The Race to Build the Australian Dream This Mortgage Season
- finder.com.au Monthly Reserve Bank Survey shows no signs of cash rate rise on Tuesday
- Five experts including from 3 major banks changed forecasts – pushed back next rate hike
- Demand heats up for building new homes: government incentives in each state
AUGUST 30, 2014, SYDNEY – The race to build the Australian dream is heating up across the country, and demand is expected to rise further this mortgage season with interest rates likely to hold until next year, according to a new study by one of Australia’s biggest comparison websites finder.com.au.
House and land packages, off the plan homes and vacant land will be highly sought this mortgage season (which is during spring each year) as the Reserve Bank is tipped to keep the cash rate at 2.50 percent on Tuesday and growth soars for new and construction home loans.
The finder.com.au monthly Reserve Bank Survey of 25 leading experts including from the big four banks, all expect no change to the cash rate at its board meeting on Tuesday, September 2, 2014. Twenty-four experts predict rates will rise next year. While one expert (Nicki Hutley from Urbis) expects the cash rate could rise by the end of this year or just after, which was slightly changed to her previous forecast in last month’s survey, from the last quarter of 2014.
Interestingly, four other experts – including three from the major banks – have also changed their forecasts from last month.
Alan Oster from National Australia Bank made the biggest jump from last month’s finder.com.au Survey, from an expected cash rate rise in the first quarter of 2015 to now forecasting the cash rate won’t move until the fourth quarter of 2015.
Shane Oliver from AMP changed his forecast from the second quarter of 2015 to the second half of next year. Michael Blythe from Commonwealth Bank now expects a cash rate rise in the first quarter of 2015 after his last forecast was by the end of this year. Warren Hogan from ANZ previously predicted a rate rise in the first quarter of 2015 and now expects rates will rise in the second quarter of 2015.
Insights from the latest finder.com.au monthly Reserve Bank Survey:
|Economist/expert, Organisation||When do you think the Reserve|
Bank will change the cash rate?
|Will the cash rate reach the historical|
average of about 5%?
|Garry Shilson-Josling, AAP||Q3 2015, up||Below 5%|
|Shane Oliver, AMP||H2 2015, up||Below 5%|
|Warren Hogan, ANZ||Q2 2015, up||Below 5%|
|Peter Munckton, Bank of Queensland||H2, 2015, up||Below 5%|
|Steven Pambris, Bank of Sydney||Q4 2015, up||Below 5%|
|David Bassanese, BetaShares||Q2 2015, up||Below 5%|
|Michael Blythe, CBA||Q1 2015, up||Below 5%|
|Savanth Sebastian, Commsec||Q1 2015, up||Below 5%|
|James Bond, Financial Services Council||Q3 2015, up||NA|
|David de Ferranti, FXCM Australia||H2 2015, up||Below 5%|
|Greg Taylor, Greater Building Society||Q3 2015, up||Below 5%|
|Paul Williams, Heritage Bank||H2 2015, up||Below 5%|
|Paul Bloxham, HSBC||H1 2015, up||Below 5%|
|Michael Wills, ING Direct||H1 2015, up||Below 5%|
|John Caelli, ME Bank||H1 2015, up||Below 5%|
|Glenn Levine, Moody’s Analytics||Q3 2015, up||Below 5%|
|Alan Oster, NAB||Q4 2105, up||Below 5%|
|Jonathan Chancellor, Property Observer||Q3, 2015, up||Below 5%|
|Nathan McMullen, RAMS||Q4 2105, up||Below 5%|
|Lisa Montgomery, Resi Home Loans||H1 2015, up||Back to 5%|
|Janu Chan, St. George Bank||Q1 2015, up||Below 5%|
|Gavin Smith, State Custodians||NA||NA|
|Scott Haslem, UBS||Q2, 2015, up||Below 5%|
|Nicki Hutley, Urbis||Q4 2014-Q1 2015, up||5%|
|Bill Evans, Westpac||Q3 2015, up||NA|
Source: finder.com.au, ordered alphabetically by institution or group
The finder.com.au Survey showed mixed results for when the cash rate is likely to rise, with 40 percent (10 experts) expecting hikes in the first half of 2015 including ANZ, BetaShares, Commonwealth Bank, Commsec, HSBC, ING Direct, ME Bank, Resi Home Loans, St George Bank and UBS.
While 52 percent (13 experts) are betting on the second half of next year including AAP, AMP, Bank of Queensland, Bank of Sydney, Heritage Bank, FXCM Australia, Moody’s Analytics, NAB, Property Observer, Financial Services Council, RAMS, Greater Building Society and Westpac. Just one expects a rise by as early as December 2014, while one did not specify which half of next year and another did not comment on a forecast (State Custodians).
Michelle Hutchison, Money Expert at finder.com.au, said this mortgage season is looking to be a frenzy of borrowers looking to build new homes.
“With interest rates likely to remain on hold until next year, this mortgage season is set to spark a frenzy for borrowers building new homes.
“Borrowers are already struggling to secure a vacant block of land in some areas, as many Australians are trying to take advantage of the government incentives in some states.”
According to finder.com.au, there's a growing trend of borrowers ditching established homes and building their dream home, with the number of home loans for new properties up by 40 percent and construction loans has increased by 15 percent compared to five years ago, while home loans financed for established properties dropped by 3 percent.
In the past 12 months to June 2014, there were over 33,000 new home loans financed compared to about 24,000 in the year to June 2009. There were more than 70,000 home loans financed for construction in the 12 months to June 2014 compared to 61,162 for the same period five years ago. While established home loans financed for the year to June 2014 dropped by almost 14,000 compared to five years ago, from over 530,000 in the 12 months to June 2009 to about 516,000.
“Most states are offering government incentives for building new homes including ACT, New South Wales, Northern Territory, South Australia and Tasmania. Not only are first home buyers being rewarded with up to $30,500 but existing borrowers are also being incentivised to build their next home with up to $17,000, depending on which state you live.
“So it’s not surprising that the property market has turned to house and land packages, new homes and land sales while existing property purchases are dropping.
“The demand for land and new homes is driving up the prices in some areas so make sure you do your research on whether buying or building is the best option this mortgage season, and look into the different types of home loans available to suit your plans,” said Mrs Hutchison.
Maximum government incentives in each state:
|State||Maximum incentive for first home buyers||Maximum incentive for existing home buyers|
First Home Owners Grant on properties valued under $750,000.
Save up to $13,960.95 on stamp duty for new or substantially renovated properties valued up to $447,300. Income thresholds apply.
Stamp duty saving of $20,195 on new homes valued up to $550,000.
First Home Owners Grant of $15,000 for new homes valued under $750,000.
New Home Grant available for new homes valued up to $650,000.
First Home Owners Grant for properties under $600,000.
Senior, Pensioner and Carer Concession (SPCC) of $8,500 on homes valued up to $750,000 (can not be used in conjunction with PPRR).
Principle Place of Residence Rebate (PPRR) of $7,000 for new primary residents. (cannot be used in conjunction with SPCC).
$15,000 as First Home Owners Grant, for property valued under $575,000.
Save up to $15,500 on stamp duty for eligible apartments.
$8,500 Housing Construction Grant for property valued up to $400,000.
One-off Seniors Housing Grant of $8,500 available to those aged over 60 and buying new home.
Save on stamp duty up to $15,500 for eligible apartments.
No land tax on property valued up to $316,000.
First Home Builder Boost of $30,000. Certain building requirements apply.
The Great Start Grant for $15,000 for property value up to $750,000.
$10,000 as FHOG. First Home Owners can also receive 50% off stamp duty on their property
Principle Place of Residence grants are a percentage of the loan capped at $3,100. Property must become home for 12 months
$10,000 for first home builders ($3,000 for established houses).
$2,000 as Home Buyers Assistance Account
Source: finder.com.au, Office of State Revenue/Treasury in each state
What our experts had to say in the finder.com.au Monthly Reserve Bank Survey:
- Garry Shilson-Josling, AAP: “...The RBA believes the economy will gradually accelerate with the cash rate at its current level and lowering it further will not necessarily help and may even promote excessive risky lending…”
- Shane Oliver, AMP: “...The outlook for the economy has not significantly changed ... so no need to cut and no need to tighten...”
- Warren Hogan, ANZ: “...Economy is playing out as expected ... Housing doing well. No benefit to lower rates ... Next move a hike in May 2015..."
- Peter Munckton, Bank of Queensland: "...The RBA is likely to keep the cash rate steady for the remainder of this financial year … If there is to be a change in the cash rate over the next six months, however, it is more likely to be down … The bar for another rate cut is quite high..."
- Steven Pambris, Bank of Sydney: “...The Economy has yet to find its way, unemployment is on the increase and inflationary pressures are palatable for the moment…”
- David Bassanese, BetaShares: “...Continued mixed signs on the economy, with inflation and confidence surprising on the upside in recent weeks ... May 2015 – up. Not as high as the past due to more cautious households and a post-GFC increase in bank funding costs…”
- Michael Blythe, CBA: “...The case for a rate rise is building and we expect the start of a modest tightening cycle from Feb 2015…”
- Savanth Sebastian, Commsec: "...Reserve Bank marginally downgraded inflation and economic growth forecasts ... Economy in transition and Reserve Bank has continued to reiterate interest rate stability mantra. Comfortably on the interest rate side lines."
- James Bond, Financial Services Council: “The RBA will wait to see how employment and wages pan out over the next six months before they make a move either way. The usual tightening cycle that we would expect has been pushed out by uncertainty in the some of the data.”
- David de Ferranti, FXCM Australia: “...The RBA is unlikely to begin hiking until there are consistent declines in the unemployment rate ... It is unlikely we’ll see a return to prior ‘normal’ levels for the cash rate while inflationary pressures remain subdued.”
- Greg Taylor, Greater Building Society: “...[The Reserve Bank] has repeatedly said of late that it is looking for a period of rate stability given continued uncertain economic conditions. We continue to believe that there will not be an increase in the cash rate for at least 12 months…”
- Paul Williams, Heritage Bank: ...The RBA appears happy to remain on hold while the domestic economy tries to build some momentum ... At this stage our view is that the next cash rate movement will be an increase sometime in the second half of 2015.”
- Paul Bloxham, HSBC: "...We don’t think they are going to do anything with interest rates anytime soon. We got them on hold for the rest of the year and not considering boosting interest rates until the first half of next year at the earliest…”
- Michael Witts, ING Direct: “...The Bank is trying to balance the strength of the housing and related sectors ... Equally it is mindful that any near term move in interest rates will see the AUD move higher. Over the first half of next year, and it will be an increase of 25 basis points..."
- John Caelli, Mebank: “...The RBA expects the growth outlook will remain just at or below trend ... The next change is likely to be a rate rise of 25 basis points in the first half of 2015.”
- Glenn Levine, Moody’s Analytics: “...The economy is expanding below potential, but with house prices still growing uncomfortably quickly there is no scope for an interest rate cut ... The RBA, like most analysts, will require more data before leaning one way or the other."
- Alan Oster, NAB: “...The Reserve Bank has the view that rates are low enough. … I think really they're just sitting, waiting and hoping that what they've done is enough...”
- Jonathan Chancellor, Property Observer: "...There are simply too many tentative, and contradictory, signs of recovery for the RBA to raise rates quite yet. The businesses of Australia require a lot more recovery before rates rise. I can't see any rate change until well into 2015."
- Nathan McMullen, RAMS: "...We do not expect rates to increase as materially as suggested given macroeconomic conditions are not likely to trigger a change to rates of the scale suggested."
- Lisa Montgomery, Resi Home Loans: "...The rate of unemployment and the high Australian dollar will continue to be high on the watch list, but no change for this month..."
- Janu Chan, St. George Bank: "...The RBA will probably want to see some stronger evidence that the recovery is strengthening before they raise interest rates. We think the RBA is done cutting rates so the next move we expect will be a hike..."
- Gavin Smith, State Custodians: "...There are mixed signals emanating from the housing market... this should weigh on their decision making."
- Scott Haslem, UBS: “...Recent data is not sufficiently weak to suggest the RBA needs to add further stimulus by cutting the cash rate. However, nor is the outlook for growth so good, or inflation too high…”
- Nicki Hutley, Urbis: “...The Australian economy is still seeing growth a little below par ... inflation is picking up but not yet alarmingly so... so the RBA won’t be in any hurry to move. A first rate rise is likely to occur either in December or the new year…”
- Bill Evans, Westpac: “...The near term outlook is probably already a little more upbeat than the Bank put forward in its most recent forecast. While there are clearly still risks – the labour market for example provides some counter-evidence – no shift in policy stance looks at all imminent."
Please note: The above respondents are ordered alphabetically by name of organisation.. These quotes are derived from full comments provided to finder.com.au and are available on the finder.com.au RBA cash rate page.
For further information
The information in this release is accurate as of the date published, but rates, fees and other product features may have changed. Please see updated product information on finder.com.au's review pages for the current correct values.
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