Economic uncertainty puts the property market in a pinch

Wilson Luna

Spring may be in the air, but the chilly economic climate is putting the Australian property market in a pinch! While that might make the security of a fixed rate mortgage seem attractive, it’s not necessarily the best way to ease the pressure on your property …

Spring is in the air, but for Australians trying to sell property the climate might still be a little chilly. Traditionally, September heralds in peak buying season in the Australian property market – with spring sales generally accounting for about 40 per cent of the annual total – but this year buyers don’t seem to have got the memo! Spring's typical property price bloom looks set to make a late arrival, if it comes at all, with home prices falling 3.4 per cent in the seven months to July, and a turnaround nowhere in sight.

Unsurprisingly, the recent economic instability is partly to blame. Consumer confidence is suffering, which means that people are looking more toward saving than spending – and putting off big ticket purchases, including the family home. At the moment we’re in a ‘no man’s land’ as far as the market is concerned, since buyers aren’t interested in paying the current prices and many sellers haven’t yet realised that they need to ask for less – but that’s likely to change in the near future as unsold properties pile up.

But the strain is already starting to show: auction clearance rates have fallen around 30 per cent compared with last year, and it’s been predicted that prices in major cities could fall a further six to eight per cent by the end of 2011.

If you’re looking to sell, this is all bad news. With a glut of unsold winter stock clogging the market and new properties starting to appear for sale, you might have to seriously lower your expectations – and since the family home is a long-term investment, that can mean a serious financial loss. In some cases, selling is your only option. But if you’d prefer to wait out the market slump to get a better price for one of your biggest assets, now might be a good time to make sure you’re not paying more on your mortgage than you have to.

But if you’re looking for a fixed interest rate, news is good! The major banks have recently dropped fixed rates below standard variable ones, but while the stability of fixed repayments can seem attractive (and can be a good deal in some instances) it’s a good idea to consider all your options when it comes to choosing a loan. Look at repayment restrictions, break costs, and remember that your fixed rate loan might look less attractive if variable rates take a tumble.

If switching to a fixed rate home loan won’t work for you, what do you do to get on top of the situation? Let’s take a look at some ways to manage your mortgage in troubled times.

Make a change
Just because a fixed loan isn’t the answer doesn’t mean there isn’t a better product out there. The government has now banned the charging of exit fees on variable loans, and though this only applies to new mortgages taken out after 1 July this year, some banks have already eliminated exit fees and others offer to pay them for you if you make the switch. You never know until you look, so compare loans to see what’s out there.

Bargain
Lenders don’t like it when their customers go AWOL, so asking for a better deal can get you great results. You may be able to get a reduced interest rate or more suitable type of loan from your current lender, allowing you to dodge exit fees entirely. And because the market is slow at the moment, so are loan applications (that means that a good borrower has some pretty good bargaining power right now!).

Know your limits
If you’re looking to buy, this is the biggie. Many families are suffering now because they took on bigger loans than they could realistically afford. The thing to remember is that interest rates go up and down – so if you couldn’t afford to make your payments if rates went up, maybe you need to reconsider the size of the loan you’re looking at.

By taking the time to get all the home loan information you need, and shopping around to get the best saving rates possible, you’ll be able to get the best mortgage for you – and that should put a real spring in your step!

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If you liked this article you might also be interested in these other property and mortgage advice articles:

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Tags: best saving, best saving rate, home loan information, Australian property market, interest rate news

Author's Biography

Wilson Luna is an author, wealth adviser and founder of Your Family Your Money. Your Family Your Money’s goal is to simplify traditionally complex financial strategies, demystify financial jargon and debunk common financial myths, becoming every family’s first stop for financial advice, information and inspiration.