First-home buyers ‘hurt’ by tighter lending environment

By Bianca Dabu 23 October 2018 | 1 minute read

While experts believe that most property investors will be fine as lending interventions are implemented, first-home buyers could be bearing the brunt of fluctuating markets. Is it possible to enter the property market as the lending environment continue to tighten?

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Responsible lending has been strictly implemented following the establishment of the banking royal commission and the rise of affordability issues across the biggest property markets in Australia, particularly Sydney and Melbourne. Mortgage applications undergo critical scrutiny as banks and lenders aim to ensure that only those who can afford to service debt are allowed to have them.

As a result, property experts are advising investors to review their loans and serviceability, no matter how long they have been investing.

“We've taken significant action to keep them informed and gone out to everyone, particularly those on interest-only, to encourage them to review their loans and foresee possible problems,” mortgage broker Marissa Schulze highlighted.

Despite the tightening lending environment, the mortgage expert believes that most investors will continue to thrive.

According to her: “Some people on interest-only right now are going to have issues in terms of renegotiating their loans—around 20 per cent, which is still a big chunk.”

“Moving forward, we can potentially see a shift towards properties with a higher rental yield because cash flow is going to be an issue especially as more investors will have to pay principal and interest. They're going to need better yields to be able to afford to hold properties because the cash out of pocket will hurt them.”

These current market dynamics are expected to curb investor buying and ultimately dampen the rapid property price growth in Sydney and Melbourne.

‘Rich are richer, poor are poorer’

As lending interventions are put in place and less people are actively investing, dwelling supplies in the rental market will begin to decline, which will drive rents up and provide better yields for investors—exactly the reason why Ms Schulze believes that most investors are going to be fine despite current market fluctuations.

However, those that have yet to build a substantial portfolio and cash buffer could be in trouble, according to the mortgage expert.

“The changes are just going to make the rich richer and the poor poorer, to be honest,” she said.

At the end of the day, the government may not actually be helping those who need more financial assistance.

Ms Schulze highlighted: “These changes are just going to benefit the people that are in a strong financial position and impact the people that are in a weaker financial position, which, ultimately, is who the government should be trying to help.”

“They should be trying to encourage everyone to take their future into their own hands and to build a property portfolio that will support their retirement, rather than having to have a reliance on the government pension or superannuation.”

Financial adjustment

While the change of policies might be scaring a few people off right now, forcing them to hold back their investment plans, Ms Schulze expects investors to gain their confidence back as the market begin to settle down and ‘reach a new level of normality’.

According to her: “Once we do hit that new norm, I think it will all stabilise again. Investors just need to understand what the new rules are and they need to work out their finances and their property plans around that.”

Ultimately, the Australian property market is not all doom and gloom. While there could be drawbacks in investing in Sydney, Melbourne and other capital city markets, several locations offer a multitude of wealth-creation opportunities.

Within the next years, experts believe that even the markets that are currently experiencing a downward trend could rebound and rise again.

Ms Schulze’s advice to anyone looking to survive the market fluctuations: Make lifestyle adjustments and establish long-term financial plans.

“I actually think there’s a fantastic opportunity for investors in the market, that's why I'm stressing that it might be worth making some tweaks on your living expenses and your financial position to ensure that you are ready to capitalise on the opportunities that are going to be presented to you.”

“At every stage of the cycle, regardless of what's happening in the economy, there's always great buying opportunities. It's just a matter of making sure that you're well positioned to take advantage of them when they present themselves,” Ms Schulze concluded.


Tune in to Marissa Schulze's episode on the Smart Property Investment Show to know more about financial management in today's property market.

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First-home buyers ‘hurt’ by tighter lending environment
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