Australian mortgage market remains sound despite volatility

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The outlook for the Australian mortgage market remains strong, with independent market analyst Datamonitor predicting that lending commitments will top $349bn by 2012. However, it warned that the next 12-18 months have more uncertain prospects.

Lending commitments for residential mortgages is expected to grow at an average rate of 5.8% in the next five years - a markedly slower pace compared to the average annual growth of more than 12% in the past 15 years.

Petter Ingemarsson, financial analyst at Datamonitor, blamed the record low housing affordability, exacerbated by the global credit crunch and falling consumer sentiment, for the slower growth. 'Global turmoil in the financial markets has increased risk aversion in both lenders and borrowers, with loans in higher-risk categories losing favour," he said. 'Consumer sentiment has dropped as people have become more cautious towards credit. Furthermore, the Australian property boom has priced many potential mortgagors out of the market, and 12 consecutive rate rises have exacerbated low mortgage affordability."

Ingemarrson noted that the slowing mortgage market will have severe effects for those who are trying to get into the property market, as well as those who are already in it. 'Getting a mortgage will be harder as lenders will be more restrictive," he said. 'Mortgagors who were looking to refinance their loans will be in even more dire straits, as they may find themselves stuck in a mortgage they can't afford in the long term."

For practical tips on how to buy your first home and refinance smartly, read the latest issue of Your Mortgage magazine, on sale now.

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