2022

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Mortgage rates have already begun to rise prior to the significant increase in cash rates by the Reserve Bank.

But interest rates are not the only thing that will change in 2022. The types of loans preferred by lenders and borrowers are already beginning to change.

This year is a new chapter in the housing market and we hope that there is no major COVID-19 turmoil seen in the last two years.

We are already watching Solid new listing activities From sellers at realestate.com.au, sellers who may have been delayed until the blockade uncertainty is gone are trying to contain the recent extraordinary market profits.

On the other side of promoting this activity are many buyers who are wondering about the mortgage situation next year.

There are five major trends we have already begun to see that are likely to impact the 2022 mortgage market.

1. Interest rates are rising (regardless of RBA movements)

RBA confirmed that Interest rates are rising, The timing is unknown. However, interest rates paid by borrowers on mortgages have already begun to rise.

In November last year, the average interest rate paid by new borrowers rose for the first time since the pandemic began, and interest rates have continued to rise ever since.

This trend is expected to continue slowly throughout the year. As the RBA raises the cash rate, it significantly increases the amount the borrower has to pay.

2. Floating rate will be the default choice (again)

Rising interest rates have been driven by fixed rate price revisions. Floating rates are still falling.

This trend seems to be reversing the prevalence of fixed rates, one of the more unusual features of the COVID-19 mortgage market.

Usually, about 15% of new mortgages are taken out at a fixed interest rate. However, the COVID-19 crisis brought extra liquidity support to the banking system by the RBA, especially fixed rates.

At its peak, almost half of new loans had fixed rates.

However, the unwinding of liquidity support has brought the mortgage market back to a more normal state, reducing favorable pricing for fixed-rate products. Accordingly, the adoption of floating interest rates has begun to accelerate.

Floating rate loans made in 2022 are expected to return to three-quarters of the share, despite expected interest rates to rise over the next few years.

3. Competition for investors to remain strong

Investor lending increased significantly in 2021. According to the latest data, over 30% of new loans are for investors.

This is low compared to recent history, investing during the COVID-19 boom in home prices due to a combination of weak rental demand and rent growth in investor-favored areas, and general uncertainty about economic conditions. The house was almost on the sidelines.

Lenders are already responding to the rise in investors, and intensifying competition has pushed investor interest rates to the lowest levels in recent years compared to homeowners’ interest rates.

Look for growing investor lending and more investor lender competition over the next year.

4. High-value loans to valuation loans continue to be in short supply

Recent soaring home prices have made it even more difficult to raise a 20% mortgage deposit. However, the lender resisted the urge to take more loans with less deposits (called high loan to valuation or LVR loans: 90 LVR loans have 10% deposits).

Since the period before the pandemic, the share of high LVR loans has decreased by 20% and is now only 7.5% of new loans, further reducing the share of investor loans.

This is partly due to the guidance by the Australian Health Regulatory Authority that restrictions on high LVR loans are considered to be dominant in housing market risk, especially risk to investors. Lenders are responding ahead of APRA’s formal action to reduce their exposure to the reversal of rising real estate prices.

High LVR loans are expected to continue to be difficult. This creates a program like the first federal mortgage deposit scheme. This scheme is increasingly valuable to those who are trying to enter the housing market, with the government guaranteeing a shortage of deposits for first-time buyers. However, the location of this scheme has an upper limit and is in high demand.

5. Don’t expect to avoid an increase in repayments by switching to interest only.

Lenders have avoided interest-only repayments since APRA’s 2017 action to limit these loans. APRA’s “benchmark” aimed at limiting interest-only loans to less than 30% of new loans has been removed, but lenders have recently maintained interest-only loans at about 20% of new loans. increase.

The main method is higher pricing. For homeowners, interest rates on interest-only loans are, on average, 0.86 percentage points higher than principal and interest repayments.

This interest rate differential is widening. Expect it to remain high as lenders are trying to keep their book interest-only mortgage share low.

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