How we're saving on the home loan front

Sydney property

When headlines pile up, it can be hard to see what the actual news is. I find this happens a great deal with economic news, where too often rate cuts, market drops and price hikes cloud the big picture. This can lead to sudden reactionary behaviour by punters and before you know it, the news has shifted again.

This effect is regularly seen in the real estate world, where the lead stories can be highly influential. For example, the auction market produces some very compelling headlines, where high or rising clearance rates (rate of sold properties at auction) typically receive top-of-the-page bold. Then the fear of missing out takes hold and sales tend to increase even further.

Of course, many other financial trends influence us, including the perception of certain business sectors at any given time. For example, sharemarket gurus are closely following the rise of several fintech firms right now, AfterPay and Zip among them.

Speaking of Zip, it's a good example of a company that more directly influences the conversation. Consider its weekly spending index based on its own data. In its May edition, it reported that home renovations and trade services spiked compared to May of 2019. Some of the things customers were spending on included security installation, roofing, gardening, outdoor home improvement and, home pools and spas. Zip also noted that trade services like electricians, plumbers and painters were all sought-after. Apparently great minds - that's all of us collectively - do think alike.

Similarly, we're seeing a lot of people refinance their home loans right now, motivated by plummeting interest rates across a range of mortgage products. This is undoubtedly a smart money move, especially if you've been slogging it out on a comparatively much higher rate, prior to Covid-19.

Home loans get the green light

This is truly all an interesting study of our collective psyche that we tend to move together in matters of money. Of course, much reaction is shaped by the sport of watching the Reserve Bank, too. Together with lenders, we watch for the official cash rate call like a 'Try - No Try' decision in rugby league. When a cut is made, it's truly a "green light" for homeowners or potential buyers.

In June, the first cut in nearly three years occurred and at that time our Mozo database showed that 44 lenders passed it on, including AMP, Citi, Macquarie and ING. Meanwhile, 27 passed on part of the cut, including Bendigo, HSBC and Suncorp. The point being that RBA moves trigger domino falls which, at least in this era, add up to opportunities to save money.

Our last Mozo Banking Round Up in early July showed that variable home loan rates are still being trimmed, and the lowest in our database is 20bp lower than it was a month ago. However, there’s also still plenty of competition in the fixed rates arena, our experts say. For example, one lender, Bank Of Us, launched a new 1.99% offer for up to 3 years. National Australia Bank also cut its 1 and 2 year rates. Our team says there is also a shift to cuts being spread to the longer 4 and 5 year terms, where previous months had focused strongly on the 1 to 3 year terms.

What does this mean? Well, it simply gives the home loan market a notable boost, especially when the broader property industry isn't as hot as it once was. Yes, clearance rates are down, CoreLogic RP Data tells us, while the value of new loans taken out nationally has also dropped in recent months, according to the Australian Bureau of Statistics. But lower rates continue to attract interest, notably enticing younger buyers to look into their first home, especially if they can capitalise on a softer market where many other buyers have withdrawn. This is presumably why many younger people are reported to be looking beyond the city limits to cheaper regional spots where they can get more bang for their buck.

We've heard a great deal about property investment over the last few years and how it's the game to be in. But with the rebalancing that has occurred these past few months, it's nice to think that there might be some opportunities for regular buyers to also enjoy a slice of the Great Australian Dream.

Refinancing rates well 

Lastly, there's the much talked of 'refinancer': We recently wrote that there are obvious reason to refinance, among them that your existing home loan will soon revert to a higher rate of interest, that you want a better deal where you can pay off your loan faster, or maybe you want to tap into the equity of your home. You may have chatted with friends or family who are already onto this. After all, ABS data shows that in April this year, a record $7.9 billion owner-occupier home loans were refinanced, up 50% from last year.

That's a huge change and makes sense for those who may have purchased their home loan at a higher variable rate just a few years ago. Now, one of our experts, Peter Marshall says these rates may have reached their floor, with only the odd lender likely to drop them further. But still, keep an eye on it folks, because one-off bonuses or cashbacks might also be on offer, says Marshall.

Even more good news on the home front.