Online mortgage marketplace HashChing has collaborated with research firm Digital Finance Analytics to produce the top eight mortgage predictions for 2018.
1. Mortgage interest rates are expected to continue rising. The consensus among HashChing brokers is that major banks will continue to nudge interest rates higher. HashChing broker George Kozah said the average home loan standard variable interest rate of 5.08 per cent (according to Finder.com.au) could rise approximately 75 basis points to 5.83 per cent by the end of the year.
2. Fixed rate deals to be a focus for many lenders. In 2018, there will be a greater mix of very low “special” rates to try and attract first time buyers and owner-occupied refinanced business. Many lenders will focus on fixed rate deals, taking account of lower funding rates. This may change later in the year in line with a strong likelihood that the RBA will lift the official cash rate.
3. Mortgage lending standards will continue to be tightened. This includes lower income multiples, less generous analysis of household expenses, and more conservative assessment of allowable incomes. In addition, the loan to value hurdles will be lower for many borrowers. This means that households who want to enter the market will need to be able to present with a larger deposit. “As a result, I expect more first time buyers will get help from the “Bank of Mum and Dad”, which can be worth as much as $88,000,” said Martin North, principal of Digital Finance Analytics.
4. Mortgage stress will affect more households. Last month, Digital Finance Analytics reported that mortgage stress – which is generally when a household spends more than 30 percent of its pre-tax income on home loan repayments – affected more than 921,000 households in Australia. This could climb to more than a million by the end of 2018, and Digital Finance Analytics attributes the problem to a range of issues, including rising living costs, slow wage growth, and larger mortgages (due to rising home prices).
5. More borrowers likely to refinance home loans away from the big four banks. This trend was demonstrated last year using data from HashChing which showed the greatest exodus (37 percent of national borrowers with the big four banks) from Commonwealth Bank. Smaller lenders are offering variable rate home loans as low as 3.56 per cent, and the clear savings compared to the major banks is prompting an increasing number of borrowers to jump ship.
6. Cooling property prices to continue into 2018. Tougher lending restrictions on investors and interest-only loans has increased the housing supply, leading to property prices in major cities such as Sydney and Melbourne to decline last year. The national median house price index fell to 0.3 per cent in December (according to CoreLogic data), and this trend is expected to continue in 2018. Overall, new residential construction will stay strong, as recent building approvals flow through, but there will be a fall in the number of high-rise units release to the market – especially in Melbourne and Brisbane.
7. First home buyers will make up a greater percentage of borrowers. Softening property prices, greater housing supply and government grants/stamp duty concessions (in states such as NSW, Victoria and Queensland) will see more first home buyers enter the market in 2018. In the first week of the year, HashChing has already seen a considerable uptick in web traffic, with a 12% increase in home loan enquiries from first home buyers compared to this time last year.
8. Mortgage brokers will continue to settle most residential mortgages. The latest industry data shows Australian mortgage brokers settled 55.7 percent of all residential mortgages during the September 2017 quarter, which is up from 53.6 percent in the same quarter last year. While the upcoming changes to mortgage broker commission structures (namely, the elimination of volume incentives) will result in lower lending volumes, brokers will still maintain significant share, and their overall footprint will likely continue to increase.