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Weekly Market Wrap & the effects of Tighter Lending Policies.

Market Wrap

As is the norm, school holidays meant fewer auctions, along with that came a slightly lower clearance rate of 77%. There were around 2,300 auction sales in June 2015 compared to 2,100 over the same period last year. It’s not all doom and gloom for the winter months though, with agents suggesting that August and September will be very busy, with the 8th of the 8th tipped to be one of the busiest.

Demand for houses remains very strong, while units are on average remaining on the market for longer. This is partly due to the larger supply of apartments available, and fewer 3 or 4 bedroom family homes.

Next weekend there will be a similar amount of properties auctioned - with approximately 524 auctions scheduled.

Source: Elite Advisory

 

First-home investors hit as loan curbs slow down borrowing

Tighter lending policies for investors have been introduced to cool property prices, unfortunately hurting those it sought to help. Gen Y first-home buyers, who were being frozen out of the market by investors, unexpectedly switched tactics, buying an investment property instead, thus, opening the way for Gen X's to cash in on any price softening.

Concerned that property investors have been driving up property prices, Australia's banking watchdog, APRA coerced lenders to tighten lending policy to curb investment lending.

Limited to investment growth of just 10 per cent lenders introduced targeted ‘disincentives’ for investment loans and special incentives for home loans to make up for the investor shorinvestmenttfall.

- Servicing requirements were tightened for investors while loan to value ratios (LVR's) were cut back to GFC levels and 'extra discounts have been wound back.

- Meanwhile, home loan borrowers retained access to high LVR's, special rate discounts and softer servicing requirements than their investor counterparts.

- Today, one of our major lenders took the bold step in raising their mortgage insurance free threshold from 80% to 85% for the first time since the mid 2000's.

 

So, what does this mean for the investor.

Clearly first-home investors are going to be hit because now they have to find at least another 5% of the purchase price plus mortgage insurance that's if they don't get knocked out with the tighter servicing requirements.

To date, the effect on our clients has been minimal because they generally have higher income and greater equity in their homes.  Indeed the medium term effect could be positive because the expected slightly softer prices creates better buying hence higher yield.

Watch this space.

Footnote: Macro-prudential rules is another weapon regulators have to manage asset growth when they need more than the blunt instrument of interest rates.  Raising rates to control price growth can have the adverse effect of stalling the broader economy and raising unemployment while Macro-prudential enable the regulators to target the effect to a given market segment.