Property boom
The mortgage boom shows no signs of slowing down. Photo – Canva.
  • Unprecedented levels of mortgage borrowing show no sign of abating
  • The strong housing market is set to continue, but can't go on forever
  • Not everyone agreed that super low interest rates will continue through 2023

Three-quarters of experts expect the current high levels of mortgage borrowing to continue, according to a new survey from Finder.

With interest rates on hold at their lowest ever level of 0.1% for six months, new loan commitments for March 2021 showed another 5.5% rise. They have now risen 55.3% over the past year.

Research shows that new loan commitments usually feeds into house price rises with a six-month lag. With asking prices already on the rise, these new loans look likely to stoke the property boiler for the rest of this calendar year, at least.

Head of consumer research at Finder, Graham Cooke, seems to think so anyway.

“Property demand is continuing to run rampant, with buyers spurred on by a combination of fear of missing out (FOMO) and low interest rates – many of which are beginning to rise.

“The last six months saw the highest amount borrowed to purchase housing over any six-month period in history. What economists have told us is that the next six will be record-breaking.

“While low rates mean lower repayments, tread cautiously – if you overextend yourself and rates rise, you may find you have a tiger by the tail.”

Graham Cooke, Finder

According to many commentators, including Tony Makin of Griffith University, regulatory controls may be necessary to cool borrowing. These are called ‘macroprudential controls’.

“Future interest rate rises and/or macroprudential controls will curb excessive borrowing at some point, dampening the current pace of house price growth,” he said.

Over half of the experts surveyed expect the number of auctions to increase in the coming quarter, surpassing the Q1 total of 19,000, although a third accused them of ‘artificially inflating’ property prices across the country.

Rental market revival?

Australia has maintained a two-speed rental market throughout the past year, with prices dipping in capital cities and soaring in regional towns.

A third of respondents thought rental prices should remain steady across the country over the next year, while some expecting prices to increase by 5% on average across the capital cities.

Australian rental market, 2013-

[Select part of the chart to zoom in on various years, and ‘reset zoom’ button to return]

“The rental market, flattened by the pandemic, is set to recover at a much slower rate than the housing market,” said Mr Cooke.

“The absence of international students and migrants has caused prices to nosedive in the capital cities, and this may continue for some time if numbers don’t pick back up soon,” he said.

Interest rates to remain on hold?

Two-thirds of the experts predicted that interest rates will remain at 0.1% all year, and will not be raised until 2023.

“While the economy is recovering faster than expected, the RBA is still a long way away from seeing its stated requirements for a rate hike – being a tight jobs market, wages growth well above 3% and actual inflation sustainably within the 2-3% target range,” said Shane Oliver, AMP Capital.

Susan Mitchell, from Mortgage Choice, agreed.

“RBA board members were clear in the minutes of the April monetary policy meeting – the cash rate will not be increased until inflation is within the target range, wages growth improves and the labour market strengthens,” she said.

However, Tony Makin, Griffith University, believes that external forces may force the RBA’s hand this year.

“Australia’s interest rate spectrum is ultimately influenced by global factors, most notably US interest rates. Ten-year US Treasury rates have risen around 70 basis points since the beginning of the year and will keep rising due to the huge US budget deficit and higher expected inflation. The RBA will be unable to stem this tide,” he said.

Individual banks could raise their own rates regardless. Indeed, this has already begun to happen, with St George, Bank of Melbourne, BankSA and others lifting their rates recently.

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