Finance advice
Tough, Australian property market, property investors, mortgage broker, investments

Has the Australian property market grown 'tougher'?

By Bianca Dabu

Seasoned property investors and property professionals alike agree that it continues to become harder to get finance and build a substantial portfolio in today’s market, especially if one hasn’t got an access to a considerably huge income.

Aussie Parramatta’s Ross Le Quesne said that around three years ago it was easier to acquire several properties even if an investor gets by on an average income.

He said: “[It was] a lot easier when you have six or seven different lenders that [can provide an] excess on the actual repayments that you're paying. A lot of our investors … would pay interest on their repayments.”

“Now, where you've got the upper benchmark … they're servicing it, principal and interest, 7.25 [per cent] across the major deposit-taking institutions,” the mortgage broker added.

While the goal of buying quality high-yield assets under market value remains, it’s become a challenge to increase the number of properties that can be financed under the new structures set up by the Australian Prudential Regulation Authority (APRA).

Find out how these changes are slowing the market down and what property investor can do to continue having a fruitful wealth-creation journey:

What are some of the changes set by APRA?

Ross Le Quesne: Basically, they put some guidelines out to the deposit-taking institutions … around what the serviceability criteria should be … [or] how much they can lend to a borrower and [they] put some minimum benchmarking around that as a guideline—the bank should be putting buffers, so where an investor might be paying interest-only at 5 per cent … their repayments on $1 million is $50,000 a year.

If you're looking at that same $1 million at principal and interest, it's about $97,000 a year. It's in terms of repayments at that benchmark rate, which is a good 2 per cent above, which is where we're looking at, the benchmark is 7.25 per cent, so it makes a big difference paying $50,000 opposed to paying $97,000.

How does this change make property investment tougher?

Ross Le Quesne: It makes a massive difference for somebody … I guess [it] was the aim of the APRA guidelines ... to slow the market down.

Now, with the interest-only benchmarks coming in, that's added another level of complexity to it because … you now need to look at ‘Am I going to reduce my rate and pay principal interest or am I going to look at an interest-only option?'

It's been a challenging couple years and it's really changing on a weekly basis for us.

As an avid investor, how do you feel about this?

Phil Tarrant: The Australian Prudential Regulation Authority … [is] in charge of keeping our economy ... in check, to make sure that things don't go too crazy and put regulation in place to sometimes temper, sometimes promote, sometimes supercharge our economy by putting the rules down [through] which banks and stuff can operate within.

[These changes are] enforcing to the investor … in their ability to manage the debt they have associated with the property, paying the mortgage … which people should be doing anyway.

Ross Le Quesne: It was interesting [when] I was looking at one of my big investors the other day. You look at someone like him where he's got $10 million plus in mortgages. The buffer was astronomical—$400,000 in net income, which is massive … In some cases, for our investors, the rule doesn't apply to commercial sense … which is the hard thing.

What other changes from APRA did the banks have to comply to?

Phil Tarrant: APRA said banks assess people on P&I at 7.7 per cent.

Ross Le Quesne: More recently, it was around the interest-only lending, that they have to cap the interest-only lending to 30 per cent [of their total loan book].

Phil Tarrant: One in three loans on a bank's book can be interest-only.

Ross Le Quesne: The banks were running at around 45 per cent, so they had to reduce the loans quite significantly, and so the way they did that was to re-price the cost of an interest-only loan versus a principal and interest loan, and you'll see a big differential in the market of around about half a percent between what they're willing to give for an interest-only loan versus what they're willing to give for a principal and interest loan at the moment.

How should property investors be dealing with these changes?

Ross Le Quesne: It's great to sit down and have a review of your portfolio to see what that means. The one thing for property investors is ‘How can I hold my properties long-term?’ It's not always about the cheapest interest rate. It's about ‘What is my ability to hold the property?’

It's a case by case. That's why you need to review it. The client with a $4 million debt position opposed to the client with a $500,000 debt position is a totally different category because the $500,000 can easily convert all these loans to principal and interest. The person with a $4 million portfolio makes it a little bit [harder].


Tune in to Ross Le Quesnes’ episode on The Smart Property Investment Show to know more about the habits he sees among the best investors in today’s market as well as how growth in the investment industry has been enhanced by the mortgage industry in the last few years.

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  ["title"]=>
  string(72) "Mortgages in a tighter lending economy and why Brisbane is a good option"
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Tune in to the latest episode of Property Showcase, the podcast with the inside track on the products and businesses that will help turbocharge your portfolio, maximise returns and make your overall investment experience seamless and stress-free!

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To hear more about these services, make sure to tune in to this episode of Property Showcase!

 Make sure you never miss an episode by subscribing to us now on iTunes!

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Son Pham is the accredited Head of Mortgages at Rethink Financing\/Rethink Investing. He has over 6 years\u2019 experience writing loans, over 12 years in the wealth management industry working for the likes of CBA, AMP and private practice and he is also a licenced financial planner (AFSL 326450). He has multiple investment properties that are cash flow positive which help pay his mortgage on his home and fund his lifestyle.<\/p>\r\n

Son is able to write all types of residential and commercial property loans.<\/p>\r\n

In this episode of Property Showcase, head of mortgages at Rethink investing Son Pham joins host Tim Neary to unpack how an investor should approach getting a mortgage in place with banks tightening down on serviceability.<\/p>\r\n

Hear from\u00a0Son\u00a0about:\u00a0<\/p>\r\n

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    In this episode of Property Showcase, director of investment services for Open Corp Michael Beresford,\u00a0joins\u00a0editor of Real Estate, Tim Neary to share why he disagrees that the cooling market means that the best times are behind us.<\/p>\r\n

    In this episode, hear from\u00a0Michael\u00a0about:\u00a0<\/p>\r\n

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    • Why Brisbane is a good investment option right now<\/li>\r\n
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Mortgages in a tighter lending economy and why Brisbane is a good option
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Will Magee has had ambitions to enter into the Australian property market for quite some time, but it has been more than just finances holding him back.  Having been granted permanent residency just two weeks ago, Will is wasting no time and is now in the process of signing papers and finding his first investment property.

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In this episode of the Smart Property Investment Show, Will joins host Phil Tarrant to share why he is purchasing his first property in partnership with his brother, discuss the complications that can arise from such a strategy, and unpack the ongoing plan for building a joint property portfolio with his brother.

Will will also share how they approached saving for their first property, why he is taking out the mortgage in his name exclusively, and share their savings plan for the year ahead.

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]vestment.com.au for more insights!

RELATED AREAS OF INTEREST:

From property in Australia to a ski lodge in Japan
Mortgage Trusts, an alternative first step for property investors
Should a real estate title be in one person’s name only?

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A property investment plan years in the making
object(stdClass)#1203 (52) {
  ["id"]=>
  string(5) "18287"
  ["title"]=>
  string(75) "Regional Victoria showing up Melbourne in price performance, new data finds"
  ["alias"]=>
  string(74) "regional-victoria-showing-up-melbourne-in-price-performance-new-data-finds"
  ["introtext"]=>
  string(139) "

Median house prices in regional Victoria outperformed that of Melbourne in the June quarter, the latest REIV figures reveal. 

" ["fulltext"]=> string(2323) "

Median house prices in the regions rose 4.0 per cent to $419,500 but in Melbourne they dipped by 0.6 of a percentage point to $840,000.

The result in Melbourne was due to a 0.8 of a percentage point fall in prices achieved at auction; this was despite a lift of 2.3 per cent in private sales.

Inner Melbourne suffered due to auction prices, where median prices fell by 4.9 per cent to $1,459,000 but it was middle Melbourne that was hardest hit, with a 5.4 per cent drop to $974,500.

Outer Melbourne had a good quarter with the median rising by 0.5 of a percentage point to $681,000.

Apartment prices in regional Victoria grew by 3.7 per cent to $304,500 while the metro media was up by 0.5 of a percentage point to $604,000.

REIV President Richard Simpson said that despite fewer sales, many sectors of the market were performing well.

“2017 was a bumper year and while the trendline has flattened, despite the fall in median house prices in the June quarter, median prices are still up this calendar year for both houses and units, in Melbourne and in the regions,” Mr Simpson said. 

In particular there was been strong growth in regional centres which is probably due to the first-home buyers’ concessions said Mr Simpsons.

“The first-home buyers’ concession has been a boon for regional areas. A new entrant to the property market buying a house at the regional median will pay no stamp duty, while a first home buyer of an apartment in Melbourne at the median price would pay stamp duty of nearly $25,000,” he said.

Mr Simpson said that more prospective buyers are looking towards regional Victoria which is also having an effect in Melbourne.

“Melbourne’s outer perimeter continues to grow. Small increases in the June quarter mean that the median prices for both houses and units have risen over 10.5 per cent from a year ago.

Mr Simpson said moving forward that vendors need more realistic expectations as the highs of 2017 are now over.

“Negative chatter about the future of the sector coupled with stronger lending controls by financial institutions has created some uncertainty and vendors need to be realistic with their price expectations,” Mr Simpson said.

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Regional Victoria showing up Melbourne in price performance, new data finds

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