Property Finance Update - October 22
Supply chains are backed up, so it might be wise to start ordering your Christmas presents now. In the meantime, here are four big property and finance stories:
Borrowing capacity falling
Property buyer breakdown
Cash no longer king
Read more below.
New analysis has revealed two big reasons why rents, which are already rising steeply, are set to continue increasing. First, the number of properties listed for rent is much lower than pre-pandemic, in both capital cities and regional areas, according to PropTrack economist Angus Moore. So supply has fallen. Second, Australian Bureau of Statistics data show a significant increase in migrant and foreign student numbers. That means demand is rising. "Extra demand from returning migration amid tight housing availability will contribute to the ongoing rapid advertised rent price growth we are seeing," he said.
"We’re already seeing signs consistent with that dynamic. Rents are growing especially quickly in areas that recent migrants typically move to – these are mostly inner-city areas, often near major universities." Mr Moore said "rents are likely to continue growing briskly" in the foreseeable future. "Vacancy rates are low across much of the country and, with population growth returning, rental demand shows little sign of tempering." Get in touch if you need an investment loan
The increase in interest rates over the past six months has made it harder for Australians to qualify for a home loan, and made it more important they get help from a mortgage broker. Every rate increase of 0.50 percentage points reduces an average borrower’s maximum loan size by about 5%, according to the Reserve Bank’s head of domestic markets, Jonathan Kearns. Since May, the Reserve Bank has increased the cash rate by 2.50 percentage points – which means the average person’s borrowing capacity has fallen by about 25%. The key words here are ‘average’ and ‘about’ – because borrowing capacity varies not just from person to person but lender to lender. Two banks can offer the same borrower very different maximum loan amounts; sometimes, they might be more than $100,000 apart. With borrowing conditions getting harder, it’s vital you seek guidance from an expert broker. I work with a large panel of lenders, so I know which lenders would be more likely to offer finance to someone with your scenario. I can then present your application in such a way as to maximise your chances of approval. See how much you can borrow now
Home loan activity has fallen since earlier in the year, but demand among first home buyers has held up better than that of other buyer groups. Between April, when national property prices peaked, and August, the most recent month for which we have data, total home loan commitments fell 13.9%, according to the Australian Bureau of Statistics. However, the decline varied between different buyer groups:
Investors down 20.1%
Subsequent home buyers (owner-occupiers) down 10.8%
First home buyers (owner-occupiers) down 9.9%
CoreLogic's head of residential research, Eliza Owen, who analysed downturns since 2004, found first home buyer demand for finance during downturns has traditionally been resilient, with smaller falls in demand compared to the other two groups, and sometimes even increases. Ms Owen said there were two reasons for this:
Governments introduced first home buyer incentives during some of these downturns
Price falls made it easier for first home buyers to save a deposit and enter the market
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The way Australians make and receive payments is continuing to evolve, according to the Payments System Board that sits within the Reserve Bank. Over the past year, there has been growth in electronic payments, new payment types (e.g. buy now pay later) and the New Payments Platform, according to the board’s annual report. At the same time, there has been an ongoing decline in cash payments, a trend that has been occurring “for many years”. The report also said that the Payments System Board would continue its research on central bank digital currencies – a digital form of money that might be issued by the Reserve Bank and used by households and businesses. "Australians are readily embracing new payment trends, particularly those offering value propositions for greater speed and convenience," according to the report. "The bank has an important role in understanding these new technologies and innovations, as well as any implications for the competition, efficiency and stability of the payments system."