3 most popular types of home loans right now

The latest data from the Australian Bureau of Statistics (ABS) shows the value of new home loan commitments was up 5.4% in October 2023. That’s a lot of new mortgages to pay off, despite an expensive housing market and a hefty ton of RBA rate hikes. 

So with housing demand clearly still hot, what kinds of home loans are Australians getting right now? Let’s look at the numbers, including fresh home loan statistics from the Mozo database.

Homeowners still make up the majority of new borrowers, according to the ABS, compromising $17.23 billion worth of new home loans in October 2023. But in the past year, investment home loans surged in popularity by 12%. 

It’s a wild number, to say the least, especially compared to the minor yearly increase in owner-occupiers (1.4%). So what’s pulling in investors?

“More properties have gone up for sale in the last three to six months, so maybe there are just more opportunities for investors right now,” explains Mozo home loans expert Peter Marshall.

“Rents have also been rising dramatically, so great rental income makes it more possible for buyers to become investors. The return they’re getting on that investment is improving.”

The elephant in the room? Investor interest rates. Investors usually pay much higher interest rates than owner-occupiers because of their lending risk. According to the Mozo database, the average variable interest rate for investors is 7.17% p.a. 

However, the lowest investor rates Mozo tracks still start with a ‘5’ – quite comparable to what homeowners get. Remember: comparison is key to finding a hot investment deal.

Despite increases to mortgage costs, Australians still prefer variable rate home loans over fixed rate home loans, according to the ABS.

Variable rates have risen dramatically since May 2022 thanks to hikes from the Reserve Bank of Australia, adding thousands of dollars to monthly repayments. Now, the average variable interest rate for Mozo-tracked home loans is 6.84% p.a. (OO, P&I, LVR < 80%). 

Based on a $600,000 owner-occupied mortgage making principal & interest repayments for 25 years. 

It’s worth noting fixed interest rate home loans have risen, too, since lenders adjust their fixed rates to reflect the economy. Terms between 1 and 5 years have all jumped around 3% to 4% since May 2022.

Average fixed interest rates for home loans (15 December 2023)

Fixed  interest rates stay the same for the whole fixed term – avoiding rate rises and guaranteeing consistent mortgage repayments. You’d think this would give them an advantage despite how high they’ve gone. 

However, variable home loans are still the clear winner with Australian borrowers. Why is that?

There are few reasons why. Marshall says variable interest rates still tend to be lower than fixed rates, making them more attractive to borrowers. They can also come with interest-saving features like offset accounts or extra repayments that give you more financial flexibility when situations change. 

Most importantly, however: the economy is hard to predict. A good fixed deal now could easily become a bad one in three years time.

“I think people are right to be wary of fixed rates,” Marshall says. “They can be a really good option in the short term, but longer term it’s really hard to come out of it a winner.”

First home buyers make up nearly a third of Australian borrowers, says the ABS – up 6.8% compared to last year. Despite rising house prices and interest rates, it seems Aussies are still keen to achieve the Australian Dream of homeowning.

The popularity isn’t split evenly throughout the country, either. 

• New South Wales (+15.7%), the Northern Territory (+30.6%), and Tasmania (+61.2%) are the most popular property markets for first home buyers. 
• The ACT (+0.4%) and Victoria (+2.5%) are the least popular. 

Some of this could be the expensive rental market pushing buyers into housing, though the tallest hurdle for first home buyers is affordability – especially saving for that crucial home loan deposit. 

So what is helping people buy their first home?

First Home Buyer Grants

Firstly – no pun intended – there are a raft of First Home Owners Grants (FHOGs) that can help people get a foot in the door. These schemes help lower the cost of entry by contributing to home loan costs, like the deposit, for eligible buyers. 

Recent legislation has also expanded who is eligible for FHOGs in many Australian states, such as NSW. Now, any two people buying property together can take advantage of these schemes. In some places, people who have not owned property in over ten years can also qualify as a first home buyer.

Bank of Mum and Dad

Secondly, Marshall points to the Bank of Mum and Dad. “Getting financial help from your parents is becoming a more accepted mode of buying a house. Going back a couple of decades or so, it was a far less common thing to do. Usually you were expected to wait until your parents had died and left you money to inherit. 

“Now, it’s a bit more understood that wealth transfers are better off happening when your parents are still around, so the kids don’t have to wait so long to get into the market and can deal with modern house prices.”

Choose property markets wisely

Finally, where you buy a new home matters. Australians may be looking further afield or at smaller properties, like units, to buy their first home instead of the most popular inner city suburbs – though inner cities are still booming. 

“Buyers may have maxed out the inner cities, so now they’re buying the regions,” says Marshall. 

“Remote work also means Australians no longer have to live in the city. First home buyers can look further afield to where things are more affordable.”

It helps that housing supply is predicted to be up in 2024, as well. For buyers looking to make the leap: take heart. You’re in good company – and there are plenty of bridesmaids suburbs ready for the new year.

Compare low rate home loans in the table below.