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Lockdowns more detrimental to buyers than hikes in fixed interest rates: mortgage brokers

lockdowns

Mortgage brokers say that lockdowns are far more detrimental to prospective homeowners looking to take out home loans than any potential fixed-rate hikes.

Some banks have already begun raising their fixed interest rates despite the Reserve Bank of Australia holding the cash rate at 0.1 per cent at its July board meeting, saying its central scenario was to keep it there until 2024.

But that rate increase will make no difference to buyers’ borrowing power if their pre-approval has since expired or they are looking to take out a home loan now, experts say.

Instead, the lockdowns have had far more wide-reaching impacts on affected buyers shopping around for a home loan, with some delaying plans for months and others shelving their plans altogether as more than half of the country’s population faces some restrictions across three states.

In NSW, Sydney entered its fifth week of stay-at-home orders, which has shut down a range of industries, including construction and retail, and has placed five entire local government areas into stricter conditions, banning residents from leaving for any work unless they are in essential services.

This has stopped many hopeful home owners from taking out a loan, said Rob Lees, Mortgage Choice Blaxland, Penrith and Glenmore Park principal.

“There is no doubt that for people in affected industries, they will not be able to get a loan. There is no way a bank will give a loan to a tradie if they’re not working during a lockdown,” Mr Lees said.

While banks have not changed policies, as they did last year, Mr Lees said, they do still ask for more information than usual, including whether applicants have been impacted by COVID-19.

Since the latest outbreak, he has placed several applications on hold until trades – from plumbers to beauticians – return to normal.

Fixed-rate increases were almost a “non-issue” as banks were assessing buyers’ borrowing power against the variable rate plus an extra 2.5 per cent as the serviceability buffer, he said.

Victoria’s snap lockdown – the fifth one for the state – is adding to the pent up demand for many house hunters who have put their plans on ice for months now due to the ongoing uncertainty.

Foster Ramsay Finance principal and mortgage broker Chris Foster-Ramsay said applicants need an uninterrupted six-week run of earning income to be able to apply for a home loan.

“There’s a whole lot of people who have sat on their hands in Melbourne for up to six months, if not more. Their plans are on hold, and that is very common down here,” said Mr Foster-Ramsay, adding that it was a responsible lending requirement since the Royal Commission into the financial sector.

“It’s not hard to find those [hopeful home owners] in affected industries – travel, hospitality, live performance – where they are doing whatever they can do to survive.”

But some banks are more understanding when it comes to some industries compared with others, according to Melbourne-based mortgage broker and Pearse Financial director Tom Pearse.

White-collar workers in accounting or legal industries were better placed to have a home loan application approved if employers were willing to write a letter outlining the length of reduced hours due to COVID-19, he said.

Meanwhile, in Queensland, the state has been barely affected by lockdowns, leaving most buyers with the same borrowing power even if fixed rates have increased since they began their house hunting months ago.

“The reason it doesn’t impact borrowing capacity as much is that the banks assess it on the ongoing variable rate, most of the time. It’s not assessed on the fixed-rate itself,” said Caroline Jean-Baptiste, Mortgage Choice Fortitude Valley mortgage broker.

She said the bigger impact for Brisbanites was that some banks were changing their assessment on expenditure around health insurance and private school fees.

“That had more of an impact than a rate change. Somebody, who a month ago could have borrowed $650,000 can now borrow $550,000 if they’re sending their children to a private school or have private health costs,” she said, adding that it was postcode-related.

“So, some lenders use a postcode to determine the benchmark living expenses that they will apply to a certain application.”

 

Article Source: www.domain.com.au

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Brisbane

Investors continue to tip metropolitan markets as offering the best investment prospects: PIPA survey

Investors

Nearly 62 per cent of investors believe now is a good time to invest in residential property

Investors continue to tip metropolitan markets as offering the best investment prospects, according to the 2021 PIPA Annual Investor Sentiment Survey.

The national annual survey, which gathered insights online from nearly 800 property investors during August, found that more than 76 per cent of investors believe property prices in their state or territory will increase over the next year.

It was up strongly from 41 per cent last year, PIPA chairman Peter Koulizos said.

“Few people believed the positive investor sentiment in last year’s survey, even though history had showed the resilience of real estate time and time again.

“When we think back to last year, which was a time of much fear and uncertainty, it’s clear that property investors and the market in general has weathered that turbulent period better than anyone dared to hope,” Mr Koulizos said.

The key findings found the pandemic continues to make it less likely that investors will sell a property over the next 12 months, according to 59 per cent of respondents (down from 71 per cent last year). However, about 18 per cent (up from seven per cent in 2020) said it had made them more likely to sell.

Queensland emerged as the winner by a serious margin with a staggering 58 per cent of investors believing the Sunshine State offers the best property investment prospects over the next year – up from 36 per cent last year.

 Investors

Trellis 20 Edmondstone Street, South Brisbane QLD 4101 

New South Wales was second at 16 per cent (down from 21 per cent in 2020) and Victoria was third at 10 per cent, down significantly from 27 per cent last year.

“While investors continue to tip metropolitan markets as offering the best investment prospects at nearly 50 per cent (but down from 61 per cent in 2020), regional markets are in favour with 25 per cent of investors (up from 22 per cent) as well as coastal locations with 21 per cent of survey respondents (up strongly from 12 per cent last year),” Mr Koulizos said.

The two leading concerns of the investors surveyed were gaining access to lending and Australian economic conditions – “the same situation as last year.”

 

Article Source: www.urban.com.au

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Finance

Property Refinancing Hits Record Highs

Refinancing

Mortgage refinancing hit a record high in August, surpassing the record set in June 2020 when the Reserve Bank of Australia’s double rate cut impacted activity.

The Pexa index showed refinancing activity has steadily increased since 2019 with approximately 300,000 refinances completed in the past financial year, up around 10 per cent on the previous year.

Pexa Insight head of research Mike Gill said the index stood at 187 points for the week ending August 29, 2021, up 46.9 per cent on last year.

“Whether it is the forced downtime to reassess finances during Covid-19 related lockdowns, or speculation surrounding a potential interest rate rise as early as late 2022, refinance activity has reached new heights nationally,” Gill said.

“We anticipate a dip in property sale transactions as a result of the extended Covid-19-led lockdowns in New South Wales and Victoria, however, refinance activity is expected to remain elevated in the near future based on the current trend line.”

The reserve bank decided to hold the cash rate at 0.10 per cent this week, as the delta outbreak had interrupted the economic recovery.

Governor Philip Lowe said they would not increase the cash rate again, until actual inflation is sustainably within the 2 to 3 per cent target range, which was estimated to be in 2024.

“Housing prices are continuing to rise, although turnover in some markets has declined following the virus outbreak,” Lowe said.

“Housing credit growth has picked up due to stronger demand for credit by both owner-occupiers and investors.

“Given the environment of rising housing prices and low interest rates, the bank is monitoring trends in housing borrowing carefully and it is important that lending standards are maintained.”

 

Article Source: www.theurbandeveloper.com

 

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Finance

Developers Big Winners in Lending Battle

Developers

First, the bad news. A wave of increasing construction costs is hitting Australia’s property development sector.

Now, the good news.

According to Barwon Investment Partners head of property finance Jonathon Pullin: “It has probably never been a better time to be a developer or property owner wanting to take on debt”.

Pullin, who was a speaker at The Urban Developer’s recent Construction and Finance webinar, said Australia’s lending landscape had become increasingly competitive during the past 12 to 18 months.

Record low cash rates are prevailing and there are large amounts of capital available out in the market both on the debt side and also coming through on the equity side.

“The major bank lenders in Australia that have had a rough time of it over the last five or six years, they’re coming out the back of the Royal Commission, they’re coming into a bit more certainty through the Covid journey,” he said.

“And what we’re seeing across the country and in all sectors, they’re starting to become a little more front-footed in terms of wanting to get back into the market and claw back some of that market share that they lost to the larger non-bank lenders.

“Also, on the equity side of things, we’re not only seeing valuations hold up but improve—particularly in the residential side of the market—and a strong level of confidence from buyers.

“Put all that together … as a property owner or a developer it’s probably never been a better time for you in terms of financing your project and moving it forward.

“There are a whole lot more options out there in the market than what there and all of those options are broadly cheaper than where they were a few years ago.”

Pullin said the major banks had started to loosen some of their traditional covenants to win back business.

“Going back three years, across the market it was a 100 per cent pre-sales requirement for any residential project but you’ll see that’s now more a conversation around 80 per cent coverage and even in some cases lower than that,” he said.

“Funding limits also are increasing. At its worst, only a few years ago, the major banks were typically stopping at 65 per cent, maybe 70 per cent, of total development cost… we’re now seeing it coming up to 75 per cent of total development cost, sometimes 80 per cent.”

Pullin said institutional-grade mezzanine debt lenders were becoming an increasingly accepted part of the capital structure with the major banks working in conjunction with them to win business.

He said non-bank lenders, particularly institutional non-bank lenders, were “very hungry to do business” and broadening their sector and location coverage.

“Non-bank lenders are going up and over where the traditional bank will go to because they know their cost of capital is higher … but they will bring with it a lesser requirement around pre-sales.

“Typically, we’re seeing them look for 30 to 50 per cent pre-sales just to validate that project is accepted into the market.

“The benefit of these slightly higher cost solutions is projects can get going earlier and it allows developers to potentially lessen further increases in costs that are sitting on the horizon, like that wave of increasing construction costs.

“We are seeing a lot of developers really wanting to get their skates on at the moment and get projects under construction. So, if they don’t have pre-sales yet they’ll make as decision around whether they need to go with a non-bank solution with a lower pre-sales cover.”

Developers

▲ The major banks are loosening traditional covenants to claw back business lost to non-bank lenders.

Pullin said he expects the lending landscape to become even more competitive over the next 12 to 24 months with the possible emergence of alternate funding structures and some opportunistic lending coming into the market around sectors heavily Covid-affected.

“What does that mean for developers and property owners?

“An increased focus on hard costs from financiers in terms of looking at feasibilities and scenarios, further reductions in lending costs and loosening of covenants around the edges in a requirement to deploy capital.

“So really what you get at the end of day is more options available to developers that hopefully leads to better projects and better outcomes for them.”

Pullin said institutional-grade mezzanine debt lenders were becoming an increasingly accepted part of the capital structure with the major banks working in conjunction with them to win business.

He said non-bank lenders, particularly institutional non-bank lenders, were “very hungry to do business” and broadening their sector and location coverage.

“Non-bank lenders are going up and over where the traditional bank will go to because they know their cost of capital is higher … but they will bring with it a lesser requirement around pre-sales.

“Typically, we’re seeing them look for 30 to 50 per cent pre-sales just to validate that project is accepted into the market.

“The benefit of these slightly higher cost solutions is projects can get going earlier and it allows developers to potentially lessen further increases in costs that are sitting on the horizon, like that wave of increasing construction costs.

“We are seeing a lot of developers really wanting to get their skates on at the moment and get projects under construction. So, if they don’t have pre-sales yet they’ll make as decision around whether they need to go with a non-bank solution with a lower pre-sales cover.”

Pullin said he expects the lending landscape to become even more competitive over the next 12 to 24 months with the possible emergence of alternate funding structures and some opportunistic lending coming into the market around sectors heavily Covid-affected.

“What does that mean for developers and property owners?

“An increased focus on hard costs from financiers in terms of looking at feasibilities and scenarios, further reductions in lending costs and loosening of covenants around the edges in a requirement to deploy capital.

“So really what you get at the end of day is more options available to developers that hopefully leads to better projects and better outcomes for them.”

 

Article Source: www.theurbandeveloper.com

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