As the sun sets in one part of the World, it is rising elsewhere. This is true for Australian property in 2018.
While the long-anticipated cool down in the (investor) markets of the eastern states is now upon us, other sectors are now flickering into life.
But one thing will not change, regulatory pressures on lenders mean that in 2018, getting finance will be far more complicated than just walking into your local bank branch and applying for a mortgage.
Research from CoreLogic shows that the heady double-digit growth we have enjoyed is behind us and that, with air coming out of the market, price growth will be at much more sustainable figures.
But, Australia is a series of diverse markets and, while the sun may be setting on the east coast markets, other sectors are flickering the life.
After a credit-fuelled binge in Sydney, its market has peaked thanks to an increased supply of properties and the fact it is tougher to get finance. In 2018, Melbourne will also follow Sydney. But with CoreLogic showing annual returns of 10 and five per cent respectively, both these cities have had good runs in 2017.
2018 is seeing growth in other markets; the resources downturn has now come to an end; iron ore prices are holding up and, driven by the demand for battery technologies, copper and lithium and now firming – this augurs well for the Perth and Adelaide economies in 2018.
Across the country, first-home buyers are coming back into the market. No longer crowded out by investors (who are having trouble getting finance), first home owners now have much more freedom.
One reason why property will hold up is that interest rates will remain very, very low. Recently the Reserve Bank confirmed that the next time that it would change interest rates they would be going up, but that interest rates would not change for quite some time. What is most likely is that rates will stay ultra-low for many months to come.
Some economists forecast rates increasing by 0.25 to 0.5 per cent in 2018; other see no change at all till 2019.
But while rates will stay low, getting a loan will become harder. Over the past few years, the Australian Prudential Regulation Authority (APRA) has:
- Made banks limit their growth in investor lending to a maximum of 10 per cent
- Required lenders to loan no more than 30 per cent of their loans on an interest-only basis
The clampdown on lending will go further.
Recently APRA has expressed concern that banks are lending far more than borrowers’ incomes can really justify. So, in 2018 lenders will become less generous in how much they will lend. But not every lender will adopt identical policies, so it’s worth getting your broker to shop around for you to optimise each bank’s differing policies.
This Christmas and New Year, our family will be away in the bush with a few days in Thredbo; hiking, mountain biking and white-water rafting. Yes I know Thredbo is a ski resort, but having grown up in Manchester, I hate the cold!
I hope you all have a wonderful Christmas and New Year and look forward to helping you with your finances in 2018.