Lenders cut variable rates and increase benefits as housing demand slows

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Discounts in Melbourne have risen from around 35 per cent to 3.5 per cent since last October, with listings more than 7 per cent above the average level for the past five years, Lawless said.

“More competition and higher discount rates mean more choice and less urgency for buyers,” he says.

Market conditions are also gradually improving for Sydney buyers. The number of properties advertised increased by 7% compared to the same period last year, but around 4% less than the five-year average. A typical sale is down about 3%, 19% more than April of last year.

But the availability of goods and the potential for seller’s discounts vary widely from postcode to postcode. Inventory in some suburbs in Sydney’s northern suburbs and southwestern Victoria is at critically low levels, according to Suburbtrends.com, which monitors residential properties.

It says stock shortages will continue to drive up prices in areas such as Stanmore and Freshwater in Sydney, Geelong in Victoria and Conder and Evatt in Canberra.

“There are many areas where insufficient housing listings continue to drive up prices. A lack of inventory drives competition, especially in areas where people are moving out of major cities,” says Kent Lardner, head of research at Suburbtrends.

Lardner also believes the lack of suitable alternatives makes many owners reluctant to sell.

Discount rates are down in Adelaide, with property listings down more than 40% from the previous five years, with auction clearance rates around 80%, according to CoreLogic. There are also few signs of easing the pressure on buyers in Perth and Brisbane, it shows.

National residential property prices rose around 24% in the 12 months to December, the biggest annual increase since the Australian Bureau of Statistics began tracking the sector in 2003.

Residential auctions fell, with last weekend’s auction clearance rate slipping to around 69%, the lowest of the year.

As lenders reduce variable rates, fixed rates continue to rise. The number under 2% has fallen from about 180 to seven in the past 12 months, according to RateCity.

The lowest one-year fixed rates offered by the big four banks range from 2.69% to 2.99%. Three to five year fixed rates range from 3.59% to over 4%.

Fixed-term mortgage rates reflect what’s happening in the bond market, where banks, corporations and governments borrow money. Sharp increases in bond yields increase fixed-term borrowing rates, which are passed on to borrowers.

The number of fixed-term loans increased by more than 50% between March 2020 and May 2021. They represent around 30% of total mortgage loans outstanding, according to the Reserve Bank of Australia.

“A year ago, the battleground for lenders was fixed rates,” says RateCity’s director of research, Sally Tindall. “But record levels of mortgage holders are now locked into a fixed rate, meaning lenders are focusing on variable rate customers looking to switch.”

Rising inflationary pressures should cause the RBA to follow other central banks and start raising rates, possibly from August, market analysts say.

Variable rates always tend to go down, but not for long,” says Tindall.

The CBA last week cut its lowest floating rate to 2.19% to match NAB and ANZ. Westpac has the lowest rate at 2.09%. NAB requires a minimum deposit of 20%. Other banks require a 30% deposit.

Other lenders, including HSBC, ME Bank and Citi, have reduced homeowner loans in principal and interest to less than 2%.

Lenders are trying to rejuvenate refinancing, which has fallen about 20% — or nearly $3.5 billion — since its peak last August, by providing more incentive for borrowers to switch to lower variable rates.

Nearly 30 lenders are offering repayment offers ranging from $1,500 to $5,000 for the average loan of around $572,000 and $487,000 for first-time home buyers, according to RateCity. AMP Bank improved its offer this week by launching a $3,000 cashback campaign.

Chris Foster-Ramsay, director of Foster Ramsay Finance, a mortgage broker, says borrowers need to calculate whether they will be better off using a repayment offer taking into account the new interest rate and legal, administrative fees and breakage and other costs involved in replacing a mortgage.

Other cash back is conditional on the borrower switching to other financial service packages costing several hundred dollars a year in additional fees.

“While some cashback offers can be missed, if you manage to pick a low rate and a decent cashback offer, you can save money upfront and potentially in the future if you commit to refinancing regularly” , says Tindall.

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