Chk Chk BOOM - Lending is easing, What could it mean for the market?
THE BIG NEWS IN PROPERTY This Friday the 25th of October : Responsible lending regulations are being rolled back !
What could this mean for the property market ?
Back in 2017 the authorities on finance ASIC & APRA launched a major investigation into the lending practices of financial institutions of Australia, This is referred to as the Royal Commission into banking misconduct in the banking, Superannuation and Financial Industry.
From that the regulators identified that access to finance for the consumer was in a lot of ways too easy,
People were able to access lines of credit for amounts of money that in many cases they were not really able to service & this access to money among other things had been fueling the rapid growth of a property market rich with buyers who were happy to overspend based on artificial confidence in their own financial ability.
In the wake of the Royal Commission the regulators dealt severe penalties to many lenders who were involved and brought in new regulations and guidelines to prevent this activity - Suddenly lenders needed to sight MORE documents than ever before to qualify the borrowers finance,
They were forced to scrutinize their living expenses much more critically and the onus was put on the broker to carry this out a deep fact find to determine the borrowers “living expenses, Income & Debt; where prior to the Royal Commission they widely used a tool referred to as the (HEM) standing for Household Expenditure Measure tool which favored the borrowers and relied more on their honesty to give accurate information.
This is where things changed, In terms of who’s responsibility is it to ensure the applications were kept honest it went from “Borrower Beware” to “Broker Beware” and the effect was a quick snap back to reality for many seeking finance and a overall reduction in the average amount a buyer would qualify for combined with an increase in the time it took to actually attain finance to buy property.
THE MARKET FELT IT 📉
Prior to 2018 the major lenders had already started to move away from using the HEM tool so scrapping it all together wasn’t deemed necessary but the pressure on the banks to change their ways with the regulators snooping around was enough to see a sharp decline in property prices which continued all the way through to late 2019.
THEN At the start of 2020 the Tide Changed :It was very much a case of
“What goes down, Must come Up !” 🚀🚀🚀
We experienced the first surge in price growth since before the Royal Commission,
Property prices bounced by nearly 10% on average back to peaks of 2017 in some areas, And many in the market had just started to whisper those fabled words we try resist even mouthing so as not to case too much hysteria : “Property Boom”
This was of course short lived due to the ensuing PANIC & DISTRESS that the “CHYNA” virus brought in to the market but it held up quite well, Showing great resilience as we awaited the expected a major drop taht never really eventuated.
“SO, TELL US WHAT IT MEANS NOW, WHAT DO YOU THINK WILL HAPPEN ?”
I see the property market as a “Bandaged Bear” walking through a field, The aim of the Game is to keep him going-
The Bear is battered and bruised and in recent times he’s been ready to collapse and fall over.
However the Government just is not prepared to submit to defeat !
The Property market has been and forever will be an absolute corner stone of our wider economy here in Australia and as long as that is the case they will keep it going delaying the bear falling over any way they can.
If you can think about the interest rate cuts as band-aid’s to keep the Bear walking,
Its safe to say they are well and truly all out of those - They cant really slap any more rate cuts on this thing, At 0.25% there just isn’t any left.
They would need to go negative !
This proposed roll-back an relaxation of red tape around lending is the Government throwing away the empty box of band-aids and whipping out the HEAVY MED’S..
It’s looking like in the next few months; The “Bandaged Bear” that is our property market will be :
Strapped up, Handed a set of crutches and a FIST-FULL of pain killers & sent on his merry way again - And there is every chance as we’ve seen time and time before…
The Bear Marches On 🐻
HOW LONG TIL EFFECT TAKES PLACE : This proposed change needs to go through Parliament so expect that to take a few months, But chatter about this proposed roll back will likely effect the general market sentiment as early as this weekend.
EXPECTED MARKET SENTIMENT 6-12 MONTHS : Positive ✔️
IF YOU ARE A BUYER : Consider taking advantage of the deals & incentives available NOW as many will flock to market shortly with renewed confidence and prices may increase, New home stock around the $800,000 in NW Sydney is already low and when its replenished you can bet the builders will be trying maximize profit while the sentiment is positive.
IF YOU ARE A SELLER : Prices will change disproportionately in different areas and the higher end markets typically move more than their lower end counterparts so if you are selling to upgrade, Consider doing that soon before prices rise and competition increases with more sellers coming on to the market in the new year.
