Predicting The Unpredictable
It’s been a year of upheaval with banks playing hard ball with investors. But Peter Norris of mortgage brokers Lateral Partners has analysed the market, and says things are changing fast.
8 October 2021
The year 2020 was meant to be our year, right? The turn of the decade, an opportunity to start afresh and have the most prosperous year of our lives.
Well, that’s what we all thought. Fast-forward 10 months and what a rollercoaster it’s been.
In January, the biggest issue worrying us was the Australian bushfires which, though terrible, were quickly overtaken in the wake of the global pandemic that followed.
Last year hit us with lots of things we never expected and because of that, it’s been hugely unpredictable, especially for the property market.
Before Covid, the market was active, and you could feel it starting to build again after a pretty slow couple of years.
Then the first lockdown came and threw all those positive predictions out the window.
It brought fears of a market crash, of a 10 to 15 per cent drop in house prices, of big increases in the unemployment rate and warnings of a devastating recession.
During events no one had experienced before, experts could only make assumptions and guess what the result would be.
But here we are, and in the space of six months, those same experts have gone from predicting a 10 to 15 per cent drop, to a 15 to 20 per cent increase in prices.
That’s a huge swing in a short space of time.
Right now, the market is very active, and buyers appear optimistic about the short to medium future.
I say that because of the big number of homeowners and investors I’m seeing that are buying off the plan, turn-key houses that are six to 12 months away from completion, or longer.
I’ve never seen so many people buying multiple properties at once. That says to me a couple of things:
Buyers are confident that the market won’t crash in 2021 and that property is a reliable place to put their money.
Banks are in fact lending despite the common misconception that they’ve tightened up and are hard to get money from.
So, rather than throw another prediction into the ring, let’s look at what could affect the property market and some things to look out for.
Banks and their credit policies have slowed the housing market right down over the past couple of years.
Policies have absolutely been tight, and banks have been harder to get money out of, but much of that has stemmed from the responsible lending code that requires banks by law to protect consumers.
After the first lockdown, it was near-impossible to get a mortgage.
People are saying now that banks are still tight but, in my opinion, that’s rubbish. As a business, we’ve got an over 90 per cent approval rate for our clients’ applications – and more than 70 per cent of our clients are investors.
At the moment, we’re seeing most people buying multiple properties at once. They wouldn’t be doing that if banks weren’t approving the loans.
Yes, the deal has to work, and the borrower has to be able to afford the debt, but assuming they can afford it, then yes, the money is there to lend.
That being said, banks can turn on a dime, and are by nature pretty pessimistic. If we saw a tightening of credit policy and less access to funding, we would see things slow down.
This is a simple equation, really. Interest rates are lower than ever, and those rates are fuelling the buyers.
So, the lower cost of funds equals buyers affording more.
This is one reason we’re seeing investors flood in to buy properties that are now cashflow positive, and first-home buyers paying more than they probably should for houses.
If rates continue to fall, as some predict, then we’ll see that continue to push the housing market higher.
However, the Reserve Bank is clearly nervous about that, so we may not see those drops – and in fact, we may see an increase in rates.
Personally, I think we have at least a decade of these low rates ahead of us, but the Reserve Bank won’t want things to get out of control and will look at ways to slow the market down.
The Reserve Bank has brought back loan-to-value ratio (LVR) restrictions to restrict buyers’ borrowing ability.
This is a measure that’s generally targeted at investors and it means you’ll need a bigger deposit to buy an investment property.
These are the measures so far in 2021:
From 1 March 2021:
- LVR restrictions for owner-occupiers will be reinstated to a maximum of 20% of new lending at LVRs above 80%.
- LVR restrictions for investors will be reinstated to a maximum of 5% of new lending at LVRs above 70%.
From 1 May 2021:
- LVR restrictions for owner-occupiers will remain at a maximum of 20% of new lending at LVRs above 80%.
- LVR restrictions for investors will be further raised to a maximum of 5% of new lending at LVRs above 60%
What this will do is slow down the number of multi-property purchases we’re seeing, by giving investors less access to equity.
I don’t see this having a big impact unless restrictions meant investors needed a 40 per cent deposit.
Access to capital
We’ve got more banks, plus some non-bank lenders and some ‘near-banks’ – and more access to capital – than we ever have before.
This creates a competitive lending environment and means that people can borrow who may not have been able to before, and they can borrow more.
What’s more, these near-banks are really competitive on price, so lending through them doesn’t mean paying through the nose.
This makes them a viable option for both short and long-term borrowing. I don’t see this disappearing.
There’s a lot of noise in the media which can confuse you about what to do, as a buyer and as an investor.
I’d say that if you surround yourself with advisers who are on your side, you’ll be in the best position to make the best decisions. That works the same, whether the market’s going up or down.
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Informed Investor's content comes from sources that Informed Investor magazine considers accurate, but we do not guarantee its accuracy. Charts in Informed Investor are visually indicative, not exact. The content of Informed Investor is intended as general information only, and you use it at your own risk.