By Adam Empringham, Image Property
Over recent weeks, there have been a few announcements about impending changes to mortgage lending criteria.
Some of the media commentary, like usual, have been alarmed by the “bubble set to burst” type and the like.
However, notwithstanding the fact that the strong price growth over the past year around the nation is likely due to super-low interest rates, the mooted changes to lending are probably a good thing for the southeast.
You’re probably thinking: How can tighter lending be a good thing? Well, let me explain further.
The first thing to understand is that the proposed changes to lending are quite minor.
Banks will be asked to increase the interest rate that they use to assess borrowers by 0.5 of a percentage point.
Major banks had already been assessing borrowing at 2.5 percentage points above the actual interest rate available to borrowers, so adding on another 50 basis points is not really a gamechanger for most homebuyers and investors.
The Australian Prudential Regulation Authority (APRA), which is the statutory authority that regulates the financial services industry, has also asked big banks to consider their policies for borrowers with high debt-to-income ratios – such as those borrowing six times their annual income, which is only a few small percentages of people at the end of the day.
One of the main things to understand with both of these proposed lending changes is that they are actually a positive sign for our property markets, which might seem a bit contrary to some of the commentary.
They are positive because it means that our financial sector remains robust and is not at risk of lending money to borrowers who simply can’t afford it – how can that be a bad thing, especially when we consider what happened in the US and ultimately became the Global Financial Crisis?
So, having a banking sector that does not provide mortgage funds to over-leveraged borrowers is a sound policy if you ask me.
Here in Southeast Queensland, any changes to lending are also less likely to impact our property market because of our affordability.
Just consider Sydney, where the median house price is an eye-watering $1.3 million and Melbourne, where it is pushing $1 million.
In comparison, the median house price in Brisbane is $700,000, with most other major and minor regions around the State having property buy-in prices well below this figure.
Homebuyers and investors in Sydney and Melbourne are set to feel the pinch the most, because of their much higher purchase prices compared to income levels, which are not necessarily significantly more than what many Queenslanders earn.
Indeed, this credit squeeze is likely to put more price pressure on property markets across the Sunshine State as frustrated would-be buyers look further afield in their quest to purchase a property – either to live in or rent out.
What does it all mean for the southeast? Well, it means that it remains an excellent time to buy property – and an equally splendid period to sell property, too.
When it comes down to it, the best time to buy or sell a property is when it is the right time for you – and at present, you really couldn’t ask for more favourable market conditions for buyers and sellers alike.
What might the proposed lending restrictions mean for property prices in the southeast? Not a lot due to the affordability of property prices.