First home buyers, investors and those looking to upgrade their property by way of home improvements or the purchase of a bigger home are all in a better position to do so than they were some six months ago when home finance interest rates were looking like hitting 10% p.a. In mid-2008 the Reserve Bank of Australia was lifting interest rates to curb inflation knowing that an increase in the Official Cash Rate would soon be passed on to home finance and investment loans. Home finance interest rates had not been so high for many years and the impact on cash flow was significant. Rising home finance interest rates together with escalating petrol prices resulted in a drop in residential property sales and a decrease in home finance loan applications for not just the purchase of investment property or owner occupied dwellings but also for planned home improvements.
The real estate industry was concerned that the cost of home finance would lead to a significant drop in auction and private sales and the construction industry was concerned because unless first home buyers can afford home finance then they do not enter the market, the demand for new housing or house and land packages subsides and the building industry suffers greatly.
It is unlikely that this upward trend in home finance interest rates would have abated but for the sudden global economic crisis that stemmed from irresponsible home loan lending in the USA where borrowers were persuaded to take up home finance that they could not in reality afford to repay or service. The high level of defaults that resulted from the failure to meet interest repayments under home finance arrangements soon saw a glut of residential properties on the market and this resulted in huge falls in the value of home properties. In Australia, home finance lending has been much more responsible with an overwhelming majority of mortgage brokers and lenders carefully vetting home finance applications to ensure that borrowers could afford to meet their home finance repayments even if interest rates continued to increase. As a result Australia has not seen a significant increase in the level of home finance defaults where they are the direct consequence of irresponsible lending. Any significant increase in home finance defaults has generally been caused by either matrimonial problems, loss of employment or over-spending by borrowers on credit cards as they purchased household goods that they really could not afford and certainly had not saved up for.
The economic global crisis has resulted in the Reserve Bank of Australia reversing the upward trend in home finance rates by reducing interest rates by as much as 1% in October and another 0.75% in November. A further interest rate reduction is expected in December which should see home finance interest rates as low as they have been in many years. The reduction in home finance rates will free up cash flow for many borrowers who might previously been finding it tight to manage their household budgets. Petrol too is dropping on a daily basis with predictions now being for prices at the pump to get below the $1 per litre mark in the first quarter of 2009.
All these changes auger well for first home buyers, investors and those wanting to upgrade as these decisions are now affordable with home finance interest rates below 7% p.a. variable, and fixed home finance rates at below 6 % p.a. Provided you feel that you hold a secure job, then now might be a good time to apply for home finance.