Rate rises hit home loan sizes

As interest rate rises continue, the effect of banks passing on rate rises to customers can be seen in the types of loans Australians are accessing.

Online home loan auction marketplace Joust has revealed borrowers are already taking out significantly smaller loans to build homes.

Loans accessed through Joust’s Instant Match platform are split into three categories: buy, build and refinance.

Joust CEO Carl Hammerschmidt (pictured above) said between July 2021 and July 2022, t. was a significant dip in the average loan size accessed for the purpose of building homes.

“Aussies are looking to tighten their wallets with the cost of living rising,” Hammerschmidt said.

“By contrast however, the size of loans accessed for the purpose of refinancing have remained stable and in some states, including New South Wales, have actually increased in average value.”

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Hammerschmidt said Joust’s Instant Match service allowed Australians to save time by instantly accessing the top three home loans suited to their needs, ranging from thousands of different products.

“Through the Joust platform, customer submissions are immediately matched to lenders and the lender can then engage the customer to guide them through the home loan process,” he said.

Comparing the results, Joust figures showed the average loan size accessed through Instant Match in the build category fell by -28.05% from $564,451 to $557,314.

Loans in the buy category fell by -6.81%, from $655,912 to $611,250, while loans in the refinance category only slightly dropped by -1.26% from $564,451 to $557,314.

Hammerschmidt said while multiple factors including government grants and excess savings meant borrowers were taking out bigger loans for the purpose of building in 2021, one factor stood out above the rest.

“Record low interest rates meant that lenders were seeing interest not only from people looking to get into their first home, but others who could borrow to build their dream homes without having to worry much about the interest they would be paying back,” he said.

“Our data shows interest for bigger loans in those categories has dropped off significantly in the last 12 months. At the same time, the needle on average loan amounts for the purpose of refinancing has moved very little and Aussies remain keen to get the best deal.”

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Hammerschmidt said the most loans accessed through Instant Match were in Victoria and NSW, which led the way in terms of falling loan sizes for the build category.

“In Victoria, loans in the build category were down a whopping -39.13%, from $975,000 to $593,500,” he said. “Average loan amounts in the category fell slightly less in NSW, dropping by 30.79% from $660,000 to $456,789.”

Hammerschmidt said loans accessed on Joust’s Instant Match fell in size across most states overall between July 2021 and July 2022.

“South Australia had the biggest fall in average loan size down from $592,333 to $402,786 —  a 32% drop,” he said. “Queensland’s average loan size fell by -6.02% from $469,511 to $441,258. Meanwhile Victoria had a -5.9% fall from $557,330 to $524,473.”

Hammerschmidt said Joust anticipated the average size of loan in the refinance category to grow in the final quarter of 2022.

“This growth is expected into 2023 as many come to the end of their fixed interest rate periods on home loans,” he said.