Gearing Talk Spurs Investor Loans
Mortgage brokers are reporting increased interest in investor mortgages as buyers rush to get on board before possible changes to negative gearing after the Federal Election.
The head of the brokers’ industry body says minds have been focused by Labor proposals to limit negative gearing to investment in new properties should it win the July 2 election.
However, those with an existing investment property would still be able to claim tax concessions until they sell, effectively setting a deadline for investors.
“People are having a bit of a run at it because, with any change in government, those provisions start from the middle of 2017 and anyone who’s in gets grandfathered,” Finance Brokers Association of Australia chief executive Peter White says.
Investors received a boost on 16 May when Westpac told brokers it was relaxing its restrictions on investor loans, dropping its deposit requirement from 20% to the 10% required by its major banking rivals.
“It’s Westpac getting into line with everyone else,” White says. “There was a lot of banking knee jerk reaction compared to the reality of what they may have needed to do.”
While Westpac’s loan-to-valuation ratio (LVR) for investor loans is now at 90%, it’s still below the 95% it was at before last year’s industry-wide clampdown on investor lending.
House Price Levels Safe, Says Economist
There’s nothing to worry about with the level of Australian house prices, according to Paul Dales, senior economist at Capital Economics.
The average house price in Australia rose 175% from 1990 to 2007. Despite a small wobble during the GFC, prices in Australia have since increased a further 60%, on average, to leave them 350% higher than in 1990, says Dales. But fear not.
“A US-style collapse in house prices in Australia is unlikely because our lending conditions during the good times have not been as loose as in America and Australian banks are better placed to cope with the bad times,” he says.
Dales lists four reasons why there won’t be a dramatic fall in house prices.
One, interest rates are at record lows and are still more likely to fall than rise – and any increase probably won’t happen until 2018.
Two, plenty of borrowers have money tucked away in their offset mortgage accounts for when rates do rise so there’s a buffer in place. Three, steps taken by APRA to cap the growth of bank lending to property investors are working.
Finally, the banks are well-placed to deal with any problem scenarios. According to Capital Economics, just 9% of loans in Australia are being issued to borrowers with a deposit of less than 10%. At the peak of the US boom, it was 29%.
Consumer Spending, Housing Underpin Growth
Australia’s economy maintained its forward momentum in the first quarter, as rebounding consumer spending and a solid housing sector outweighed weak business investment.
According to ANZ, growth accelerated 0.8% on the quarter, with much of the growth driven by net exports due to an uptick in commodity shipments. ANZ says net exports added 1.1 percentage points to quarterly expansion.
Wage appreciation remains modest given softer employment growth. Australia’s labour market added 10,800 new jobs in April, but the gains were in part-time work and the unemployment rate held steady at 5.7%.
The country’s inflation rate fell to 1.3% in March, the lowest in seven years, the Australian Bureau of Statistics (ABS) reported. Soon after, the RBA reduced interest rates to a new all-time low of 1.75%.
The RBA is prepared to lower rates even further in the coming months should inflation not rebound back toward the central bank’s target of between 2% and 3%.
Critics Slam Foreign Buyer Tax
Real estate experts criticised NSW plans to impose a land tax on foreigners buying property in the state.
Lulu Pallier, principal of Sydney Sothebys International Realty, says the 1.5% levy would be another blow directed at international investors. “If the tax is implemented, it will stop overseas property buyers from bringing money into the country,” she says.
Pallier says an impact has been felt in Melbourne, after Victoria increased stamp duty for foreign buyers from 3% to 7%.
NSW Executive Director of Property Council of Australia Jane Fitzgerald says the taxes would cause developments planned by foreign investors to be scrapped, which would reduce dwelling supply and create a worsening of the affordability situation.
“Turning investors away — by imposing a huge new tax — is one way to ensure it doesn’t get any better,” she said.
Residential Boosts Building Figures
Total construction activity across Australia fell in the March Quarter, but residential building rose.
Official data from the Australian Bureau of Statistics revealed a seasonally-adjusted 2.6% decrease in overall construction work in the three months to 31 March.
The bright spot was residential construction, which rose 1.5%, but a 5.5% slide in non-residential construction saw building construction overall decline. Engineering construction weakened 4.2%.