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06:19:10 am

Australia Banks Cut Rates On Fixed Home Loans As Borrowers Balk

The banks' generosity has not extended to variable rates, however, which cover the vast bulk of the country's A$1.3 trillion ($1.7 trillion) in home loans, leaving the onus on the RBA to cut official rates if it is serious about a housing recovery. (Read More: Australian Central Bank Sees Scope to East, Watching Business Investment ) "The banks are not going to cut variable rates on their own. And first-home buyers need to know that rates are going to stay down for them to have the confidence to jump into the market," said Brian Redican, a senior economist at Macquarie. "Only the RBA can do all that." While the central bank did ease in both October and December, the impact on borrowing has been all but imperceptible. Data from the Australian Bureau of Statistics out on Monday showed the number of home loans taken out in December dropped 1.5 percent, the third straight falls and a five-month low. Annual growth in housing credit slowed to an all-time trough of 4.5 percent at the end of 2012, a long way from the double-digit pace common in the previous two decades. Indeed, growth peaked at no less than 22 percent in 2004. That could be one reason the central bank struck an unusually mournful tone in its quarterly report card on the economy last week, lamenting the lack of life in investment spending outside mining. (Read More: Australia Leaves Interest rates Unchanged at 3% ) The outlook for tame inflation and gradually rising unemployment fueled expectations that not only would the RBA likely have to cut the cash rate again, but that it would also have to keep it low for longer. It is this dawning realization in markets that has dragged down key swap rates in recent weeks.
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Boom time as average home loan crosses $500,000

That is important for banks as fixed-rate mortgages are priced off the swap curve, giving them scope to ease independently of any move in official rates. FALLING NOT FIXED The average fixed rate at the end of January was already the lowest in two decades at 5.52 percent, but the latest cuts by banks mean it's even lower now. Westpac lopped 40 basis points off its packaged two-year fixed rate taking it to 4.99 percent. St. George cut its entire fixed rate suite, from one to five years.
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Australia banks cut rates on fixed home loans as borrowers balk

Over the past five years, the size of the average home loan with NAB has grown 11 per cent to $313, 594. Mark Hewitt, AFG's general manager of sales and operations, said strong house price growth was one explanation for the rise in the size of home loans. Another was the unusually high number of investors who were capitalising on low rates and strong rental growth. Investors made up almost half those who took out mortgages in NSW with AFG last month (49.5 per cent). This is the highest level of investor activity the company has recorded for any state over the 15 years it has been tracking these figures.
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