Home Rates Drop, Property Set To Lift
Sun Herald
Saturday June 3, 1995
HOME mortgage rates are likely to fall about 0.5 per cent after the decision by the largest non-bank home lender, Aussie Home Loans, to cut its variable interest rate from 9.4 per cent to 9.25 pc from tomorrow.
The move should also boost the property market, though any boost will be partly negated if it also renews speculation of an early election.
Aussie Home Loans is the first lender to cut the key standard rate since home rates jumped more than 2pc towards the end of last year.
A Perth-based lender, Midland Express, will also cut its rate from tomorrow to 9.2pc, believed to be the cheapest generally available variable rate.
Midland Express's rate is tied to bank bill rates and is reviewed every three months.
Aussie Home Loans managing director John Symond said the cut was a direct challenge to the banks, which are charging up to 1.25pc more for their standard loans.
The banks have been slashing their fixed rates, bringing them below their standard loans, but they have stopped short of cutting the variable rate on the vast majority of mortgages.
Aussie Home Loans would refinance borrowers who wanted to switch from a bank with a one-off fee of $500, Mr Symond said.
But last night there was little reaction from the banks, which said their variable rates would not change because there was still some uncertainty about the short-term economic outlook.
Even so, their fixed rates are up to 0.75pc below their 10.5pc variable rates, a sure sign that they expect all interest rates to drop soon.
And they will almost certainly have to follow suit and bring their rates below 10pc or risk losing business.
A spokesman for Treasurer Ralph Willis described the move as "a welcome sign of healthy competition in the home loan market".
The move comes as fears of the Reserve Bank lifting rates again have receded.
The chief economist of the State Bank, Hans Kunnen, said: "Given the rates are based on bank bills and they have come down recently, it is a logical step" for variable rates to fall.
Mr Symond said rates were falling because of an economic slowdown.
"It appears inflation is under control and with other positive economic indicators both here and in the US, we can continue to lead the market with these rate reductions," he said.
The managing director of Midland Express, Carl Le Souef, said: "The reason for the rate reduction has been attributed to professional money market perceptions that the underlying trend is for an easing of rates in the short to medium term."
The banks offer six-month honeymoon rates, but these become expensive loans once the interest charged reverts to the standard variable rate.
A drop in variable rates should spur the property market, which is still suffering post-Budget blues.
Sydney metropolitan auction clearances were only 47.9pc compared with 66.1pc a year ago.
Nicholas Lyell, of L J Hooker Auction Services, said: "Million dollar properties have been selling and the $400,000 range is also okay, but they should pick up if the rates drop."
Chris Richardson, a director of Access Economics, said the household sector was half as much more indebted than it was during the last recession.
* Mortgage rates, Page 57
© 1995 Sun Herald