Hopeful buyers ask to borrow more money as housing market outpaces expectations

Home-buying hopefuls are going back to the drawing board and asking to borrow more money to keep up with rising house prices, as figures show the average size of new mortgages has soared.

Mortgage brokers report home loan applicants have returned in droves to boost their borrowing capacity after initial home loan pre-approvals fell short of securing a property.

The enthusiasm, particularly from first-home buyers and upgraders, defies the uncertain economic outlook as coronavirus casts a cloud over key industries.

It comes as the value of new home loans rose by 4.6 per cent in January, reaching 23.3 per cent over the year, new lending figures by the Australian Bureau of Statistics released on Wednesday show.

The average new mortgage stands at a record $504,000, up 21.7 per cent over the year and the fastest annual pace in 16 years of data.

NSW had the biggest increase of 27.4 per cent to $628,200, while new Victorian mortgages jumped 22.9 per cent to $548,100.

“Lower interest rates and firmer home prices are allowing people to take on more debt,” CommSec chief economist Craig James wrote in a note to clients.

First-home buyers around the country also rushed back into the market over the year to January with the value of new home loans to this group soaring 46.2 per cent to $4.19 billion.

The number of first-home buyers also rose more than 25 per cent in the same time.

Sydney-based Mortgage IQ principal David Chia said he has seen a rise in clients returning to borrow more money.

“Every one of the brokers is overwhelmed by the activity,” he said.

“People are coming back, obviously prices have gone up so they’re pushing up borrowings.”

Most of the demand to borrow more is from first-home buyers and upgraders, he said. 

Mr Chia said while the latest rate cut did not spur much more lending activity, banks were already quite competitive for customers offering cash-backs and rebates, stirring activity among refinancers.

Sydney-based Two Red Shoes director and mortgage broker Rebecca Jarrett-Dalton said her clients were also asking to borrow more money, including a first-home buyer and an upgrader.

While the first-home buyer borrowed an extra $20,000, reaching the $700,000 first-home buyer threshold, the upgrader increased their home loan by an extra $50,000 to $1.2 million.

She said there was concern around taking on extra debt given the country’s economic uncertainty because of the spread of coronavirus.

“Certain markets are performing differently to others. It’s patchy and it’s not uniform,” she said. “There’s also a wobble in the market, people are marching ahead then thinking ‘Oh, coronavirus … should we go ahead?’” 

Melbourne mortgage brokers also experienced a similar trend with 40Forty Finance director Will Unkles reporting that first-home buyers and upgraders were increasing home loan limits after the first application.

“If they’ve got the borrowing power to do so, they’re looking to increase generally by 10 per cent,” he said. “Of the approvals I’ve got, about one in five are looking to increase their pre-approval amount.

“It’s a realisation what their money is able to buy in this heated market.”

He said the bigger challenge was whether hopeful buyers had enough saved to cover the increased deposit and stamp duty.

“At times, parents seeing the challenges their kids are facing, they’ll often come up with an extra $10,000 to $15,000 in gifted funds, which solves their cash needs.”

He said auction clearance rates were a bigger driver of home loan applications than the latest interest rate cut.

“Rates are already very low but it’s not making much of a difference,” he said. “If you couldn’t afford to borrow at 3 per cent but you can buy at 2.85 per cent then you are probably not in a position to borrow.”

Melbourne-based mortgage broker Chris Foster-Ramsay said the increase in budgets had become a regular occurrence for first-home buyers.

“They spend up to six weeks looking and realise they can’t find anything they’re looking for, that’s a very common occurrence,” he said. “Part of that is fed by the uplift by the heightened competition [from] first-home buyers and upgraders.”

It is a different story in Brisbane where prices recorded a more modest growth of 1.3 per cent to $577,664 in the last quarter of 2019, Domain figures showed.

The average mortgage size in Queensland also grew a moderate 12.9 per cent to $405,200 over the year ended January 2020, ABS figures revealed.

Brisbane-based Hunter Galloway mortgage broker Jayden Vecchio said clients were not returning to borrow more money.

“Actually, quite the opposite. Overall, we’re seeing people want to put more of a deposit down to borrow as little as they can,” Mr Vecchio said.

He said while there would be an increase in referrals after an interest rate cut some hopeful home-owners have retreated.

“News about coronavirus might have spooked some would-be home-buyers, who are wanting to wait and see how it all plays out,” he said.