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The Spring selling season is starting to heat up now that lockdowns have eased, with plenty of new listings coming on to the market.

Nationally, new listings surged 28.8% in the four weeks to mid-October.

Experts say stock levels are likely to continue to rise in the coming weeks, but we may see the usual seasonal decline from around mid-to-late November, so talk to us about your finance and get pre-approved today!

Interest rate news

At its November meeting, the Reserve Bank of Australia (RBA) left the cash rate on hold at the historically low level of 0.10%.

RBA Governor Philip Lowe has previously said the board would not increase the cash rate until actual inflation was within the 2 to 3% target range, a condition not expected until 2024.

However, the latest consumer price index showed inflation jumped 0.8% in the September quarter, pushing the core inflation rate to 2.1%, which is within the RBA’s window for increasing the cash rate. As a result, some experts say the RBA may move their cash rate increase schedule forwards.

Recently there has been movement on interest rates by the Big Four banks, so now is a good time to review your mortgage. Speak to us for advice.

Home value movements

Auction activity continues to increase across the combined capital cities, with volumes on the rise.

In October, the combined capital cities experienced the second busiest auction week so far this year.

Meanwhile, Australian housing values continue to rise. Recently CoreLogic revealed the annual rate of growth was tracking at the fastest pace since the year ending June 1989. However, it does appear the rate of growth continues to lose steam.

CoreLogic research director Tim Lawless said the slowing growth conditions were the result of higher barriers to entry for non-homeowners along with fewer government incentives to enter the market.

“With housing values rising substantially faster than household incomes, raising a deposit has become more challenging for most cohorts of the market, especially first home buyers,” he said.

“The slowdown in first home buyers can be seen in the lending data, where the number of owner-occupier first home buyer loans has fallen by -20.5% between January and July.”

“Over the same period, the number of first home buyers taking out an investment housing loan has increased, albeit from a low base, by 45%, suggesting more first home buyers are choosing to ‘rent vest’ as a way of getting their foot in the door.”

Whether you’re buying your first home, next home or an investment property, we can find the right finance for your specific needs. Get in touch today!

Additional sources
CoreLogic RP Data Daily Home Value Index: Monthly Values

Recent changes to how lenders have to assess borrowing capacity for home loans will make it harder for some to borrow what they want.

We’ve broken down what the changes are and what they could mean for you.

What’s changed?
On 6 October the Australian Prudential Regulation Authority (APRA) announced that lenders need to assess borrowers’ ability to meet their loan repayment at an interest rate that is at least 3.0 percentage points above the loan product rate, compared to the 2.5 percentage points it is now.

This comes into effect from today, 1 November 2021.

Why has it changed?

The change was in response to concern about soaring property prices, continuing record low interest rates that can only go north eventually, and an increasing number of Australians borrowing more, in reaction to the first two factors.

What does it mean for you?

Have pre-approval
If you already have pre-approval for a loan, it could mean you will need that reassessed. It could possibly mean that you will need to apply for a smaller loan.

Investors
The amount you can borrow (in some cases) will be assessed based on all your debt so this could impact future borrowing capacity.

What should you do?

Get in touch today. I can help:

• assess your pre-approval
• discuss the impact of the changes on your ability to borrow for investment
• discuss property plans and how we can work together to help you get there.

Reach out if you have any questions.

October 2021 is shaping up to be a very much compliance-oriented month, with two important pieces of royal commission driven legislation taking effect, and the Australian Prudential Regulation Authority (APRA) announcing new measures designed to cool the extensive capital growth seen across all sectors of the property market.

Design and Distribution Obligations (DDO) was launched on the 5th of October with financial product issuers now obliged to determine an appropriate target market for their financial products, and take steps to ensure that those being sold their products fit within these guidelines. From a credit perspective, mortgage brokers have been bound to new Best Interest Duty obligations since the 1st of January so it would seem that whilst there are now additional obligations from a home loan processing viewpoint, the client should still be receiving a product aligned to their goals and objectives as per previously introduced regulations.

Newly-minted breach disclosure legislation has increased the number of reportable situations that credit licensees are required to disclose to the Australian Securities & Investments Commission (ASIC). Significant breaches of core obligations are now required to be disclosed to ASIC in a much shorter timeframe in an attempt to stop licensees from addressing and remediating issues in-house. Given the even increasing compliance demands of operating a credit licence, the benefit of a small operation attempting to run a credit licence is reducing.

Spurned on by widespread media reports of the ever-increase unaffordability of housing in major cities around Australia, APRA has stepped in with a very gentle direction for lenders to increase their assessment/sensitisation rate up to a minimum of 2.5% points. Many lenders currently are currently using a buffer of around 2.25% so this will result in a reduction of borrowing capacity for some borrowers. Given that interest rates are at an all-time low, and buffer rates are added to the client’s actual rate, many banks are already completing their assessment using a floor rate so this will not impact all clients. Those with significant investment lending, and those borrowers approaching their maximum credit limit will likely not be able to borrow as much as expected. APRA has left the door open to implement more measures in the future such as limiting high debt-to-income ratios. It is unlikely that this assessment rate change alone will have a material impact on ever-increasing house prices.

In the property market, dwelling prices increased 1.5% in September. This is a slight moderation on the growth seen in previous months, however still well above the decade average of 0.4%. On a yearly basis from September to September, growth is sitting at a 20% increase – the most since 1989. Anecdotally, there is an expected decrease in growth towards the end of the year as lockdowns end and the market returns to a level of normality. The Reserve Bank of Australia (RBA) and other regulatory bodies alike hope that the market will cool slightly to allow wages and the cost of living to catch-up.

Lending to those who run their own business has always been a far more involved process than for those earning Pay As You Go (PAYG) Income.

The documentation required by banks generally has to span two years of income, which can be up to 18 months old at the time of assessment. COVID-19 has only increased this documentation burden as further documentation is now required to complete a more recent assessment on the sustainability of income generated from a business.

It would appear that these policies, which were originally enacted temporarily, have now been made permanent as a way to ensure a client was not impacted by a more recent downturn in their income. The differential from lender to lender as to what is required seems to be drifting even further apart. The value in a client approaching their own bank directly is diminishing as many lenders may not be able to support a business owner though a home loan application.

Business lending products can span from credit cards, through to commercial bill facilities. Then there are the additional products that support many businesses such as merchant terminal facilities and business bank accounts. All of these products are potential opportunities to improve a client’s financial situation. As they are not governed by responsible lending these products seem to be the ones that contain the most area for improvement too. To provide a truly comprehensive financial review, all areas of lending need to be reviewed. When was the last time you had your business lending reviewed?

Australian housing values increased a further 1.6% In July, according to CoreLogic’s national home value index.

The latest rise takes housing values 14.1% higher over the first seven months of the year and 16.1% higher over the past twelve months.

CoreLogic’s Research Director, Tim Lawless, described the market as strong, but losing steam. “The 16.1% lift in national housing values over the past year is the fastest pace of annual growth since February 2004, however the monthly growth rate has been trending lower since March this year when the national index rose 2.8%.”

Mr Lawless attributes the lower rate of growth in housing values to several factors. “With dwelling values rising more in a month than incomes are rising in a year, housing is moving out of reach for many members of the community. Along with declining home affordability, much of the earlier COVID related fiscal support (particularly fiscal support related to housing) has expired. It is however, encouraging to see additional measures being rolled out for households and businesses as the latest COVID outbreak worsens.

“On the flipside, demand is being stocked by record low mortgage rates and the prospect that interest rates will remain low for an extended period of time. Dwelling sales are tracking approximately 40% above the five-year average while active listings remain about -26% below the five-year average. The mismatch between demand and advertised supply remains a key factor placing upwards pressure on housing prices,” Mr Lawless said.

Although the pace of growth has slowed, housing values continue to rise at a rate that is well above average across most areas of the country.

Overall, Australia’s housing market remains in a strong position, however signs of a slowing rate of appreciation have become more evident.

The pace of capital gain has been tapering since April this year which can be attributed to growing housing affordability challenges along with less fiscal support.  It is likely recent COVID outbreaks and associated lockdowns have contributed to some of the loss of momentum as well, particularly from a transactional perspective in Sydney which is enduring an extended period of restrictions.

Previous ‘circuit-breaker’ lockdowns have generally seen housing values remain resilient to falls, but the number of home sales and listings activity has been more substantially disrupted in the most recent lockdowns.  Once restrictions are lifted, it’s likely pent-up demand will flow through to an increase in activity.  However, it is reasonable to assume the uncertainty associated with the duration and severity of Sydney’s lockdown could see a greater level of disruption relative to previous shorter periods of restrictions.

Although the rate of growth has eased, housing values are continuing to rise substantially faster than average.  Over the past 10 years, the average pace of monthly dwelling value appreciation has been recorded at just 0.4%.

It’s likely the rate of growth will continue to taper through the second half of 2021 as affordability constraints become more pressing and housing supply gradually lifts.

_{Source: CoreLogic}