Longer term mortgages off the menu now

The mortgage market is changing rapidly again as funders and lenders react to continuing turmoil in international credit markets. One major lender has warned that mortgage rates may rise again and it has also reduced the range of fixed rate terms available.

Wednesday, September 24th 2008, 10:03PM

by Maria Scott

Australian mortgage funder AMS, which is part of the same group as GE Money and Wizard Home Loans, and which is a major supplier of funds to non-bank lenders has withdrawn funding for mortgages of terms beyond one year.

John Grant, national director of GE Money Home Lending said the decision had been made because of volatility in credit markets, particularly in the price of funds over the longer terms. One year funds represented good value for customers and by restricting its range the company avoided the most difficult end of the market.

GE and other lenders have been reducing rates on their one-year and floating rate mortgages. But Grant has warned that rates may have to rise again because of the shortage of funds in international markets.

Since the crisis in the US banking system deepened last week with the collapse and near-collapse of household-name institutions and similar difficulties in the UK, there has been debate among economists and commentators about how this would affect the cost of funds here. The Reserve Bank cut its official cash rate by 50 basis points last month but official rates are not the only factor for lenders in pricing mortgages.

Grant said that funding had become more difficult to obtain – although GE still had access to capital – and more costly. The company would be reviewing rates again towards the end of the week but it was almost certain that there would be increases.

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