Many young Australians have a dream of one day owning their own home, however this dream is fast turning into a nightmare for some.
Homeowners no doubt cheered the news this week that capital city home prices rose 10 per cent last year.
But for Generation Rent, we just shrug our shoulders. It seems a period of below average house price growth, in which we would slowly cobble together that deposit, was just too much to ask for.
The hurdle has been raised, yet again.
Prices in Sydney and Perth are now back at record highs. Sydney house prices soared by 14.5 per cent last year, followed by Perth 9.9 per cent, Melbourne 8.5 per cent, Brisbane 5.1 per cent, Canberra 3.5 per cent, Darwin 3.3 per cent, Adelaide 2.8 per cent and Hobart 2.2 per cent.
Melbourne prices are now only 0.7 per cent below their peak, Adelaide 2.4 per cent, while Brisbane prices are still behind 6.6 per cent and Hobart 12 per cent.
At the national level however, the 9.8 per cent growth in home prices last year was the biggest annual rise since 2009. That was during the depths of the global financial crisis when the Rudd government unleashed its stimulus package, including a doubling of the first homebuyers grant which sent prices soaring by 14 per cent.
Really, it should just be called the first home sellers grant, because all that money does is push up prices.
When economic uncertainty threatens, policy makers have realised that nothing bucks up the Aussie national spirit like higher house prices – no matter the cost for would-be first time buyers.
The Reserve Bank is at it again, dropping its official cash rate to its lowest since 1959 in an attempt to revive lagging household spirits.
Reserve Bank governor Glenn Stevens has weighed the risks, and decided the risk of unleashing a housing bubble is less than the risk of rising joblessness and a slowing economy if rates are not cut.
You might think lower interest rates are good for borrowers, but the higher house prices that result only make the hurdle for homeownership that much higher.
Once again, first home buyers are the sacrificial lamb sent to slaughter.
Why should we care? We should care because our housing system risks entrenching deep inequalities of wealth in our society and undermining the “fair-go” for all.
Rich kids will always have rich parents to help them up on to the property ladder. But what about the rest?
We are breeding a generation of housing haves and have nots.
I have previously written in favour of renting. Or rather, against the perception that renting is evil.
Rent money may be dead money, but so too is interest paid to a bank. Either way, you’re going to pay for your housing.
If you rent and save additional income, you’re essentially doing the same thing as paying interest on a loan and paying off your principal.
Except that our tax system heavily rewards home ownership.
Capital gains made on your family home are tax free, whereas interest earned on money sitting in the bank is taxed at your full tax rate.
Assuming you can afford the deposit – a huge assumption – and assuming that house prices and bank deposits returned about the same annual growth, you’d be better off in property, simply because of these tax breaks.
Of course, negative gearing only adds fuel to the fiery attraction of housing as an investment.
And so our dream of homeownership is deliberately stoked by federal tax policies that only serve to inflate prices even further.
Other levels of government also wear blame for the unaffordable state of Australian housing.
Cash strapped state governments load property purchases up with expensive stamp duties. Local councils, too, add their own fees and charges on new developments.
State governments fail miserably in their responsibility to provide adequate public transport to new housing areas, putting a premium on well-located land.
And local governments, who ultimately approve new developments, are hopelessly captured by the interests of NIMBY (Not in my backyard) existing homeowners and ratepayers.
There’s no easy way to unscramble our housing mess. Abolishing stamp duty – a tax on moving – and replacing it with a broad based land tax – based on the wealth stored in a property – would be a good start.
Policies to force greater urban infill and higher density housing along established transport routes would also help.
It’s time we thought harder about how to relieve the housing affordability crisis, or for generations of young Australians the dream of homeownership will remain just that: a dream.
Original article published at www.news.com.au by Jessica Irvine, National Economics Editor, News Limited Network 5/1/2014
Aussie hotspots enjoying a sudden property boom
Property prices across the country saw their steepest fall in 15 years in 2018, bringing them back to 2016 levels in what has been a housing downturn like no other.
But it’s not bad news everywhere – while investors shy away from Sydney and Melbourne, there are some hotspots which are enjoying a sudden property market boom, according to news.com.au.
The South East and Gold Coast regions are seeing the most buying activity, with Brisbane, Moreton Bay, the Sunshine Coast and Ipswich booming along with the Gold Coast, Tugun and Burleigh Heads.
Unsurprisingly Hobart is the strongest property market, although activity has spread beyond the inner city and into the middle and outer rings, while Launceston has also recorded solid interest.
The entire South Australian capital is booming, although most activity is happening in the inner city and Adelaide Hills.
New South Wales
While many investors have deserted Sydney, areas such as Paddington and Winston Hills and the nearby Central Coast are doing well.
Other booming areas are further north in Tweed Heads and Byron Bay.
View from the experts
Daniel Walsh of investment buyer’s agency Your Property Your Wealth, told news.com.au that investment activity has now firmly shifted to Queensland.
“We’re seeing rising demand particularly in the housing sector in southeast Queensland where yields are high and jobs are increasing due to the amount of government expenditure around infrastructure which is attracting families to the Sunshine State,” he said.
“With Brisbane’s population growth at 1.6 per cent and surrounding areas like Moreton Bay at 2.2 per cent, the Sunshine Coast at 2.7 per cent and Ipswich at 3.7 per cent, we are forecasting that Brisbane will be the standout performer over the next three to five years.”
Realestate.com.au chief economist Nerida Conisbee agreed, telling news.com.au Sydney investors especially had started to turn their attention north.
“Interest is strong in the Gold Coast across the board although there’s more action on the south side in places like Tugun and Burleigh Heads,” she said.
She added there was also a notable trend towards Tasmania, Adelaide and pockets of NSW such as Tweed Heads and Byron Bay.
Adelaide has also been flagged as finally booming after recently hitting the highest median house price ever recorded, largely driven by jobs and economic growth off the back of defence contracts, the announcement of the new Australian Space Agency and other investment in the area.
“Inner Adelaide, beachside and the Adelaide Hills tend to have the most activity but there’s also quite a lot of rental demand in low-cost suburbs so we’re expecting to see a bit more investment there in those really cheap suburbs over the next 12 months,” Conisbee said.
“There you can get houses for $250,000 so for an investor, it’s a relatively low cost in terms of outlay and the area is seeing really strong rental demand which means you’re more than likely to get tenants, so for investors it’s a really attractive area,” she said.
Why equity can help you buy again
Unlocking the equity in your home could help you purchase another. Chief executive of property advisory firm Property Mavens used her home’s equity to buy a Preston investment property. Picture: Lawrence Pinder
WE’VE all heard of the benefits of refinancing to get a better deal on your home loan, particularly a more competitive interest rate.
But what if refinancing could also help you buy an investment property?
“Borrowers may be able to refinance their existing home loan to access equity they may have built in their property, in order to buy an investment property,” Mortgage Choice chief executive Susan Mitchell said.
Refinancing with the aim of buying an investment property could allow borrowers to grow their wealth, according to Ms Mitchell, as, generally speaking, property was considered a safe asset class in Australia with decent returns over the long term.
“CoreLogic found that over the 10 years to June 2018, national dwelling values increased by over 40 per cent, a good return on investment,” she said.
But she cautioned there were a number of costs associated with refinancing, so it was important borrowers made an informed decision before jumping in.
The nuts and bolts
So, how does refinancing using equity work?
The Successful Investor managing director Michael Sloan explained that lenders would typically lend you 80 per cent of the market value of your home, less the debt you still owed against it.
“This is your usable equity as banks hold some back as security,” he said.
“So, say, for example, you have a $500,000 property and a $200,000 loan. Your usable equity will be $200,000,” he said.
As to what value investment property you could buy, Mr Sloan said a simple rule of thumb was to multiply your usable equity by four.
“But remember that one of the risks of property investing is spending too much,” he said.
“You need to buy well below the median house price ($742,000 in Melbourne, according to CoreLogic), in fact you shouldn’t be within $200,000 of it.”
Ms Mitchell said the figure depended on how much a lender determined a borrower could afford to repay.
“Available equity is important but the key factor a lender needs to consider is how much a borrower can afford,” she said.
“If a borrower does not have additional capacity to repay a proposed new loan, they may not be able to borrow, irrespective of how much equity they may hold,” she said.
Where do I sign?
And there’s the rub: having equity in your home is not a guarantee you’ll be able to access it.
“You can have a million dollars of equity but if you don’t satisfy the institution’s lending criteria, they are not going to loan you any money,” Mr Sloan said.
“The bottom line is they will take everything into consideration: for example, how many children you have, as the more you have the less you can borrow, your work situation and how much you spend on everything from your daily coffee to the tyres on your car.”
Lenders have also tightened their assessment procedures as a result of recent regulatory measures, such as The Australian Prudential Regulation Authority (APRA) imposing a 10 per cent benchmark in growth on investment lending last year.
This was introduced in a bid to curb activity in the housing market, Ms Mitchell said.
“These regulatory measures have resulted in lenders increasing their scrutiny of a borrower’s ability to service a loan,” she said.
“When deciding if an applicant can afford a mortgage, a lender will consider a borrower’s available ongoing income and from this allow for existing debt commitments and living expenses,” she said.
“Their decision will also factor in a buffer for potential increases in interest rates.”
But it’s not all doom and gloom. Ms Mitchell advised that borrowers could overcome the increased scrutiny by getting “financially fit”.
“Get out of debt, spend your money wisely and adopt a disciplined savings strategy to show lenders you can service a loan,” she said.
Air Mutual director Damien Lawler advised would-be investors to consult an independent broker who could access a range of lenders, which might have varying assessment procedures.
“Everyone is talking about the banks tightening up – which they are – but there are banks, particularly the smaller, tier-two banks, who are still lending,” he said.
And finally …
Mr Sloan said his No.1 piece of advice for would-be property investors was to play it safe and to have some funds in reserve if things go wrong.
“You should never buy (another) property if you have no extra money available to you after you settle, so you need to have a buffer. And protect what you are building with income protection and life insurance, if you have a partner,” he said.
New postcode restrictions for home loans
The Commbank has announced a range of changes to make it tougher for borrowers.
THE nation’s largest lender is tightening its belt and making it even tougher for potential borrowers to successfully get a loan.
In a notice issued to mortgage brokers today the CBA announced it will roll out a range of changes including restrictions on lending in some postcodes.
This includes forcing customers to stump up fatter deposits in order to get a home loan.
It will impact all types of properties including homes and apartments and also borrowers regardless of whether they are owner occupiers or investors.
In the notice it said from Monday, December 4 the key changes will include:
– Reducing the maximum loan-to-value ratio from 80 to 70 per cent for customers without Lenders Mortgage Insurance (an insurance the customer pays and protects the lender not the borrower.) This means borrowers with a deposit less than 30 per cent must pay expensive LMI costs.
– Reducing the amount of rental income and negative gearing eligible for servicing which will impact investors.
– Change eligibility for Lenders Mortgage Insurance waivers and LMI offers for customers in some postcodes.
CBA said the new Postcode Lookup tool which will start from Monday will allow the bank and brokers to determine whether a borrower can successfully borrow in a particularly region or postcode and it will reduce customers wasting time applying where they are likely to get knocked back on a loan.
CBA has not released the postcodes and regions these changes will impact.
The move is a result of the responsible lending restrictions put on lenders by regulators to cool the red-hot lending market.
Home Loan Experts’ managing director Otto Dargan said these changes are significant and will impact many borrowers.
“Lenders keep an eye on the economy and their exposure to different property markets and adjust their lending policies to manage their risks,” he said.
“We strongly recommend that home buyers don’t commit to buy a property until they have an unconditional approval from a bank.
“You could win an auction and then find out that your pre-approval is worthless, and then what are you going to do?”
Unconditional approval is when your loan application has been fully approved and is not subject to any terms or conditions.
Originally Published: brisbaneinvestor.com.au