Finance advice

Mortgages ‘not expensive relative to rent’, finds bank

By Annie Kane
Mortgages ‘not expensive relative to rent’, finds bank

Rental payments are taking up a greater proportion of household income, while mortgage payments remain in line with the historical average, which could boost housing demand, a global bank has said.

Deutsche Bank’s Australian Housing Update has found that Australians are now paying 13.5 per cent of their household income on rent, up from the historical average of 12.8 per cent.

However, the bank also found that mortgage repayments (as a percentage of household income) remain in line with the historical average of around 17 per cent, which the bank argues “implies a continued move toward home ownership”.

Moreover, despite claims that many are facing “mortgage stress”, the bank argues that housing affordability has actually improved, even in the face of rising house prices. It states that this is largely due to interest costs.

The report reads: “Australian annualised median house prices to September 2016 have increased +0.6 per cent qoq [quarter-on-quarter] and +4 per cent yoy [year-on-year] on a weighted average basis, compared to an average qoq price growth of 1.5 per cent per quarter since QD12 [December quarter 2012].

“We note that annualised median house prices have increased in all major state capital cities (except in PerthPerth, TAS Perth, WA, -3.6 per cent yoy) on a yoy basis in September 2016 (highest of 6.3 per cent yoy and 4.4 per cent yoy in Sydney and Melbourne respectively in QS16)…

“Home loan affordability (which is the ratio of median family income to average loan repayments; an increasing value reflects improving affordability of housing loans) increased +7.3 per cent yoy in QS16 [the September quarter 2016], and is in line compared with the historical average.

“Home loan affordability [as calculated by the REIA] has improved in all the states on a yoy-basis in QS16 (+7 per cent yoy in NSW and +10 per cent yoy in VIC)…

“We believe interest cost as a percentage of median household income is the key driver for affordability.”

Analysis run down

The bank’s analysis took the current house price and standard variable mortgage rate to calculate the weekly interest cost on a state basis. It then took average weekly income on a state basis to calculate the percentage of household income used to repay mortgage interest.

It found that in Sydney, the average weekly mortgage interest payment/average weekly income increased from a recent low of 50 per cent in the July quarter of 2013 to 63.6 per cent in QS16.

The bank argues that while this is “higher than the historical average of 57 per cent” — indicating it is “increasingly becoming difficult to afford to pay mortgage interests” — Sydney’s home loan affordability (as calculated by Deutsche Bank by looking at average weekly mortgage interest payment/average weekly income) improved. The bank found that the proportion dropped from 67.5 per cent in the March quarter of 2016 to 65.6 per cent in July and then 63.6 per cent in the September quarter.

Median rents to September 2016 increased by 2 per cent year-on-year (yoy) in Sydney to $470 per week, while median house prices rose by the same amount.

Likewise, in Melbourne, while the average weekly mortgage interest payment/average weekly income was higher than the historical average of 43.7 per cent (at 45.8 per cent) in the September quarter, the affordability improved to 45.8 per cent (down from 48.7 per cent in March).

Median house rents in Melbourne increased by 4.2 per cent in QS16 at $375 a week, while house prices increased by 2.9 per cent (yoy).

In Brisbane, the average weekly mortgage interest payment/average weekly income declined to 31.3 per cent in QS16 – down from the peak of 48.2 per cent in December 2010 and below the historical average of 35.6 per cent. Rents here increased by 1.3 per cent yoy but house prices rose by 4 per cent over the equivalent period

Perth also saw average weekly mortgage interest payment/average weekly income decrease, from 33.6 per cent in the September quarter 2014 to 27.3 per cent in QS16. This reflected a decline from the recent peak of 45.8 per cent in 2010 and was below the historical average of 33.5 per cent. Overall, Perth saw house prices drop by 3.9 per cent (to $512,000) and rents fell 9.5 per cent (to $380 a week).

“We note that mortgage payments as a percentage of income are in line with the historical average of 17 per cent, while rent payments remain above the historical average of 12.8 per cent,” the researchers said.

“We believe this implies a continued move towards home ownership.”

Cash rate could drop to 1.25 per cent

The bank went on to predict that it expects the Reserve Bank of Australia will reduce the cash rate later this year.

Deutsche Bank’s report stated: “We retain the view which we have held since the May 2016 RBA board meeting that the bank will reduce the cash rate as we expect inflation to eventually undershoot the RBA’s current published forecasts.

“We expect a 1.25 per cent cash rate by mid-2017.”

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  ["title"]=>
  string(51) "Boost for investors as app sets up off-site bidding"
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  string(144) "

Property investors are now able to identify and bid on auctions remotely using a new live-streaming functionality launched by Gavl.

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Called “Request an Auction”, the new functionality enables users to watch and bid on any Sydney or Melbourne auction remotely.

Through Gavl, prospective buyers are now able to register to bid on their preferred auction. The platform will obtain permission from the listing agent and confirm within 48 hours.

Vendors can also request to have their auctions broadcast to a larger buyer audience.

Co-founder Joel Smith said that auctions streamed on Gavl attract 47 per cent more viewers than traditional ones.

He said that Request an Auction will be valuable for remote buyers.

“Buyers are able to have Gavl attend any auction they nominate, so they will never have to miss out on an opportunity due to logistical complications in physically attending the auction.

“Vendors, too, have the opportunity to directly book an auction with us, so they can open up their event to buyers all around the world. With more potential buyers, they’re giving their property the chance to receive more bids and maximise their sales result.”

Mr Smith said that prior to the Request an Auction app, buyers were limited to what they could achieve through the Gavl technology.

Gavl is a live-streaming and bidding platform for real estate auctions.

Mr Smith said that it has streamed more than 6,000 auctions, which have achieved 3.5 million views from 50 countries.

Gavl’s Request an Auction function is currently being offered in Melbourne and Sydney only.

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Boost for investors as app sets up off-site bidding
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Having to split her time between Hong Kong and her original base of Sydney has not slowed Julia Tita’s goal of building a high-performance Australian property portfolio. Instead the resulting alterations to her strategy have positively impacted her investing success.

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Having recently purchased her 6th property, Julia joins host Tim Neary to discuss her journey, share her ups and downs over the years, and reveal her thoughts on why some properties are better than others.

Julia also explains why she no longer makes a move without the help of a buyer’s agent, why working with a strong team of specialists is extremely important and discloses her long-term property ambitions.

If you like this episode, show your support by rating us or leaving a review on iTunes (The Smart Property Investment Show) and by following Smart Property Investment on social media: FacebookTwitter and LinkedIn.

If you have any questions about what you heard today, any topics of interest you have in mind, or if you’d like to lend your voice to the show, email [email protected] for more insights!

RELATED AREAS OF INTEREST:

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AREAS MENTIONED:

Eagleby
Charters Towers
Townsville
Brisbane
Paddington
Sydney
Orange
Melbourne 
Glen Iris
Bondi

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How a move to Hong Kong impacted Julia’s Australian property goals
object(stdClass)#1215 (52) {
  ["id"]=>
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  ["title"]=>
  string(88) "‘Common’ referrer practice of being paid on both sides of the fence coming to an end"
  ["alias"]=>
  string(82) "common-referrer-practice-of-being-paid-on-both-sides-of-the-fence-coming-to-an-end"
  ["introtext"]=>
  string(246) "

The practice of property investment firms sharing undisclosed kickbacks among the supply chain involved in development sales will be outlawed in NSW on 1 July this year under the Real Estate Reform being handed down by regulators in NSW.

" ["fulltext"]=> string(2238) "

Property commentator and valuer, Suburbanite’s Anna Porter, said the reform will address conflicts of interest.

She said they arise when a mortgage broker, accountant or financial planner receives part of the commission from the property firm, who receive their fees from the developer or seller.

“This puts the broker into a position by which they are being paid on both sides of the fence,” she said.

“Until now this has been a grey area and there was nothing stopping this practice.” 

Ms Porter said this has been a common practice in the industry.

"Some well-known mortgage broking firms openly admit to receiving $5,000–$10,000 per referral in their pocket.”

She also said this process has been going on for decades.

"Property investment firms commonly pass some of their commission on to the mortgage broker, accountant or financial planner as a reward to them for passing on the referral. This means that many brokers or financial service providers are making significant amounts of money just to refer on to a property firm, often totalling hundreds of thousands of dollars a year," Anna Porter said.

Ms Porter said the Property, Stock and Business Agents Amendment (Property Industry Reform) Bill 2017 will be in force from July this year, and will prohibit this practice unless the broker or referring partner also holds a real estate industry license.

"Under the new laws, if the broker takes a referral fee from the property firm, they will have to be a licensed real estate agent and also hold a corporation’s license,” she said. 

“Subsequently, every transaction that they receive a referral fee from, they will be putting their license up against the transaction and taking full liability for the conduct, practices and outcome of that transaction, even if they have little to do with the transaction; they are a party to it financially and therefore take as much risk as everyone else in the transaction.”

Mr Porter said where a referrer holds a real estate license, and receives a part of the sale commission, they may find themselves in breach of the ethical requirements under the act.

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‘Common’ referrer practice of being paid on both sides of the fence coming to an end

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