The only way we can grow is through change. There are a lot of changes going on the economy and the world of property finance in particular. Well, it’s all good guys. If the economy does not experience change, it will become stagnant. We do not want that do we?
Change in real estate means changes for home loans customers. So, it’s good for you to be aware of the changes in the market and be prepared for any hits and bumps along the road.
What is actually happening?
The household debt in Australia was on a record rise along with escalating house prices. High debt adds to economic vulnerability. Hence, to tame the rapid growth in credit, the Australian Prudential Regulatory Authority (APRA) significantly increased the capital requirements for Australian banks. Also, there are tighter restrictions on the volume of ‘interest-only’ loans. This means that the big 4 – ANZ, Commonwealth Bank, National Australia Bank, Westpac and Macquarie now have to retain a lot more money which would have otherwise entered the market as loans. This has reduced mortgage lendings and thus made mortgages expensive.
Earlier, the investors betting on the rising property prices favoured interest-only loans. But now, due to regulatory intervention, the loans to housing investors has trickled down to a new low. The riskier types of lending have been moderated with a slowdown in investor-credit growth. Now, all said and done, banks are in it for money. With tighter restrictions, banks have increased their interest rates even though the RBA kept the official interest rates at a record low of 1.5% for a long time.
Banks have tightened the LVRs (loan-to-value ratios) for investor loans from 95% to 80%. This means that you will need a 20% deposit (along with costs) to purchase an investment property. In short, property buyers have to cross many hurdles to get a loan sanctioned.
Is there a way out?
These regulatory changes have encouraged a number of private lenders who are viewing this as an opportunity to make their mark. They are taking advantage of the changes in the banking sector of Australia. The tighter liquidity has created new lending opportunities for non-bank lenders. To many of them, Australia is a promising, untapped market.
Foreign banks, investment funds and high-net-worth investors particularly from foreign countries like the US, China, Malaysia and Singapore are jumping in where the banks have moved out. These new sources of lending have made a considerable impact on Australia’s property lending deficit. A decade down the line, it is expected that banks will form a lesser share of the debt market.
Many believe that the Australian debt market is maturing. So don’t worry, all is not bleak after all! First-home buyers and upgraders definitely stand to gain in this scenario. Investors can look to funding from non-bank lenders who offer various packages according to their risk appetite.
One can say that a recalibration of the debt market is a well-needed breather. However, some marginal borrowers would be affected in this changing scenario. Need some advice on how to manage your debts? Or are you buying a property for the first time? We, at Lend2U, are an Adelaide based brokerage firm helping clients get the best rates. Contact us to know more.