Borrowers – Avoid the struggle & be prepared
So the property bubble didn’t burst! Hoorah! But it goes without saying that Sydney and Melbourne property prices have escalated at a rate that is higher than had been forecasted for the Aussie property market.
It’s true that all the hype around fuelling has become a real fear for Australians. But despite this, all signs pointed to a less than rough landing where Sydney and Melbourne real estate and a few other capital cities were set to follow. Why are we telling you this? Because it’s great news for all the Australian homeowners and potential borrowers in the space of home loans. Even though the crash has been avoided, it’s still caused quite a social cost.
Housing affordability in Australia
Certain cities have been lagging behind, making housing affordability extremely challenging for the Australian government. In essence, what should've happened, is that each state should have obtained different interest rates, which was obviously never going to work.
The result saw thousands of first-time home buyers locked out of the market. It could have taken a very bad turn otherwise, but fortunately, the Australian Prudential Regulation Authority (APRA), Australian Securities and Investments Commission (ASIC) and the Reserve Bank of Australia (RBA) navigated these treacherous waters fantastically.
The changes that the banks and other private lenders had to endure were painful, to say the least, even for borrowers! Preventing the bubble and the pop in the market was the best thing that could have happened.
Changes to the Australian property market
Two major lending policy amendments placed limits investment loans and interest only loans. At the new regulatory level, a number of Aussie states introduced a policy to curb foreign investment. This was a huge help for those entering the property market for the first time because they now had a fighting chance after the number of foreign buyers at auctions decreased.
This meant that borrowers could now approach their banks and actually afford to take out a loan for their brand new home! Tough decisions were made, but in the end, the APRA was thankfully fearless and really got into the banks at the right time to regulate what was needed.
Is it easy to obtain a home loan in Australia?
Well, if you haven’t already applied for a home loan, you’ll have to accept that due to all the changes, it’s one of the rare times where if it's a struggle, it’s not the banks’ fault.
Mortgage brokers are now required to investigate more thoroughly and scrutinize your living expenses in more detail. Investors’ borrowing power is far lower than before and a lot of the borrower categories like contractors and casual workers are not very likely to be considered. Interest only loans have had the reigns pulled back on them as well.
Those that always felt comfortable to approach the bank for a loan are now in danger of being declined. However, you are not completely exempt from borrowing money, the question just translates to whether or not you’ll be able to settle your mortgage.
What can you do as a borrower to safeguard yourself?
We recommend that you get pre-approval prior to searching for a property to buy. Next, ensure that you have a cooling off period set up and in place with the lender or seller of the property. If for any reason you have to attend an auction, then always make sure you are privy to the best advice before you do so. Determine your rights upfront with regards to your Aussie state.
Lastly, only buy off plan if you’re in a very strong financial position. Also, ensure that you have a secure plan B in the event that you don’t qualify for a home loan the time settlement arrives.
Are regulators able to assist?
The home loan experts feel extremely positive about the industry regulators being in a position where they can assist. They should be able to relax lending policies for first home buyers and furthermore, assist in the prevention of those buying off the plan from losing their deposits.
The Australian banks need to be assisted in creating long-term approvals at the time you buy. They can put things in place that stop Australians from signing contracts without knowing the risks upfront.
Preventing a future crash and complying with responsible lending will always be the cornerstone and top priority, however so much more can be done.
Having access to finance is a colossal debate between borrowers and investors and if the lending standards for first home buyers can loosen even a little and tighten somewhat for the investors, then the dream of owning a home in Australia can become a reality.
When banks and regulators work together in achieving a favorable economic and social outcome most Australians finally being able to own their own homes!