Borrower behaviour changing as house prices approach peak

Property investors and homeowners are increasingly choosing fixed loans over variable-rate mortgages as banks move to hike rates ahead of an expected cash rate rise later this year.

Mortgage brokers and property analysts have noted a change in buyer behaviour as weaker consumer sentiment indicates a peak in property prices this year, The Australian reported.

National Australia Bank is the latest major bank to lift its fixed rates, raising them by 0.2% for both owner-occupiers and investors. NAB’s move follows similar hikes from Commonwealth Bank and Westpac. Four-year fixed rates have spiked nearly 2% in 12 months, from 1.98% to 3.54%, The Australian reported.

Rates have been artificially low for nearly two years thanks to the pandemic. With that situation ending, mortgage brokers are advising borrowers to consider their options carefully.

“Borrowers just need to be wary that today’s rates aren’t forever rates,” Theo Chambers of mortgage broker Shore Financial told The Australian. “You’ve missed the boat now on fixing these record-low rates. Those 1.99% fixed facilities for two years are long gone now. Now that 1.99% is more like 2.69%. It’s jumped a lot, purely because of this expectation that rates are going to change.”

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In a residential property survey published Friday, NAB lowered its price forecasts, saying that with rate hikes expected to arrive sooner, property prices may hit a turning point late this year.

“Overall, we see dwelling prices rising around 3% in 2022 before a decline of around 10% in 2023,” NAB said. The bank predicted that prices in Sydney and Melbourne would drop as much as 11.4% next year.

Morgan Stanley analysts also tipped a house-price peak this year. The bank has forecast price momentum to slow after a rebound in January, listing volumes rising substantially and borrower sentiment at its weakest level in recent history, The Australian reported.