Home Loans: The First Plunge

CANBERRA: The St George Building Society jumped the gun yesterday on the Reserve Bank's expected easing of official interest rates by slicing its housing loan rate by three-quarters of a percentage point to 16.5 per cent.

The move heralds the first relief for home buyers in two years and other lenders are expected to follow quickly.

It comes after a cut in official interest rates by the Reserve Bank of 1.5 percentage points this year, but precedes the central bank's review of a further one percentage point cut, as recommended by the Treasurer, Mr Keating

The move will put pressure on the Commonwealth Bank and Westpac, which St George rivals for market leadership in home loans NSW.

Both the National Australia Bank and the Commonwealth Bank have signalled a fall of up to one percentage point over the next four weeks.

A spokesman for the Advance Bank said yesterday that a fall of between half and one percentage point in its 17 per cent home loan rate could be expected in the next three to four weeks.

But threatening the chances of continued falls in interest rates throughout this year is the rebound in the housing market, as demonstrated by the release yesterday of Australian Bureau of Statistics building approval figures and the survey by the Housing Industry Association (HIA) of new home sales.

The ABS figures showed that that the total number of home approvals rose by 5 per cent in February in seasonally adjusted terms, following the 3.1 per cent rise in January.

Approvals for new private sector homes leapt by 7 per cent in seasonally adjusted terms.

The HIA's survey of sales of new homes showed a 12 per cent seasonally adjusted rise in February to 8,420. This was 34 per cent above December and 42 per cent above the low point in July last year.

A pick-up in housing demand is not what authorities want to see. It signals a new burst of consumer spending which is inconsistent with reining in the current account deficit.

The HIA's executive director, Dr Ron Silberberg, said the housing recovery would not be spectacular, but he believed activity would remain reasonably buoyant.

"What it (the figures) suggests is the industry has bottomed, there has been a modest improvement and we are not going to see the low level of housing starts typical of previous housing recessions," he said. "We are going to bottom out at much higher levels."

The St George move, effective from today, is partly in response to the action of the Government and the Reserve Bank earlier this year in cutting official interest rates.

For this reason, the expected cut of one percentage point by the Reserve Bank will be more than enough to persuade banks to lower variable mortgage rates to 16 per cent.

PAGE 6: Chasing after the cheapest loan can be costly.

 MONTHLY REPAYMENTS
   Interest      Was      Now
   rate(%)      17.5     16.5
   $60,000      $875     $839
   $80,000    $1,167   $1,119
  $100,000    $1,458   $1,399
   *  On loans over 25 years