The housing market has been bolstered by low rate mortgages, as Australian homeowners rush to save an average of $150 a week in mortgage interest payments.
The February rate cut, which saw the cash rate cut to 2.25%, has brought mortgage rates down to their lowest level since 1968, according to CoreLogic RP Data. As a result, Tim Lawless, head of research at CoreLogic RP Data says the increase in market activity comes as no surprise.
“To provide some perspective around rate cuts and what this means for a typical mortgage holder, before interest rates started falling in late 2011 a $400,000 mortgage would incur interest payments of $27,200 per annum (based on a discounted variable mortgage rate of 6.8%),” he said.
“By March this year, with the average discounted variable rate now tracking at 4.9%, the annual interest payment would be $19,400, a saving of $7,800 per year or $150 per week.”
Across the CoreLogic RP Data valuation platforms, which account for more than 95% of all mortgage related valuation instructions, the number of valuation events moved to new record levels in February. Lawless says the high level of mortgage related activity can be attributed to both an increase in mortgage origination activity as well as refinancing activity.
CoreLogic RP Data research also revealed that the vast majority of mortgage holders and newly originated mortgages are on variable mortgage rates – a fact that suggests consumers are still betting on further rate cuts, which could fuel the housing market further.
As a result, Lawless says the Reserve Bank and industry regulators now have a challenge to “keep a lid on the rate of appreciation in home values”, while at the same time stimulating housing construction and household spending.