After soaring property prices in recent years, the Australian housing market is transitioning to the next phase of the cycle as house price growth, auction clearance rates and lending to investors slows.
Recent data from CoreLogic shows national dwelling values fell by -0.3% in December 2017, their largest monthly fall since February 2016.
This slowdown in the pace of capital growth can be largely contributed to tighter credit policies which have fundamentally changed the lending landscape for borrowers, particularly for investors.
In a shifting market, it’s critical to stay informed of developments and maintain a robust strategy that allows you to navigate this new environment successfully.
Price growth to continue to moderate
The transition towards weaker housing market conditions has been clear but gradual, with year-to-date figures indicating the market will continue to soften into 2018. At time of writing, the Sydney market had retreated by -0.2 per cent this year, with the Melbourne market stagnating and the Perth market plateauing, with the market falling back by -0.2%.
On the upside, weaker conditions mean interest rates are likely to remain low, providing a positive lending environment for those able to secure funding.
Strategic investors with a long-term outlook should still find plenty of opportunity this year. Although the major capital city markets are unlikely to experience the high levels of short term capital growth they have recently displayed, more subdued markets may provide an opportunity to acquire certain types of property without the level of competition seen in years passed.
Further to this, it will be important to look across the broader domestic market, especially given the eastern seaboard states have run so hard in recent years.
Tighter lending conditions
What we have seen in the last few months is a shift from a macro prudential focus, which imposed limits on aggregate lending, to micro prudential, which focuses on the quality of individual loans and a borrower’s ability to repay. As a result, lenders across the board have implemented numerous policy changes in their serviceability assessments.
One area in particular that has received increased focus is in the assessment of declared living expenses. Following a directive from the banking regulator, lenders are now applying greater scrutiny to ensure borrowers can meet their existing obligations and service the new loan repayments.
If you can’t prove what you spend week-to-week, a lender may assume a higher level of spending which can impact on your borrowing capacity.
There are several apps that can help you track and justify your spending if you’re applying for a loan. One example is the Australian Securities and Investments Commission’s free TrackMySPEND software. Another is Pocketbook, which syncs with your bank accounts and credit cards to deliver a real-time view of spending against your bank balance.
Digital tools like these are a great way to justify your numbers during the loan application process, at the same time giving you better oversight and cash flow management of your finances.
Affordable entry points
Thanks to changing conditions, there is now an opportunity for many younger first-home buyers to enter the housing market. This is due to a combination of factors, including reduced investor activity, easing price gains in some capital cities and newly introduced stamp duty concessions in NSW and Victoria.
As an added benefit, medical professionals will continue to be able to leverage favourable lending conditions to assist in securing a loan. Due to their professional status, doctors receive preferential treatment and access to a range of benefits that other borrowers cannot. These include discounted fees and interest rates, higher loan-to-value ratios and the ability to avoid lenders’ mortgage insurance, which can save a significant amount of money and allow younger practitioners get a foothold in the property market sooner.
At a time when banks are looking to protect their balance sheets and mitigate risk, competition to attract high-quality mortgage customers will only continue to grow. The combination of these factors suggest that medical professionals are in prime position to capitalise in 2018.
Upgraders to Renovate
Recently, there has been a substantial increase in renovation loan applications as households choose to renovate rather than move and avoid costly entry/exist costs.
This is being most commonly funded through what’s known as a ‘top-up’ loan as borrowers take advantage of lower interest rates to utilise the equity built up in properties. It allows you to access additional funds using an existing home loan without the need to take out a separate loan, saving time and paperwork.
There are, however, a number ways to fund a renovation depending on the size of the project and budget. The most important consideration is that the chosen product and end structure aligns with your personal requirements.
If you are considering financing improvements this year, it would be wise to seek guidance from an experienced lending specialist who can advise you on all of the available options.
Interest Rates on the Move
The rhetoric from the Reserve Bank of Australia indicates rates are likely to stay where they are for the moment. As its most recent monetary policy statement indicates, the cash rate is on hold at 1.5 per cent, in an effort to help drive sustainable economic growth.
Nevertheless, lenders are continuing to adjust their rates independently of the RBA and have introduced higher pricing on investment and interest only type products. Great value can still be found for owner-occupiers, particularity those willing to make principle repayments.
For those with existing facilities, make sure you review the loan terms to ensure what you have in place is still suitable and competitive in the current market.
For more information or to discuss your own plans for the coming year please get in touch.
0456 964 339 / jack@medipay.com.au