Auction clearance rates have soared in major cities across Australia on the back of changes to lending rules that encourage homeowners to ‘supersize’ their mortgages.
The past weekend’s auction results in Sydney saw a clearance rate of 78.24 per cent on 352 homes – up from a 52.6 per cent rate this time last year.
The Australian Prudential Regulation Authority (APRA) on Friday relaxed lending requirements, meaning buyers can take out mortgages 14 per cent larger than previously accepted.
This means a family with a household income of $100,000 can now borrow up to $60,000 more, according to analysis by ratecity.com.au.
The move is expected to reignite the housing boom as voters continue to regain confidence in the market after the Coalition victory at the Federal Election in May.
At the same time, borrowers have been urged to capitalise on two interest rate cuts in as many months by increasing their mortgage repayments.
Outside of Sydney, Melburnians experienced an auction clearance rate of 70.3 per cent at the weekend across 388 separate listings
This time last year, there were 631 auctions, but a clearance rate of only 56.1 per cent (stock image)
If they decided to pump the money they’re now saving on record low interest rates into the cost of the mortgage, a buyer with a $300,000 30-year loan could save approximately $44,000 during the life of the loan.
An extra $20 every week for two years and four months during the current interest rate plateau would see an owner save more than $20,000 in interest.
AMP Bank’s director of retail solutions, Michael Christofides, told the Daily Telegraph if homeowners are in the position to do so, an extra $20 or $50 per week to pay off their loan would be a smart long term investment.
‘If you can afford the extra money per week it can make a real difference over the long term on how quickly you can pay off your home loan,’ he said.
Australians’ restored confidence in the housing market is gradually trickling into the auction market.
But while APRA move may seem like good news for homebuyers, some economists say the new rules create a risk for Australia’s financial stability because more people will be in more debt.
Economist Stephen Koukoulas said on Friday that APRA and the Reserve Bank of Australia were trashing financial stability after APRA eased loan serviceability requirements.
‘Financial stability has been thrown out the window… The credit fuse has been lit,’ Koukoulas tweeted.
CoreLogic data revealed while the number of houses heading to auction on a year-by-year basis remains lower than this time last year, clearance rates are significantly improving, indicating an increased buyer engagement.
Outside of Sydney, Melbourne experienced an auction clearance rate of 70.3 per cent at the weekend across 388 separate listings.
The past weekend’s auction results in Sydney saw a clearance rate of 79.24 per cent on 352 homes – up from a 52.6 per cent rate this time last year
This time last year, there were 631 auctions, but a clearance rate of only 56.1 per cent.
Assistant finance minister Zed Seselja told The Australian the trend was promising.
‘We are already starting to see since the election the signs of a turnaround in the housing market.’
‘I think there is a growing confidence in some of our housing sectors. We have seen (that in) some of our auction clearance rates just this weekend.
‘I think there were a lot of people holding back with the fear of what could have come if the Labor Party had implemented their taxation policies.
‘With the various settings, I think we would expect to see some housing growth in the coming years, absolutely,’ Senator Seselja said.
The official cash rate was 2.5 per cent when APRA first introduced the serviceability guidance in December 2014 in an effort to reinforce sound residential lending standards.
It since spent nearly three years at a historic low of 1.5 per cent before being cut by 0.25 percentage points in both June and July this year to sit at its current 1.0 per cent.
Some economists are tipping the rate to fall to 0.75 per cent by Christmas and to 0.5 per cent next year, which would likely pull down consumer borrowing costs yet further.