The overall sentiment of the lending panel supported the views expressed by many economists that there will be no sudden 'bust' to the housing boom.
The overwhelming attitude of respondents was that prices in major capital cities would either continue to rise or be stable – with a minority predicting a possible easing in prices in Melbourne, Adelaide and Perth.
Capital city home prices
| Rising | Plateau | Easing | |
| Sydney | 43% | 57% | |
| Melbourne | 29 | 50 | 21 |
| Brisbane | 79 | 21 | |
| Adelaide | 64 | 29 | 7 |
| Perth | 43 | 50 | 7 |
Sydney: 43% of respondents believe Sydney will experience a slight rise in property prices over the next 12 months. While, 57% predict they will plateau.
Brisbane: 79% believe that prices will continue to rise. Of these, 36% predict that Brisbane housing will enjoy substantial price rises, with the majority, 43%, expecting the increases to be moderate. A further 21% forecast prices to plateau.
Melbourne: Lenders were more divided on the Melbourne home property market. While 79% of respondents believe prices will rise or be stable, 21% viewed there could be some easing in prices. A total of 29% viewed prices would rise moderately and 50% forecast prices to plateau.
Perth: 43% of respondents expect property prices to continue to rise for the 12 month period – with 7% predicting prices will ease. The other 50% predict that prices will plateau. Adelaide: 64% of respondents say there will be moderate increases in home prices, with 29% believing they will plateau. A minority, 7% consider prices may ease.
Commenting on the responses regarding capital city prices, Mr O’Rourke said: “The Australian property market probably won’t see gains of around 20% a year as it has experienced in the recent housing boom. However, the comments expressed by our lenders suggest there are still considerable gains that can be made in some markets, and for all the markets, there appears to be no strong belief property prices will decrease, which is obviously encouraging news for Australian home owners.”
Strength of regional markets
Respondents expect regional markets to benefit and grow in strength during the next 12 months as consumers look for alternative avenues to the burden of high metropolitan home prices. They see this growth being spurred by two drivers – the ever diminishing affordability of housing in capital cities and the increasing preparedness of the workforce to look for alternative job and lifestyle opportunities in regional centres.
Investment portfolio
“The lender panel jury is still out on the future of the home investment market with mixed views coming from respondents,” Mr O’Rourke said. “Although 69% of those surveyed indicated they believed there has been an over-exposure to the purchase of property as an investment asset category, 50% of the respondents view it unlikely that Australians will change their focus on property to the equities market during the next 12 months.
Top of mind factors for borrowers
Despite the considerable expansion in numbers of lenders, products and loan options that have become available to borrowers, it appears that there are still two primary features that consumers regards as top of their importance list – interest rates and fees.
A total of 88% of respondents said interest rates were the number one consideration for borrowers when selecting a loan, with 69% voting low or no fees as the second most important factor. The least most important consideration according to the lenders was a product switching facility.
Introduction of compulsory rate comparison
The majority of respondents on the lending panel feel that the introduction of compulsory rate comparison transparency has not resulted in consumers having a greater understanding of the loan options available to them.
Commenting on the impact of government legislation in July 2003 initiating the compulsory use of comparison rates, 77% of respondents believe it has not been a positive step for the industry and 81% indicated they don’t believe the measure has particularly aided consumers.
A typical response was that comparison rates only compared the interest rates and fees of loan options, and not the other features that are available. Other comments ranged from “clearly there is a lot more to a loan than just the rate” to “decisions were now being based on price, not what might be the best option in the long term”.
Future of on-line processing
Product and operational developments have seen the concept of a totally on-line application process coming to the forefront of the home loan industry. Although some lenders have already started the process of introducing electronic lodgment (primarily in the approval stage), 50% of respondents don’t see a totally on-line process being integrated for another 1-2 years, with 36% believing it could take 3-5 years.
However, despite the anticipated time and cost efficiency of electronic lodgment, Mr O’Rourke says many lenders expressed concern on several key issues that will need to be overcome before the process is implemented.
“Consumer privacy and security, together with the prevention of fraud and false signatories were among the major challenges lenders believed needed to be overcome before the home loan market would operate under electronic lodgment. In addition, it will be imperative for lenders and brokers to agree on standards to achieve system compatibility which will maximise efficiency,” he said.
In a proactive move, three leading mortgage brokers (including Mortgage Choice) are poised to adopt a common platform to electronically lodge loan applications with banks and major lenders.
Refinancing and Churning
The survey also showed refinancing accounts for around 37% of all home loans, with most people refinancing aged between 36-45 years who are looking to change loan products or lenders, buy an investment property or consolidate debts. “The increased popularity of refinancing together with industry commentary of a downturn in the housing market, have raised concerns over the issue of home loan churning.,” Mr O’Rourke said. “A total of 67% of all respondents indicated they considered the practice of home loan churning is a major problem for the mortgage industry. Churning, being ‘refinancing under circumstances which is thought may lead to consumers being misled or deceived and not placed in the best product for their needs’. Some lenders expressed concern that unscrupulous and unethical practices undertaken by Lenders and brokers may lead to the churning of loans to generate extra income and commission.
“These concerns are further fuelled by the lack of regulation of the mortgage broking industry, with 94% of lenders surveyed saying there needs to be greater control of the industry. Lenders identified regulation was necessary to ‘keep the cowboys out’, ‘create consumer confidence’, and ‘improve professional standards’.
“All such comments have confirmed the view Mortgage Choice in its call for national uniform regulation in September 2002.
“Mortgage Choice identified the need for greater regulation over a year ago when the company was the first broker to call for national uniform regulation of the mortgage broking industry. At the same time we launched our own Customer Charter, fully disclosing all commissions paid to brokers, the service standards consumers can expect from Mortgage Choice brokers, together with a clear outline of our privacy and complaints policy,” Mr O’Rourke said.
“Mortgage Choice operates as a consumer advocate and has since also launched a Consumer Checklist to assist consumers choose a professional and reputable broker. In July 2003 Mortgage Choice raised the awareness of churning by making a public stance against the practice, as well as by launching a Refinance Checklist. The Checklist is designed to assist borrowers in making an informed decision about whether it is in their best interest to refinance their existing loan.
“As the leading independent mortgage broker in the country, Mortgage Choice has been, and will continue to work with industry and governing bodies to implement regulation in an attempt to stamp out unethical and ‘shonky’ brokers,” he said.
