One of the major issues for property investors in 2018 was the tightening of the lending environment as a result of the softening of major property markets, particularly Sydney and Melbourne. Will the hardship carry over to the new year or will investors finally get to enjoy easy financing?
Suburbanite’s Anna Porter characterised 2018 as an ‘interesting year’ in the property market because, despite the doom and gloom forecasted to happen across the property market, most investment areas continued to show resilience amidst market fluctuations.
“We still had a lot of strength sitting through Sydney and Melbourne and our clients really prospered off the back of that. We started to hear the whispers that Sydney and Melbourne were going to come off, but we certainly didn't see that until the latter half of the year, so it was still a really great year for us.”
“Plus the Royal Commission didn't hit us too hard, to be honest. We've been pretty fortunate through that,” Ms Porter said.
While the lending market went through significant changes through the past year, particularly those brought about by the Royal Commission and the interest-only lending limit set by the Australian Prudential Regulation Authority (APRA), Ms Porter expects property financing to get relatively easier in 2019.
For one, the Royal Commission on banking has concluded last year and is set to release their findings in February. Moreover, APRA has recently removed its limits on lenders’ capacity to provide interest-only loans.
At this point, it’s going to be all about how the banks will cater to the needs of their clients while playing by the new rules in the changing lending environment.
According to the property expert: “We have to remember the banks are in the business of lending money. They want to lend money because it's how they make money,”
“Banks just need to understand the new environment they're playing in and how they can work around it or work within it to make sure that they're doing the right thing but still getting money out into the marketplace. So, it was only a matter of time before the banks really worked hard to keep APRA happy by adapting to the new changes that have come through from the Royal Commission.
“They will get there—they have to play by the new rules.”
While the limits on property financing could ease up this year, Ms Porter reminded investors that most of the changes that happened across the lending environment in 2018 are likely to stay.
The changes in serviceability assessment, in particular, are expected to continue presenting issues for both lenders and investors.
“I'd like to think that it will get easier to secure financing for property, but there are some real changes made around serviceability and I don't think that's going away. There are still going to be certain lenders that might have some struggles there and there are still going to be some clients out there that will have a bit of a tough time,” according to Ms Porter.
“I think what they're trying to take out of the marketplace is some of the dodgier deals—people positioning loans incorrectly or brokers putting down information that's not as correct as it should be. That sort of stuff will have to stop. They shouldn't have been around anyway.”
Going into the new year, investors who have got strong serviceability and a good buffer for their portfolio will have no trouble getting a home loan, she said.
The tighter lending environment has seen more investors getting smaller amounts approved or having their loan applications rejected altogether.
Still, investors should not feel too disheartened, according to Ms Porter. Instead, the property expert strongly encouraged them to take the time to reassess their strategies and ultimately lay out personal and financial plans that will fit the changing market.
“It's not that they can't borrow the money, but it might be that they can't borrow as much or they can't borrow it today. They might need to reshape their finances and get them a little bit more in order. Cut out that extra ski trip each year or that extra date night to show the banks that they have the serviceability.”
In a tighter lending environment, it’s all about being well-prepared in terms of serviceability and cash flow buffers.
“It's a little bit more about the preparation time. Gone are the days when you go to the lender or the broker and you have a pre-approval in two days. It's a little bit longer now.”
“If you get rejected for finance, there's probably a good reason why so don't feel too disheartened about it. Maybe you need to shape the way in which you approach property investment, your strategy towards it, such as looking at different types of properties in different locations with different fundamentals,” Ms Porter concluded.