A positive impetus on prices.
House prices across all capital cities are expected to stabilise and increase in 2019/20 after experiencing slowing growth or declines in the past two years.
What contributes to that being highly likely?
The combination of an easing of lending serviceability buffers and lower interest rates is expected to assist borrowers. Strong population growth and a sharp downturn in new dwelling completions should result in the dwelling balance across most markets tightening from 2020/21. This will provide some real and positive impetus to prices.
Recovery underway as new serviceability threshold encourages owner occupiers and first home buyers back into the market.
New dwelling building approvals fell by 19% in 2018/19 and dwelling completions are subsequently forecast to fall to 163,500 dwellings by 2020/21, which is well below underlying demand.
Three interest rate cuts, political certainty, reduced uncertainty about housing, tax cuts, positive media coverage and easing in the execessively tight bank lending guidelines have collectively enabled significant improvement.
After struggling for two years, the Australian housing markets are on the up, delivering positive growth for four months in a row.
The Government’s new scheme, which will allow eligible first-home buyers to get a mortgage with only a 5 per cent deposit, will kick off in January 2020.
The government unveiled the latest details of its scheme end October, confirming that 10,000 applicants would be chosen on a first-in, best-dressed basis.
But first-home buyers wanting to use the federal government’s new first home loan deposit scheme will be forced to buy homes in areas well outside of expensive cities, particularly in Sydney and Melbourne.
It also revealed the price caps for every capital city, large regional centres with a population over 250,000 and regional areas across the country.
The mortgage thresholds differ depending on the state and regional centre, with first-home buyers in Sydney limited to a loan of $700,000 or less, Melbourne to $600,000 or less, Brisbane $475,000 or less and Perth $400,000 or less.
The State thresholds are listed below
Eligibility criteria Applicants under the Scheme will be subject to eligibility criteria, including criteria in relation to income thresholds and property prices. The income thresholds will be up to $125,000 per annum for singles and up to $200,000 per annum combined for couples (assessed in the financial year preceding the financial year in which the loan is entered into). The Scheme will apply to owner-occupied loans on a principal and interest basis.
Download the first home buyer loan deposit scheme fact sheet here
The Reserve Bank has cut interest rates to 1% – now the lowest rate in Australia's history. That’s 25 basis points! Another 0.25 percentage point drop – down from 1.25%. That makes it two cuts in a row, after the RBA cut the rate, in June, from 1.5% to 1.25%.
Great news for existing mortgage holders if the banks pass 100% of the rate drop through, and potentially it's great 'affordability news' for new home buyers. But not such a great indicator for the general economy
The offical line from Phillip Lowe, the RBA governor is “Today’s decision to lower the cash rate will help make further inroads into the spare capacity in the economy,” he said. “It will assist with faster progress in reducing unemployment and achieve more assured progress towards the inflation target.”
The mortgage landscape changes for borrowers...
Summary and Impact
The Australian Prudential Regulation Authority recently wrote to banks proposing the 7 per cent serviceability buffer on home loans be removed. This is welcomed news for borrowers and the property market.
For those that understand the significance, the impact is likely to lift the market through better buyer sentiment and loan accessibility
Let's quickly unpack this for you. This is an exceptionally positive forward step for the Australian property sector as we suggested in our last post.
~ APRA’s serviceability buffers were introduced back in December 2014. It's primary purpose was a way of cooling the housing market, and protecting banks lending books. It required banks to assess all home loans against a floor of 7 per cent or 2 per cent above the rate paid by the borrower. (whichever was the higher).
The newly proposed change would likely mean the 7 per cent buffer would be replaced by a simpler 2.5 percentage point step up on current rates for all borrowers. So for loans with rates that are markedly below the 7 per cent floor (and with the recent RBA rate reduction to a cash rate of 1.25% there are many, many products), this would mark a significant easing in lending.
An exceptionally positive outcome...
Summary and Impact
Following the results of Australia’s Federal election this past weekend which saw the Liberal National Party clinch an unexpected but convincing victory. Here's a quick 'wash up' and likely 'summary and impact' on the Australian property market.
Let's quickly unpack for you, what is an exceptionally positive outcome for the Australian property sector.
~ The elimination of uncertainty around negative gearing benefits and capital gain tax. Policies remain unchanged and perhaps most importantly are unlikely to be revisited again by either side of politics, for a very long time.
~ Significant taxation cuts to be introduced by the Government for the vast majority of Australians along with small businesses, fuelling consumer confidence and boosting both employment and spending. The Government has a mandate for 94% of taxpayers to pay no more than a 30% Marginal Tax Rate once the plan is fully executed.
~ A proactive and substantive new First Home Buyer Deposit Scheme backed by the Government, enabling more buyers to enter the market with minimal deposits. (see image reference above and impact point 2 below).
NOW WE KNOW THE GOVERNMENT FOR NEXT 3 YEARS+....
5 reasons to invest in property now?
The combination of the following five key issues converging makes a compelling proposition for buyers, and should subsequently frame an investor's view of the horizon.
We anticipate demand to intensify quite significantly in the coming months as a result of...
1. Confidence returning to the Australian market due to a stable government and the fact that there will be no changes to negative gearing and no changes to capital gains taxation policies. And unlikely to be revisited again by either side of politics, for a very long time.
2. First home buyers deposit reduction requirements, removing LMI costs (Loan Mortgage Insurance), as result of Government election pledge to underwrite home loan deposits and taking on role of guarantor for First Home Buyers. First time buyers getting on the initial rungs of the ladder, is exactly what enables everyone else to move up the ladder.
3. Increasing certainty there will be two interest rate cuts later this year, reducing the home mortgage costs of borrowing money.
And the all essential Point 4 to make Point 3 above significant...
4. Strong recommendations for lenders to improve accessibility to credit, by reviewing and relaxing the policies to enable buyers to financially qualify and secure a mortgage. (Have these restrictions adversely affected you?)
5. House pricing is currently softer than it has been for years. Over the last 12 months in large parts of the country the property sector growth has undeniably slowed, forcing vendors to soften pricing to sell. HOWEVER...
...the true demand never went away. The prices and perceived value for most properties weren't actually the issue, it was simply being 'throttled' with the restricted access to buyers securing funds.
So... As the tap re-opens with lending facilities becoming accessible and on stream again, watch loan applications increase again, expect to watch the prices firm and start easing upwards. And it'll inevitably happen, far faster than you think. By the time you read about it in the news papers, it's already in the past, and old news.