Canberra buyers make most of low interest rates

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Mortgage commitments have hit an all-time high, according to the latest housing finance data from the Australian Bureau of Statistics.

Over the first eight months of the year, 7182 non-first home owner loans were financed, this excludes loans for investment housing. This is the highest year-to-date figure on record.

The jump in the number of loans approved was anticipated considering the population has substantially grown since records began. However, it illustrates how buyers are taking advantage of historically low interest rates, which have clearly encouraged activity in a year when Canberra was surrounded by politics.

It is not a surprise that the second highest number of owner-occupier loans to be approved was achieved during the first eight months of 2015, when 6522 loans were approved. However, the third highest number of approvals was during the comparable period in 1994, with 6520 loans financed. Official cash interest rates sat at a massive 17.5 per cent at the beginning of the ’90s. Rates began to be slashed during the early ’90s and hit the low of 4.75 per cent during 1994 before rising again towards the end of the year. The boom in activity during this period was to be expected as buyers locked in home loans before rates began to rise.

The latest housing finance data only further highlights the struggle first-time buyers are having getting a foot on the ladder. Numbers dropped annually by 6.1 per cent to 1177 loans approved over the year to date. Finance approved for the first-time buyer last peaked in 1994 when 2124 first home owner loans were approved. During 1994 interest rates had made significant declines helping to activate the market but rates still sat above the current level today. The strong gain in property prices has no doubt locked many first-time buyers out of the market.

Buyers are also borrowing more. During August buyers who were already on the property ladder borrowed on average $370,300, an extra $12,400 extra compared with last year. First home buyers borrowed on average $311,300 based on loans approved in August, a staggering $25,300 extra compared with  a year prior. This dollar value is more than triple the loan size of the first-time buyer hitting the market in 1994, borrowing an average of $97,800.

Nicola Powell is a property expert for Allhomes. Twitter: @DocNicolaPowell. The MIX106.3 Real Estate Show, Saturdays, 9am-10am.