Cashed-up buyers are back in the property market

Original article featured in the Australian Financial Review. ​Aug 5, 2019 — 12.00am.

Aspirational suburbs are poised to get a boost as buyers who were previously priced out of the market are now starting to trickle back armed with more confidence and bigger budgets.
Thanks to the prudential regulator's decision to allow banks to reduce their affordability buffers in assessing borrowers, buyers can now borrow up to 20 per cent more depending on their situation.

Sharon Xie, credit manager of Homeloanexperts.com.au estimates a couple with a combined income of $200,000 (no dependents and standard living expenses) can borrow an additional $115,790 under the new assessment rate, increasing their borrowing power from $1,368,425 to $1,484,215.

It may be early days, but there are signs that the upper end of the market is already responding to this stimulus.
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Corelogic's senior research analyst Cameron Kusher said that while the upper end of the housing market has seen some of the largest declines during this downturn– Peppermint Grove, in Perth, plunged 18.7 per cent over the past 12 months, Brisbane's New Farm  sank 23 per cent and Sydney's Mosman dropped by 10.1 per cent – the segment as a whole has shown the strongest improvement over recent months.

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"The top end of the market has fallen by 0.3 per cent over the past three months compared to a 0.6 per cent drop across the most affordable 25 per cent of the market," Mr Kusher said.

"The adjustment to serviceability limits, the removal of this limit and the change to a 2.5 per cent buffer mean people that were in a position to already get a mortgage can potentially now borrow more. With higher valued properties having recorded the largest value falls, owners looking to upgrade may now be looking to buy."

"The adjustment to serviceability limits, the removal of this limit and the change to a 2.5 per cent buffer mean people that were in a position to already get a mortgage can potentially now borrow more. With higher valued properties having recorded the largest value falls, owners looking to upgrade may now be looking to buy."

Sydney buyer Dr Steve Hou is among the growing number of upgraders who are taking advantage of lower interest rates and increased borrowing power.

He and his family recently splashed out on a free-standing home in Bellevue Hill, paying $3,480,000 at a heated auction.

“It was crazy. Everyone was bidding confidently so I was pushed to a position where I have to place the highest bid just to win this property. It’s not really good for me [having to pay more] but that’s the way it is,” he said.

“We didn’t have our home loan approved for the other property we wanted to buy, so we missed out. This time we got it so we were able to buy this home."

Jeremy Sheppard, head of research at Empower Wealth predicts that competition and low stock will continue to drive prices higher over the next three years.

"Demand and supply indicators points to a stronger performance in these areas with houses in Toorak set to rise by 17.1 per cent, Wollstonecraft house price to grow by 14.2 per cent and Mosman by 13 per cent," he said.

Mr Sheppard's calculation is based on housing indicators like vacancy rates, auction clearance rates, days on markets, vendor discounting and 12 other  factors.

The broader market is already showing signs of recovery with Sydney and Melbourne recording positive growth in July for the second month in a row after suffering almost two years of price falls.
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The extra borrowing is also a big deal for investors who were hammered by the strict lending policies over the past couple of years.

​It allowed Sydney-based first-time investors Ashleigh Digby and her partner Dylan Holmes to buy a bigger property in Queensland.

"The lower assessment rate has increased the amount we could borrow and gave us more options," Ms Digby said. "It took away a lot of restrictions on what we could buy."

The $349,000 property the couple bought was out of reach when they first started looking three months earlier.

"We were initially going to buy a single key property because we were short by $50,000 to buy a dual key home. After the [Australian Prudential Regulation Authority] move, we were able to borrow an extra $70,000 and 'upgrade' to the bigger investment property instantly.
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"We want to build our portfolio in the next five to 10 years. This just made it easier for us to get started."

​Investors who were trapped in their mortgage are also being given a lifeline according to Justin Picker, property investor and mortgage broker with Picker Financial Solution.

"Property investors who were stuck in their mortgages due to servicing limit can now look to refinance if they qualify," he said. "This would allow them to continue to buy more investment properties and grow their portfolio."

But while the banks have dropped their assessment rates, this doesn't mean that it's now easier to get a mortgage.

"The banks are still strict with their lending and it still takes time to get loans approved," Ms Xie said.

"They're scrutinising each loan application and combing through the applicant's transaction and credit card statements to analyse the expenditure of the household.
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"If you want to improve the chances of getting a loan approved consider cutting down on unnecessary financial commitments or personal spending," she said.