Lending Reforms will Change the Property Market - February 2021
Credit market reform and responsible lending practice legislation… they’re not exactly the sexiest dinner party conversation starters.
But for anyone in the property market, dramatic changes currently underway are worth being across, as they’ll have an impact on housing markets – both good and bad – in the months ahead.
Some of the tweaks are known already and are being debated, while others remain the subject of reviews that will play out for a while to come. But one thing is for certain. Adopting a wait-and-see mentality could cost you time, money and opportunities.
As with anything concerning financial market regulation and reform, the details about what’s happening can be complicated and confusing, so bear with me.
In a nutshell, part of the Federal Government’s plan to revive the economy in the wake of the coronavirus pandemic is to make it easy for people to spend. Or, in the case of property, to borrow.
Strict laws imposed on lenders by Kevin Rudd’s government after the Global Financial Crisis will be scrapped. In all, some 100 pages of red tape will be shredded, making it easier for homebuyers to access loans.
A fairly significant change in the legislation, which is before the parliament right now, would see responsible lending obligations removed from consumer credit laws. Banks will be able to accept the information borrowers put in their mortgage applications at face value.
Think this means you can fudge the numbers? Think again. What the change actually does is shift the responsibility for that accurate information from lenders to you.
So, on the one hand, loan applications might be approved more quickly and with less hassle, but the buck stops with you if something goes wrong and you’ve fibbed.
That’s putting it very simply, of course. But the idea is that less regulation will see more cash flow from banks to those who want to borrow it.
At the same time, the Australian Prudential Regulation Authority – basically, the bank police – will be watching closely to see how lenders respond to the changes.
If they’re acting irresponsibly, you can expect a swift crackdown. APRA has shown numerous times recently that it’s ready and willing to act quickly when it needs to.
Take the temporary interest-only loan ban from a few years ago.
This is good news. No one wants a repeat of the Banking Royal Commission – or worse, a local version of the American subprime mortgage crisis. But we’ve seen what the uncertainty of chopping and changing lending rules can do. Confusion, chaos and a lack of confidence.
What does it all actually mean for property markets in the months ahead? And, more importantly, what does it mean for you?
I predict that quicker access to credit, combined with historic, rock bottom interest rates and the positive performing of housing markets across the country, will result in a flood of buyers. First homebuyers and upgraders will be particularly active.
The problem is that for the past 12 months, almost nobody has been building residential developments that weren’t already underway. Anything in the planning stage, which would be beginning by now, was put on ice until the COVID-19 situation became clearer.
The pipeline of new properties is empty, and it’ll take some time for stock to begin hitting the market.
At the same time, the number of properties being listed remains extremely low. Would-be vendors are sitting on their hands and not much will get them to budge, it seems. At first, they were nervous about losing out because of the dire warnings of price falls. Then, when prices instead rose, they were eager to see if they could get more by waiting.
Those median prices continue to go up, so those that don’t have to sell may just stick it out and hedge their bets.
So, if you’re in the market for a home now or in the short to mid-term, expect boom-like conditions out there.
We know that buying momentum is extremely strong. Demand is through the roof and good quality dwellings that do go to market are selling quickly, over reserve and with intense competition in most cases.
Those venturing out on their own can expect slim pickings, plenty of other buyers, tough negotiations and plenty of disappointing when they inevitably miss out.
With all of this in mind, what should you do?
First things first, you should get in touch with a finance broker right now. Don’t hesitate or wait. Even if you’re not planning on buying right away, make the appointment to start getting your ducks in a row.
Secondly, enlist the services of an experienced, qualified and independent buyers' agent who can help you navigate the increasingly tight market conditions to find the property that meets your needs and wants.
They can source potential deals on your behalf, cutting down the time and angst you’d otherwise experience. On top of that, they can sniff out off-market deals that you wouldn’t find on your own. Then, they can negotiate directly with vendors or their sales agents.
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