If you are looking to buy property in Australia it will come as good news that right now new listing numbers are considerably up from previous months this year, and compared to the same time last year in most states. So there should be more houses to choose from, and this should flow onto an improved balance between supply and demand, so that sellers may not be able to demand the same prices as before.
Over the last two years falling interest rates have encouraged buyers to enter the market or buy again to expand their property portfolios. Following 23 years of consecutive economic growth, and considering Australia’s favourable and relatively steady economic and political climate, investors have focused in on the opportunities in Australian real estate.
Recent exchange rate opportunities (ie: the Australian dollar’s rapid depreciation against Sterling and the US dollar for example) have encouraged foreign investors and returning Australians to join the queue to purchase their own piece of Australia. Many might go so far as to call it a safe haven for their wealth.
Such a focus does not usually go unnoticed, and hence it’s easy today to find articles written by those lamenting the higher prices that a lot of demand for property creates, and predicting the burst of the property price bubble anytime soon, in Australia.
In terms of property price growth, over the last 12 months to August 2015 there has been mixed results across all capital cities. Sydney and Melbourne continue to show strong growth, rising by 17% and 10% over the year respectively, whilst other cities like Darwin and Perth are showing slight reductions in average house price values. You should always be aware that different areas within each State can perform quite differently to the averages in market data.
Perhaps there are some peculiar aspects to Sydney that seem to go unnoticed? Could it be that it’s the largest and most international of all Australian cities? Or that it has the greatest concentration and variety of jobs in Australia? Could it be related to the fact it’s the most desired city for foreigners to live in, and the current volume of houses available for sale is simply not enough?
It’s not difficult to conclude that Sydney to Australia is like London to the UK; New York to America, or Paris to France; you only need ask the locals about the differences between these major cities and their countries as a whole to conclude that like those cities in comparison, Sydney should be considered in a different light to the rest of Australia. We must be careful not to create policies targeting one city, when there are several markets and a much bigger residential population in Australia that exists outside Sydney.
Nevertheless, in a bid to attempt to starve-off the impacts of spiraling prices, and somehow to keep rising markets in check, the Australian Prudential Reserve Authority recently highlighted threats brought about by investing in property and ‘irresponsible lending’ for the property market and the economy as a whole, in Australia. They have followed through and introduced new restrictions on investment property lending by Australian banks.
This move has created an opportunity for banks to immediately discriminate against property investors (as opposed to home-owner borrowers) and move to increase the interest rates applying to their existing investment home loans and new investment loans. This will help lenders come into line with APRA’s expectations around ‘reasonable growth’ for investment lending.
Fortunately for a banker, this helps boost bottom-line profits as well, almost immediately.
In addition to increased rates for investment loans, APRA has determined that banks should not allow their investment lending books to grow by more than 10% in the next year. Subsequently, banks are making the lending rules tougher for applicants wanting investment property loans. This will most likely have the greatest impact upon those investors who already have multiple properties with mortgages. These borrowers will have their existing mortgages treated much more conservatively, to restrict the amount of new lending possible.
Other APRA-induced changes include reducing the maximum loan-to-value ratios for investors down to an average maximum 80% amongst most lenders.
APRA has communicated that: “This is a measured and targeted response to emerging pressures in the housing market.”
Other bank-initiated changes we are seeing are the removal of promotions and special discounts for investment property lending versus homeowner lending, in a measure aimed perhaps at reducing demand.
From a relative perspective, it’s important to note that generally Australians tend to borrow much more to invest in property compared to most mortgage markets in the world.
Seeking advice could save you a lot of time and money in this current climate. Make sure your broker applies with a lender whose policies are actually suitable for you. Otherwise you may be in for a surprise when your first-choice bank declines your application.
Daniel Shillito is a Mortgage Broker, Financial Adviser and specialist in Expat services at Aussie Finance and Property Group. Daniel can be contacted at daniel@aussiefpgroup.com, by tel: +44 (0)20 3239 0479 or visit www.aussiefpgroup.com
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