The perfect Storm? – you decide…
Over the past couple of years there have been many changes to rules and regulations in the mortgage/finance arena in Australia. Most of these changes are driven by legislative change or the implementation of previous legislation, all of them are having an effect on finance liquidity and the property market.
A number of clients have been voicing their concerns, so I thought it would be a good idea to look at some of the changes and highlight what effect the changes are having on the market. When you put them all together, you have to ask the question, what does it all mean? Let’s look at what’s changed:
- Banks implementing the Responsible lending rules. The key aspect of this has been that existing debt is assessed in a far more realistic light, rather than the current cost. For example, a 4% Interest Only Investment loan, that has been in place for 5 years, is now assessed as an 8% Principle and Interest Loan (P&I) loan over 25yrs (the remaining term). In addition, lenders are looking in much closer detail at the applicant’s expenditure.
- Interest only (IO) loans. Previously many investment loans were interest only, while some lenders will still allow an IO loan, the interest only aspect was for the initial 5 yrs of the 30 yr loan, at that point it will revert to P&I. Historically lenders have been willing to allow the IO classification to be extended for a further 5 yrs, they are not willing to do so (as a general rule).
- Offshore Sourced Expat mortgages/ loans –These are loans generally sourced from Australian banks where the loan is based in Asia (the key difference is that these loans are written under local laws not Australian laws). Previously Australia’s big 4 (NAB, WPB, CBA and ANZ) all had an offshore retail presence, all have either sold or are closing down, non are writing new loans. The issue here is the small print – Offshore Sourced Expat loans were rolling 5 yr loans, not a 30 yr loan. This allows the lender to potentially close or call the loan in after 5 yrs – many are doing so currently.
- Overseas investors and Self Manager Super Fund (SMSF) buyers have exited the market. A large portion of the new growth in the AU unit market was driven by these sectors buying the properties. Broadly, due to increases in Stamp duty and funding costs, many of these have exited the market and developers are delaying the builds of new developments – due to the lack of demand.
- Valuations – within the unit market of all major Capital Cities, we have seen consistent down valuing of apartments. This can be driven by the methodology – eg the valuer has to use comparative data of actual sales of similar properties in the same of close suburbs. One factor that is not considered is yield, so the valuer is not considering what the rental income is or yield is when valuing the properties. It’s also worth noting that very few properties sold off plan over the past 2-5 yrs have come back onto the market.
- Inflation – or lack of it and what is going to happen to Interest rates? With the RBA closely monitoring inflation, it’s widely expected that interest rates in Australia will drop over the coming months, there is a real expectation that Australia may have a Recession at the end or 2019 or early 2020.
- Who is going to win the 2019 General Election – Labour is widely expected to win, whether they manage to control the lower and the upper house, remains to be seen? If we do have a new Labour govt on the 19th May, what are they planning to change? The key policy change here is the abolition of Negative Gearing on new purchases, unless the property is brand new unit development.
So, what does all of this mean to YOU as an Australian Expat?
It was Warren Buffet who said,
“be fearful when others are greedy, be greedy when others are fearful”.Warren Buffet
If you are concerned with all or any aspect of the above, then ask us how we can help. Often it can be as simple as understanding what is possible rather than assuming you can or you can’t do something…