Mortgage rate threat hits home builders and new housing market

The mere hint of a mortgage interest rate rise has stumped a recovery in the housing market, an industry group said today.
The Housing Industry Association (HIA) survey showed new home sales were flat in March, holding level at 8191 dwellings.
Private detached house sales increased by a 0.2 per cent in the month, while the sale of multi-units fell by two per cent.
Sales in the first quarter of 2007 were 16 per cent lower than in the three months to March 2006.
HIA said speculation of an interest rate increase had discouraged would-be buyers and investors, and any upward momentum in new home sales had now stalled.
HIA chief economist Harley Dale said higher levels of home buyer interest, usually seen early in the year, were already giving way in 2007 to the large gap between the desire for home ownership and the ability to afford it.
Insufficient state and federal government action to address low housing affordability were preventing a sustained recovery in the housing sector, Mr Dale said.
"The recent threat of higher interest rates has only served to reinforce the urgency required in addressing the hefty structural barriers to home ownership," he said.
New home sales rose in December, January and February.
The sales tally for March is below the level of a year earlier when about 10,000 dwellings were sold.
HIA's new home sales survey is compiled from a sample of the largest 100 residential builders. Source: AAP

More mortgage legs in baby boomer generation

There seems to be an emerging new mortgage market as seniors borrowed $560 million in reverse mortgages in 2006 to spend their children's inheritance.
Older Australians took out $560 million in reverse mortgages in 2006 - a lift of 80 per cent over 2005 , according to a study released yesterday.
Despite what appeared to be rapid growth, Keiren Dell, executive director of the Senior Australian Equity Release Association of Lenders (SEQUAL), said it was at the lower end of his expectation.
"I had expected growth to be at least 100 per cent," he said, adding that the volume of lending in reverse mortgages could easily double in the next two years.
"The first baby-boomers reached 60 a couple of years ago and some had started to take out equity from their home for renovation or buy a new car."
Funding retirementIn fact, the fastest-growing segment (albeit from a low base) was the 60-69 age group, said Trowbridge Deloitte partner James Hickey, who led the reverse mortgage study for SEQUAL. However, the largest group of borrowers were in their 70s.
"We estimated 1 to 1.5 per cent of seniors in Australia use reverse mortgage," said Mr Hickey.
The total number of households taking out reverse mortgage is 27,000. They took out an average of $54,200.
Mr Hickey said they borrowed 70 to 75 per cent of what they could borrow on their homes.
While lump sums remained popular, Mr Hickey said about 20 per cent of the loans were taken out as "income streams" in regular drawdowns.
Mr Dell said variable rates were the most popular type of loan currently used.
But 25 per cent of new loans were written at a fixed rate, up from 22 per cent in 2005.
With new entrants - including Bluestone, Macquarie Bank, ABN AMRO and Australian Seniors Finance - Mr Hickey said the market was set to grow.
Lending is based on the age of the borrowers and the value of the property, ranging from between 10 and 15 per cent of equity for those aged 60, to 40 per cent for people over 80.
NSW leads borrowingThe study found that 41 per cent of reverse mortgages were taken out in NSW, compared with 20 per cent each in Victoria and Queensland.
It said that 80 per cent of the loans were made to borrowers living in capital cities and that houses made up 80 per cent of assets used in the transactions.
Source: The Australian

Property investors are the growth market in mortgage finance

A record one in three new mortgages were sold to property investors, figures reveal.
The AFG Mortgage Index for March shows there is "rapidly increasing confidence in property", says AFG sales and operations general manager Mark Hewitt.
While good news for investors, the figures are likely to add weight to speculation that the Reserve Bank of Australia will raise interest rates next month.
In NSW, 34.4 per cent of new mortgages were sold to investors, a level not reached since May 2005.
"While one should be cautious about reading too much into a single month's data, it would seem that we're at last seeing the long-awaited return of confidence to the NSW property sector," Mr Hewitt said.
"Even Victoria is coming out of the gloom.
"If this trend continues over the next few months, we could be in the golden scenario where property markets, coast to coast, are powering forward."
In Western Australia, 46 per cent of all new mortgages were for investment purposes in March, while in Queensland the figure was 31.2 per cent.
Victoria, at 25.5 per cent, was well below the national average (of 32.9 per cent) but significantly up on its March 2006 rate of just 18.9 per cent.
In South Australia, 27.4 per cent of new mortgages were sold to investors.
The AFG Mortgage Index revealed that the average new mortgage, nation-wide, now stands at $308,038 - up slightly on the previous high of $307,665 in November 2006.
The average mortgage in NSW is $370,161, representing 66.9 per cent of the property's value.
The second-most expensive mortgages are in WA, with an average of $345,440, representing 56.8 per cent of the property's value.
While AFG's index is not definitive, it is usually strongly indicative of more comprehensive figures released later each month by other institutions.
© 2007 AAP Brought to you by Mr Mortgage

Big growth in seniors cashing out mortgge equity

The value of Australia's reverse mortgage settlements grew almost two thirds last year as retirees tapped home equity to supplement income, a study showed.
Settlements of new loans grew to $520 million as of December 31 compared with $315 million a year earlier, according to a reverse mortgage study co-authored by actuarial and consulting firm Trowbridge Deloitte.
Some 27,500 reverse mortgages, where lenders make advance payments to owners against the value of a property, were made last year in a market now worth some $1.5 billion, according to the study.
The results highlight how a growing number of product providers and distribution channels has helped the loans gain wider acceptance, said James Hickey, a partner at Trowbridge Deloitte.
"This growth coincides with an increase in the number of product providers, providing improved product flexibility and wider distribution channels," he said.
Brokers boost lendingThe study showed use of mortgage brokers to secure the loans was growing.
While 72 per cent of all outstanding loans sales were still direct with the lender, some 46 per cent of loans made in 2006 were through brokers. That was up from 38 per cent a year earlier.
The average age of borrowers was steady at 74, while the average age of new borrowers last year was 72, the study showed.
Lump sum advances made up 80 per cent of loans with regular draw downs accounting for the remainder.
That shows many home owners are using reverse mortgages to supplement pensions, said Kieren Dell, executive director of Senior Australian Equity Release Association of Lenders (SEQUAL) which co-sponsored the study.
"An increasing number of Australian retirees are recognising the benefits of reverse mortgages," Mr Dell said.
"The increasing use of regular draw downs indicates that these seniors are using the funds more and more to supplement their pensions rather than using their equity for one-off spending."
Source: AAP