What Borrowers Need To Know In 2018
The crash hasn’t happened but it’s not all smooth sailing
Despite the media hype fueling the fear, all signs are pointing to a soft landing for Sydney and Melbourne real estate and other capital cities look set to follow.
That’s great news for Australian homeowners and would-be borrowers but how we’ve avoided a crash has created new problems that, if left unaddressed, will have a high social cost.
The good news? The property bubble didn’t burst!
It goes without saying that Sydney and Melbourne property prices have increased at a faster rate than most experts could have ever predicted.
Outside our two most populated capital cities, CBD markets in general have been at risk of oversupply.
Western Australia and Queensland meanwhile have lagged behind making it even more difficult for the Australian government to develop a solution to reaching housing affordability and knowing which regulatory levers to pull and when.
Really, each state should have had different interest rates but obviously that was never going to happen.
The result – and smashed avacado aside – thousands of first home buyers have been locked out of the market – but it could have been much worse.
The Australian Prudential Regulation Authority (APRA), the Australian Securities and Investments Commission (ASIC) and the Reserve Bank of Australia (RBA) did a fantastic job of navigating these dangerous waters.
The regulatory changes they forced on the banks were painful for lenders and certain borrowers alike but it prevented a bubble and the pop that inevitably follows.
Regulatory changes have seen many winners and many losers
The two biggest lending policy changes in 2017 were the limits placed on investment loans and interest only facilities and the careful balancing of interest rates.
At the regulatory level, a number of states introduced a foreign citizen stamp duty surcharge to curb foreign investment.
It made enough of a difference that the number of foreign buyers at auctions has decreased, giving first home buyers more of a fighting chance to buy a property.
These moves by the government and regulated banks have understandably been unpopular to some borrowers and that’s because there are no accolades for our leaders when they see a crash coming and steer us away from it.
It’s only when the crash actually happens and the government moves swiftly to steer us away from it that they’ll be seen as heroes.
Australians can be a little funny like that but we really should be thanking the government for making tough decisions and for APRA being fearless and really getting into the banks at the right time.
It’s now tougher than ever to get approved
If you haven’t applied for a home loan recently, you’ll have to just accept that it’s changed quite a lot and it’s one of the rare times where it’s not actually the banks’ fault.
Mortgage brokers need to ask you more questions, your living expenses are being more closely investigated, investors’ borrowing power is much lower, many income types like contractors and casual workers are less likely to be considered, and interest only repayments aren’t being handed out to anyone who wants it.
What that means is that many good people who could easily borrow money in the past now going to get declined. The social and finance cost of this is enormous.
Bought a property off the plan in the past year? Won at auction just last week?
The question becomes whether you’ll be able to settle your mortgage.
We’re getting calls every week from distressed buyers who have found themselves in hot water and only a few weeks to find hundreds of thousands of dollars to complete the purchase.
What can you do as a borrower?
Get pre-approved before you go looking for a property.
Make sure you have a cooling off period in place with the vendor or seller of the property.
If you must go to an auction, get the right advice before you do so and find out what your rights are for your state.
Only buy off the plan if you’re in an extremely strong financial position and you have a plan B in case you can’t quality for a home loan when settlement arrives.
Can the regulators do more to help?
Home Loan Experts are pretty positive of what else the industry regulators can do to improve efficiency, relax lending policies for first home buyers and to prevent people buying off the plan from losing their deposits.
It’s about assisting banks to create long term approvals at the time you buy or by working with the real estate industry to put more disclosures in place so Australians stop signing contracts without knowing the risks.
Preventing a crash and ensuring responsible lending will always be the number one priority but Australia can do so much more.
The ability to access finance is incredibly powerful so if we loosen lending standards for first home buyers and tighten them for investors then the Great Australian Dream of owning a home can become a reality.
It’s time to start the discussion on where we go from here. If the banks and regulators work together to achieve economic and social outcomes we’ll all be better off.