Rocketing Property Prices Fueling Household Debt

It’s been well documented about the high growth we’ve seen in residential property over the past 12 months.  Sydney saw an 8.1% increase for the March to June quarter 2021 and a 16.8% rise in the financial year 2020/21. This has continued into this financial year despite lockdowns, where we’ve seen suburb price records continuing to be broken.

              
Record low interest rates, cashed up Australians & easy access to credit are by and large fuelling this growth. But the question is how long can it last?
 
The demand for credit was initially being driven by owner occupiers & first home owners which was largely due to the New South Wales homebuilders grant & first home loan deposit scheme. There has been a change in that dynamic over the past six months, with more investors entering the market and continuing the demand for property and credit.

https://www.rba.gov.au/chart-pack/credit-money.html

It is within recent memory (2017) that APRA (Australian Prudential Regulation Authority) put the brakes on investment lending in an attempt to cool the property market and it did the job with small price corrections in some suburbs. It appears that APRA are more comfortable with owner-occupied debt than they are investment & a continued rise in investment credit growth could see them putting handbrakes on the banks to cool the market. In the past we’ve seen an increase in interest rates as a tool to cool the market, however many economists don’t see a rate rise until 2023 at the earliest.
 

We haven't quite seen the levels of investment lending since 2016-17 however there is a sharp rise in demand for this type of credit & regulators are becoming more concerned about debt to income ratios (or DTI’s). In general, most lenders are happy with a lend that is 6x income. As property prices rise, more borrowers need to push the 6x income boundary, and to date some lenders will consider it but this could become much harder to mitigate in the coming months. In my experience clients with multiple properties come up against this issue more than simple owner-occupiers because they carry much more debt.

At Webb Financial we have access to over 30 lenders. We consider your needs and objectives to find the right solution for you.

As an example some lenders won’t consider DTI as an assessment criteria, others are more favourable with investors via their gearing calculations, and there are lenders that have niche policies to assist previous poor credit like defaults, arrears or dishonours.

We also have access to lenders who will consider other forms of documentation for self-employed applicants than full financials. This will assist many business owners that have suffered through the lockdowns across Australia.

To summarise there are currently many solutions in the market to assist in gaining the right credit for your needs
 
Some of the types of credit we can assist with: 

If you are looking to explore your lending options please contact me.