Hilton Parkes Real Estate
6th April 2019

Budget Tipped To Boost Sentiment
Property groups say this week’s Federal Budget will lift consumer sentiment, as they also backed the plan for further infrastructure spending. The Property Council of Australia says the Budget’s growth projections are reliant on Australia’s housing markets holding up. “The headlines of surplus, infrastructure and tax relief are welcome,” PCA chief executive Ken Morrison says. “This is a Budget set for growth, but behind every number in the Budget is the unknown effect of the housing market.” Stockland chief executive Mark Steinert says measures to assist with the rising cost of living like tax relief and energy discounts will help to improve sentiment. “These measures will help give young people more opportunities to realise the dream of homeownership,” he says. “However, it is critical that banks and lending institutions, with the direct support of regulators, provide responsible access to credit to help ensure the resilience of our housing markets.”

Switching Can Save $48,000: Canstar

Switching loans from the average standard variable rate to the lowest rates on the market could save a mortgage holder $48,000 in interest over the life of a loan, according to financial comparison website Canstar.  Canstar says the average standard variable rate for mortgages is currently 4.43%, while the average of the lowest rates is 3.71% – a difference in repayments of $159 a month, based on a $400,000 home loan. Over the life of a loan that equates to $47,653 in interest saved. Although the Reserve Bank this week kept the official cash rate unchanged yet again, Canstar finance expert Steve Mickenbecker says the RBA looks likely to reduce the rate in the near future. He says recent economic data suggests the previous possibility of a rate increase is “off the agenda altogether”. “Lenders are factoring in rate cuts, with 274 fixed-rate cuts this calendar year,” he says. “The bigger rate cuts are in the 4-year and 5-year terms, with funding costs for Australian lenders following the downward trend for US longer-term interest rates.”

Westpac Offer Borrowers $2000 Rebate

As interest-only loans approach their expiry Westpac is offering a $2,000 rebate to new customers refinancing with them. Westpac and its subsidiaries will offer the $2,000 rebate for anyone refinancing with a loan amount of over $250,000. It is also offering a $1,000 purchase rebate for every property bought with a loan amount of over $250,000. Around 45% of the Westpac loan book last year was made up of interest-only loans, followed by Commonwealth Bank which had around 40%. According to a recent analysis by investment bank Morgan Stanley, IO lending is expected to fall from around 40% of the big four’s total loan book in 2017 to around 20% by next year. This year around 25% of major lenders’ IO loans are set to expire. Meanwhile, lenders are cutting home loan rates offered to property investors in a bid to kick-start the sector after over-reaction to regulatory pressure caused sales to decrease. Many lenders are also making the most of lower funding costs to make big cuts in three to five-year fixed rates, which are popular with investors attempting to budget long-term.

Australia Has 2,156,319 Investors

Australia has 2,156,319 property investors, most of whom own just one property, according to the ATO. The ATO figures show that 71% of people who own investment property have just one, while a further 19% own two properties. Less than 1% of investors own five properties and less than 1% own six or more properties. It is this “six or more” investor demographic that has attracted the attention of Opposition Leader Bill Shorten in his pursuit of negative gearing changes, even though they are 0.9% of investors.  Shorten has conceded that Labor’s negative gearing/capital gains tax reforms are not “universally loved.” There are 1,300,344 individuals who own loss-making rental properties and 855,975 individuals who are in a rent neutral/profit situation with their rental investment and therefore do not claim negative gearing tax refunds. Analysis of the impact of Labor’s negative gearing policy by SWM Research suggests likely outcomes include a shortage of rental properties in the major cities, causing significant increases in residential rentals.

Affordability Improves In Most Cities

Australians hoping to buy their first home will be buoyed by a new report which has found the average time needed to save a deposit has fallen over the past 12 months in major capital cities. Domain analysed entry-level house prices in the cities’ most affordable areas and estimated the time required to save a 20% deposit, drawing on average wage data from the ABS.  “It’s the first time in a while that these figures have dropped,” says Domain senior research analyst Nicola Powell. “Definitely year-on-year it’s good news around affordability for buyers … the journey to home ownership is now that little bit shorter.” Even better news is that borrowers don’t need a 20% deposit to get a housing loan. Mortgage broker Louise Lucas of The Property Education Company says first-home buyers commonly get loans with deposits of just 5%. A dual-income couple aged between 25 and 34, who were each saving one-fifth of their post-tax income, would now reach their dream of owning a house faster in Sydney, Melbourne, Perth and Darwin, the Domain First-Home Buyers Report found.

Quote of the Week 
“The increased wholesale funding costs that drove up home loan rates for existing borrowers from September 2018 have since been reversed, with the bank bill swap rate falling again. Lenders have not returned these rate increases to existing customers, but have invested them in lower rates for new borrowers.”

Canstar finance expert Steve Mickenbecker