Yep, it’s tough out there if you’re looking to secure housing credit. A combination of industry, government and market changes are all contributing to increased restrictions on credit. There are now fewer buyers with access to credit, directly impacting the demand for property resulting in a drop in property prices.
Home values correcting
The CoreLogic July home value results confirmed that national dwelling values continued their weak run, with both capital city and regional dwelling values trending lower over the past three months.
The Australian housing market has recorded a cumulative 1.9% fall in value, since reaching a peak in September last year.
Whilst this isn’t unexpected, and many said a correction in property prices was needed, the government needs to ensure property prices don’t fall too far and create bigger problems for Australians than just housing affordability.
Further declines over the next 6 months
In the July report, Tim Lawless, head of research for Core Logic said, “We can’t see any factors that may halt or reverse the housing markets trajectory of subtle declines over the second half of 2018. The availability of housing credit has been a significant factor contributing to this slowdown, however there are a variety of hurdles contributing to slower conditions.”
“From a credit perspective, the latest credit aggregates from the Reserve Bank of Australia highlight that owner occupier lending has continued to grow at a relatively strong pace; up almost 8% over the twelve months to June. The same data highlights that the slowdown in credit growth is attributable almost entirely to less investment lending, where growth is tracking at a record low of 1.6% annually.”
He also flagged other factors surrounding the decline in housing prices;
Oversupply of new developments and units
Unit construction is experiencing a peak and new developments are providing an oversupply of properties marketed to investors, but investors are struggling to secure funding. Domestic investors and foreign buyers have reduced prompting prices to drop in areas where new ‘investment grade’ projects are abundant.
Migration trends have changed
ABS demographic data shows that New South Wales is seeing an increase of relocation of residents to other states. The reduction in migration indicates a reduced housing demand in these locations.
Rental yields dropping
Sydney has recorded the largest decline for annual rents over the last 10 years, falling 0.4% annually. Rental yields remain the lowest in Melbourne (3.04%) and Sydney (3.21%) which, along with dim prospects for capital gains and tougher credit conditions, is likely to act as a further disincentive to investors in these markets.
Housing credit important for property market stability
Credit supply is cyclical, however we haven’t seen such tough credit conditions in a very long time. This is coming as a shock to home buyers and investors who had planned their property dreams, only to find out they need to provide a larger deposit, longer savings history or a different type of employment arrangement.
The biggest issue is due to the Royal Banking Commission; the Productivity Commission; APRA; and ASIC regulation changes with the major banks. Every lender is tightening their credit approval process to ensure they meet the ever-changing requirements set by the industry and government bodies.
This is resulting in longer approval times, simple credit applications becoming complex and reduced loan amounts due to serviceability changes.
It’s now even more important to have a mortgage broker on your side when it comes to a home loan approval. They know exactly which banks have the right lending appetite and which lenders will delay or scrutinise to avoid approving a loan. And yes, banks do turn business away because they have reached their industry or government set cap – but they won’t come out directly and say it.
Borrowers going it alone are finding the process hit and miss. Now is not the time to try an online “easy approval” option where your credit report will be affected. Working with experienced mortgage brokers at Mint Equity will give you a real time insight into the lending landscape and how you can secure approval.