Year 2018 for the Australian economy ended on a positive note despite constant news of a housing downfall. According to a recent address by RBA Governor Philip Lowe, “the economy is moving in the right direction and further progress is expected in lowering unemployment and having inflation consistently with the target”. With low inflation, low unemployment and historically low interest rate with cash rate at 1.5%, where is the property and lending market headed in 2019?
Trend #1: It will be the year for first home buyers
The slump in property prices presents an opportunity for first home buyers who feared they had been priced out of the market. Falling property prices have made homes more affordable for the first home buyer. The introduction of generous stamp duty exemptions and concessions by each state has given the first home buyers more incentives to enter the property market. With the ongoing low interest rate, I expect more first home buyers to enter the property market in 2019 as more homes within the $650,000 range for NSW and $600,000 in VIC become available.
Banks have started offering generous incentives such as great intro rates and cash back offers in a bid to attract the first home buyer market as banks continue to shy away from the investor market.
Trend #2: Interest rates are expected to rise
RBA Governor Philip Lowe has indicated in his recent address that “the probability of an increase in interest rates is higher than the probability of a decrease. If the economy continues to move along the expected path, then at some point it will be appropriate to raise interest rates. This will be in the context of an improving economy and stronger growth in household incomes”.
Trend #3: Refinancing on the Rise
With interest rates still low and with strong competitions between banks, there is opportunity for those holding mortgages to speak to their lender for a lower rate or to shop around with a finance broker for better home
loan deals. Most of the majors are offering cashbacks of $1,500 and frequent flyer points to attract more business. When refinancing, don’t allow the lender to put you back into a 30-year loan term. The goal of refinancing is to get a lower interest rate to allow you to pay the home loan as quickly as possible. A recent research by ING suggest that Aussies are eager to stay a step ahead of their mortgage repayments and that 82% are paying down more than what’s required most years and 45% expect to pay off their mortgage at least five years prematurely.
Trend #4: Declining Investor Interest
Even with investor rates dropping to as low as 3.99% (terms and conditions apply), investors are currently staying on the sideline. In the past, APRA imposed a 10% limit on investor lending in December 2014 and imposed a 30% limit on interest-only lending in March 2017 with the goal of bringing down the share of investor loans of lenders in their portfolio.
But there are other reasons right now in the decline in investor interest in properties. There is an oversupply of apartment dwellings in both Sydney and Melbourne. It is possible that an off-the-plan apartment bought 2 or 3 years ago is valued less than its purchase price today. Investors who speculated years ago by putting down a deposit on an apartment, thinking that the price will go up are in for a surprise. The completed apartments or units may now be worth less. Lenders are staying off high density residential apartments in certain suburbs and postcodes and require at least a 20% or sometimes 30% deposit minimum for these areas. The investor who has provided the 10% deposit years ago and does not have the extra 10% or 20% may not be able to settle on the property and may forego the 10% deposit they have made.
It is not a good time for investors with the glut in apartment supply, weaker housing market conditions, tighter finance, fewer overseas investors and weak rental conditions.
Trend#5: Mortgages are becoming harder to get
Certain mortgage products such as investor loans have become more expensive while borrowing capacities are declining. There are more people being refused loans. Finance brokers will need to provide proof that the borrowers are able to afford the loan and have more than enough savings to cover the expected monthly repayment for the loan. It is not enough that borrowers have a deposit or that mum and dad have provided the deposit as a gift. Borrower’s income and living expense are scrutinised more closely. With the recent Royal Commission enquiry, it is becoming increasingly difficult to get a loan.
A recent article from the Sydney Morning Herald has reported that the median Sydney home is losing more than $1,000 in value each week and more interest rate rises are expected from the banks independent of the Reserve Bank’s cash rate. A recent property outlook report from realestate.com.au showed national demand for houses dropped by 0.5% while demand for apartments across Australia has fallen by 8.5%.
So what is my conclusion? It’s a buyers’ market, thus an opportunity to get into the market if you have the income and the deposit that banks will accept and if you can manage to get a loan.
Originally published November 5, 2018 8:00:00 AM, updated November 20 2018