Consumers, Business Investors No Longer Enticed With Rate Cuts

First time home buyers are no longer attracted to low rates, according to analysts, as the response to cheap credit is slightly lacklustre, with many Australians knee deep in debt.

When mortgage interest rates were lowered in 2009, many Australians jumped at the chance to buy properties. But because of the global financial crisis, the number of loans has surged to up to 30%.

This time, however, things seem to different. The numbers show that there are only 7,300 loans issued for the month of June, when in the past, new loans would reach up to 18,000 a month.

Analysts say people who have acquired mortgages from 2009 are now using these rate cuts to pay off their debts, instead of spending or borrowing more.

“What we are seeing in the main is mortgage holders electing to retain their current repayment amounts as interest rates fall in order to accelerate the repayment of their home loan,” says Michael Russell of Mortgage Choice.

Analysts point to different reasons for this, but note that rate cuts no longer have that effect on consumer behaviour, unlike in previous years.

The business sector also had a change in reaction to rate cuts, as many investors are choosing to let their money sit in deposits, than roll it for more investments.

Greg Evans, the chief economist at the Chamber of Commerce said, “Business owners are wary of debt and weak demand conditions provide uncertainty about the capacity to service and repay new facilities.”

“We expect it may take some time for this conservative but reasonable assessment to unwind.”

New homebuyers, meanwhile, have to also compete with investors as many of them are buying existing houses or lots, than erect new buildings. The resulting change has also affected the construction industry.