Royal Commission, softening housing market, interest rates look set to creep up – it’snow harder to get a loan in Australia right now than it has been for a long time. The financial services royal commission has been quite damning – particularly for the Big 4 banks – coupled with an extreme backlash by the media which has also resulted in significant brand damage to the big lenders. ASIC has gotten involved and I expect to get a lot more proactive in the financial services sector – all of which means for Mr & Mrs Joe Average – battling through life – getting a loan just got a whole lot harder.
APRA – the Australian Prudential Regulation Authority has indicated that growth in new loans has slowed which has been caused by tightening on investment loans, foreign investment guidelines and now most recently the increased paperwork checks for new borrowers particularly in the area of verifying household expenditure. To cut a long story short – a lot of would-be borrowers are now going to struggle to access finance. I had a client recently who ticked all the boxes in terms of income, savings record, a sound level of Assets and Liabilities but was not so strong in being able to verify ‘reasonable’ levels of household expenditure and was subsequently rejected by a lender. This scenario is becoming more and more common.
The Australian Real Estate Institute is under the impression that there is a ‘credit crunch’ at the moment which is restricting the amount of business and settlements within the industry. Customers are now providing feedback that they find the whole process a lot more invasive with some stating they were almost made to feel like ‘criminals’. Whilst the last comment might be a tad on the extreme side – I have a system where I guide clients through the whole process to make it as ‘stress-free’ as possible. The other advantage is that pretty much all relevant paperwork can be obtained via the internet which certainly speeds that part of the process up.
I’ve spoken to local Real Estate Agents who have seen the impact this is having on auction clearance rates as well lower numbers turning up at open houses. I personally believe this is combined with the heat coming out of a long run of property values increasing well beyond the historical average level. The royal commission has certainly opened up problems within the financial services sector and there will always be a reaction – which is happening, however, the banks are so profit driven that I would envisage the situation to ease up to some extent when profits are suffering in the short to medium term.
The net effect is that as finance becomes harder to get, this will put further pressure on house prices which will create somewhat of a spiral effect – leading some economists to believe a drop of up to 10% in house prices from current levels. Media speculation is also rife about a ‘crash’ and values falling off a cliff – this has been hosed down by such people as NAB chief economist – Alan Oster who described that as alarmist. I think a more common sense approach is warranted in that the market continued to run up for so long – it makes sense for a bit of a drop and tightening of money – it’s happened before it will happen again.
My advice is to not buy into the media hype – but to work out exactly where you stand and what you can do – do a little bit less complaining and take some action to get an accurate feel of your situation – most times it’s not as bad as you think. Just remember – bad news sells newspapers.