First homebuyers in Australia among big winners as rate competition heats up

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Sydney Homes
Workers renovate a house in the Sydney suburb of Cammeray, Australia, August 3, 2015. Reuters/David Gray

First home buyers are set to win big as lenders compete on interest rates. Up to 30 providers have already made at least one variable rate cut since the month of October started, financial comparison site Mozo.com.au reports.

The average variable rate cut for an owner occupier who pays principal and interest is 15 basis points. One lender has cut by more than five times that.

Mozo Director Kirsty Lamont said the abrupt surge of rate competition coincided with better conditions for first home buyers. These include less competition from investors, cooling capital city housing prices and stamp duty exemptions and discounts in Victoria and New South Wales.

“With the scales now tilted more in their favour, lenders are expecting first homebuyers who gave up hope of ever owning a property to start looking again and want to entice as many new mortgage customers as they can by offering rock bottom interest rates,” Lamont said. Up to 70 lenders now have interest rates under 4.00 percent for owner-occupiers with a principal and interest loan, according to Mozo’s database.

Lenders intend to be seen as having a headline variable rate starting with a 3 right now. “With the Reserve Bank likely to tread carefully around official interest rates until mid-2018, banks appear to be taking the lead on monetary policy as they see fit,” Lamont added. Mozo notes that some lenders have introduced new offers in the last month.

House prices in Australia have went backwards, driven lower by continued weakness in Sydney. Prices in Australia’s most expensive and largest property market dropped 0.2 percent last week, according to CoreLogic.

Prices in Sydney are expected to fall for a third consecutive month in November, building upon those reported in the previous months. There are signs that Melbourne’s housing market is beginning to cool as well.

The pullback in Sydney coincides with other housing market indicators. These include auction clearance rates and housing finance data. The weakness in Sydney and slowdown in Melbourne appears to be leading to softer price outcomes in other Aussie capital cities.

For instance, prices in Adelaide and Perth dropped by 0.1 percent and 0.2 percent, respectively. As for prices in Brisbane, CoreLogic data shows no changes last week. There were 115,487 properties listed for sale across the nation’s capitals last week. It was up 2.3 percent from the levels seen 12 months earlier.

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