Mortgage Changes Clarified – Interview with David Lennox
It has been a hectic year for the property market which continues to see solid growth, outwitting the experts’ opinions as the predicted crash in property values hasn’t eventuated. Though property’s capital growth seems to have defied gravity, there has still been enormous mortgage changes during the last 12 months.
David Lennox, co-founder of Vision Property & Finance, has seen plenty of change during more than 17 years running a finance brokerage business at the cutting edge of advising clients in financing their property portfolios.
Mortgage Industry Changes Since 2000
“Some of the biggest changes in the mortgage industry have included the number of competitors. There is so much more competition in the market today than when we started which means everyone, including brokers and lenders need to keep improving. Compliance has also changed significantly. The amount of things we need to address simply to be compliant has increased markedly. Customer service is also a big area of change; with the internet giving people access to information at the tip of their fingers today we find people are demanding a lot more from their mortgage broker.”
Biggest Mortgage Changes for a Decade in the Last 12 Months
David, a chartered accountant by trade, has crunched the numbers on the last 12 months and believes the current pace of change has been the most challenging since the GFC, but for very different reasons.
“During the GFC we witnessed credit availability dry-up and the banks not wanting to take-on borrowers. Eventually, the market settled-down and funds started to become available, however, it changed the market forever. Some competitors disappeared and investors had to learn to do things differently.”
Brokers not only had to deal with the economic problems that were starting to appear, but the banks began to switch off from lending.
“During this time, there was a narrowing of competition between banks and quite a few brokers left the market. Later, competition expanded again, however, this was a tough time for the industry.”
At this time the property market was going through a ‘flat’ period where prices weren’t so much going up as they were heading side-ways. Today’s property market could not be more different, says David, as the market is at the peak of a long run and property prices have increased sharply.
Brokers Managing Through Tightening of Lending Policies
“During the GFC we saw a tightening of lending but I would argue the tightening has been more stringent during the current phase. We’ve seen a tightening of credit policies similar to the GFC, but this time around it is because of the long run in house prices growth we’ve seen over the last few years.”
The price rises have led to major concerns about housing affordability with many worried their children won’t be able to afford to get into the market.
“Housing affordability has become a big issue. It’s being talked about when it comes to the Federal Budget. It is being discussed when it comes to election campaigns, along with related concerns such as negative gearing, responsible borrowing, and getting first home buyers back in the market.” The government needs to be seen to be doing something about this, says David, so regulation through APRA is being used to control, what is perceived to be, excess demand in the market.
“They’re trying to regulate credit for several reasons. For one, they want to reduce some of the investment demand which is helping to drive property prices higher. They are also attempting to shut-down the overseas market, and we are seeing non-resident lending drop-off. Government is hoping this will ease pressure and help control prices while wages catch-up.”
The RBA – Necessarily Cautious
When the property market has boomed in the past the RBA has been quick to act to stop runaway demand by raising rates. This time around they have needed to be cautious and this is why we have seen them acting slower to hike rates.
“The problem is,” says David, “they are not facing the same conditions uniformly around the country. There are areas of the economy that are sluggish, and while we haven’t yet seen unemployment surge higher, wages growth has been flat. They are also being careful not to push the dollar higher and further impair the economy.”
“The APRA tightening has led to heavy scrutiny of interest-only loans, the most common type of loan investors use, and as a result, the banks are starting to charge higher rates on these type of products, which is out of cycle with the official cash rate set by the RBA.”
There is no reason for alarm for Owners and Investors, despite the dramatic headlines about house price increases and affordability concerns. David is upbeat about the prospects for the property market.
“As a long-term investment, property still makes a lot of sense, and for many investors will remain their investment vehicle of choice. The current changes make it more critical than ever that home owners and investors get the right advice. Mortgage brokers will continue to offer a superior service because we need to be across all of the things that are happening in the market.”
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