Housing loans are loans acquired to purchase real estate. Home loans can be taken by the former owners, homeowners and property investors. They are treated as loans and mortgages.

Australian home loans can be dated back to 1911 when the trans-Tasman neighbors introduced the concept to both New Zealanders and Australians. Over time, there have been major changes in the system and the laws of lending and borrowing.

Basic value of the loans are designed to have low interest rates and features very little compared to other alternatives. They are very flexible and best suited for borrowers who are not ready driving. The standard variable loan is a home loan product that is very flexible. It includes features that allow borrowers to split the loan, remove attracting new loan and make additional payments.

The fixed rate loan allows the customer service ready in a period of time. This period varies between one and two years. Once the term expires, the credit goes to a variable rate or be renegotiated for a specified period. Interest rates are locked in the protection against rising interest rates.

Rate loans are loans that combine features of both fixed and variable loans. This is done when the level of flexibility is applied to a loan and the fixed rate portion is also applied on the balance. This makes buyers benefit when there is a decline in interest rates and at the same time protects the buyer when there is an increase in interest rates on loans.

Home loans give customers the opportunity to travel to access credit. The customer can borrow against their capital at an interest rate lower than that on a personal loan.

It was also a revolution in the market for home loans in Australia and there is competition of providing loans to market by offering rates that are appropriate for the buyer. What Australian market ready for a more competitive locally and internationally.

Home lenders offer different packages for buyers. Home lenders were almost opposite to the collapse in business because of the exodus of buyers and this is because the major banks offer low interest rates for buyers. There are regulations that are being developed by the Australian Government in the protection of mortgage lenders.

There are many factors that influence property prices in any free market. These include underlying demand and supply, as well as interest rates, and government policy and regulation. Australian property prices have experienced upwards pressure from all these sources over the last 24 months. These factors have helped to avoid a significant fall in values in Australia.

Ongoing Demand For Australian Property

There is a net increase in demand for housing in Australia. The largest source of this demand is from people migrating to Australia. From 2007 to 2008, the Australian Bureau of Statistics reports that Australia’s population grew by over 400,000 people (or 1.9% of total population). Over 60% of this increase was from overseas migration to Australia.

More anecdotally, there is also an ongoing structural shift in Australia’s household composition, towards fewer occupants per dwelling. That is, there are increasing numbers of single-occupant and two-occupant dwellings.

Australia’s net migration inflow and the move to fewer occupants per dwelling are providing an ongoing structural demand for housing in Australia. This demand, from new homeowners and renters, puts an upward pressure on rents and property prices.

Supply Disequlibrium

A large proportion of Australia’s population is housed in its capital cities and on the eastern seaboard, from Melbourne to Sydney and north to Queensland’s Sunshine Coast. Whilst Australia is one of the largest countries in the world, there are significant constraints on the availability of land for new housing in these most populated areas. The result, in places like Sydney, has been a trend towards higher density housing, comprising apartments and townhouses in the inner suburbs and smaller house lots in the newer suburbs, further from the city.

The costs associated with new housing development are large, because state governments and local authorities require developers to fund local infrastructure. These ‘on-costs’, on top of the cost of the actual building, reduce the developers’ profit margins and are either passed on to the end-consumer through higher prices, or result in projects being shelved as uneconomic.

Banks and other financial institutions have also dramatically decreased their lending to Australian builders and property developers, resulting in fewer new houses and apartments being constructed.

Low Interest Rates and Government Policies

Historically low borrowing rates, through cheaper mortgage rates, have helped maintain a floor on Australian property prices. There has also been some switching of investments by some Australians following the start of the Global Financial Crisis, from equity markets into real estate, which is often perceived as being less risky.

In addition, the government has provided financial assistance to eligible Australians to buy their first home. This has had a direct impact on property prices up to around $600,000, and less directly on the rest of the marketplace as other homeowners upgrade their homes.

Where to from here?

The RBA has already increased interest rates in Australia by 0.25%. And the government has started to wind back its first home owner grants. Whilst these factors have had an upward influence on prices over the last 18 months, no one is forecasting a drop in house prices in Australia as a result of these two changes.

Australia’s demand and supply imbalance is anticipated to continue. Australia has an ongoing policy of encouraging overseas migration, which continues to outnumber Australia’s natural population growth (i.e. births in Australia). And there are no structural changes known to be in the pipeline to dramatically increase the supply of new housing in Australia’s most populated centres.

Some commentators regard Australia’s property prices as too high relative to affordability and relative to the price falls in other countries during the Global Financial Crisis. This may be over-simplistic, however, if attention is not paid to the underlying demand and supply factors influencing house prices in Australia.