September hesitation forgotten by October

The Australian Finance Group's "mortgage index" - really a fancy label for their monthly new sales report - for September showed an abrupt drop of 21 per cent in residential lending that month as borrowers retreated from the market.

A month later it's all back to normal, or sort of. AFG's mortgage index for October shows investors returned to the market in October, with new loans rising 19 per cent on September. The average loan size for AFG October was $322,000, lower than September but $9000 higher than the 12 month average.

Investors are locking into a rate, with fixed rate mortgages 40 per cent higher than three months ago.

 "A growing number of property buyers clearly expect rates to rise, so are choosing to lock in their repayments", according to Mark Hewitt, general manager of sales and operations at AFG.

"We're also seeing a 'flight to safety' as buyers opt for financing from the major bank brands as a result of the funding issues of some of the smaller lenders."

Fixed rate mortgages accounted for 23.2 per cent of loan types in October, compared to July which had an unusually low 16.5 per cent. The 12 month average to October is 21.9 per cent, with November 2006 recording the highest at 25 per cent.

The AFG data doesn't make clear whether the aggregator, which simply introduces loans sourced from brokers to lenders, directed a greater proportion of loans to banks and fewer to niche lenders as some other brokers have reported. It also doesn't provide any guide to the extent of demand for new credit versus refinancing.