Property horizon for 2018 – time to get technical
What’s on the property horizon for 2018? The most consistent theme from independent analysts is there’s plenty of opportunity in the market, but we’ll need to be more savvy than ever before.
Part one – the forecast
In a nutshell, property investing success is becoming much more technical, and there’s less general opportunity as the market reacts to the Australian Prudential Regulator Authority (APRA) changes.
In March 2017, APRA intensified its focus on lending restrictions in a bid to cool the property market and avoid a major market correction. The changes – such as limits to foreign investors and heightened loan serviceability requirements – finally began to be revealed in market results from July 2017 with cooling markets in Sydney and Melbourne.
In 2018 we will see the market heat move to other areas of the country. Louis Christopher from SQM has outlined the following growth forecast for our capital cities.
Don’t miss the hint
Remember, most high level forecasts and media reporting will focus on capital cities as a whole and within those large areas there are suburbs that will out-perform the averages. Look also at regional areas such as Newcastle or Geelong for opportunities. And the sneaky first mover could also see Perth show signs of recovery.
Part two – the major influence is funding
As the ability to purchase property is often dependent upon access to finance, online mortgage marketplace HashChing has collaborated with research firm Digital Finance Analytics to produce the top eight mortgage predictions for 2018.
- Mortgage interest rates are expected to continue rising. The consensus among HashChing brokers is that major banks will continue to nudge interest rates higher. HashChing broker George Kozah said the average home loan standard variable interest rate of 5.08 per cent (according to Finder.com.au) could rise approximately 75 basis points to 5.83 per cent by the end of the year.
- Fixed rate deals to be a focus for many lenders. In 2018, there will be a greater mix of very low ‘special’ rates to try and attract first time buyers and owner-occupied refinanced business. Many lenders will focus on fixed rate deals, taking account of lower funding rates. This may change later in the year in line with a strong likelihood that the Reserve Bank will lift the official cash rate.
- Mortgage lending standards will continue to be tightened. This includes lower income multiples, less generous analysis of household expenses, and more conservative assessment of allowable incomes. In addition, the loan to value hurdles will be lower for many borrowers. This means that households who want to enter the market will need to be able to present with a larger deposit. “As a result, I expect more first time buyers will get help from the ‘Bank of Mum and Dad’, which can be worth as much as $88,000,” said Martin North, principal of Digital Finance Analytics.
- Mortgage stress will affect more households. In December 2017 , Digital Finance Analytics reported mortgage stress – which is generally when a household spends more than 30 percent of its pre-tax income on home loan repayments – affected more than 921,000 households in Australia. This could climb to more than a million by the end of 2018, and Digital Finance Analytics attributes the problem to a range of issues, including rising living costs, slow wage growth, and larger mortgages (due to rising home prices).
- More borrowers likely to refinance home loans away from the big four banks. This trend was demonstrated last year using data from HashChing which showed the greatest exodus (37 percent of national borrowers with the big four banks) from Commonwealth Bank. Smaller lenders are offering variable rate home loans as low as 3.56 per cent, and the clear savings compared to the major banks is prompting an increasing number of borrowers to jump ship.
- Cooling property prices to continue into 2018. Tougher lending restrictions on investors and interest-only loans has increased the housing supply in some areas, leading to property prices in major cities such as Sydney and Melbourne to decline during 2017. The national median house price index fell to 0.3 per cent in December (according to CoreLogic data), and this trend is expected to continue in 2018. Overall, new residential construction will stay strong, as recent building approvals flow through, but there will be a fall in the number of high-rise units released to the market – especially in Melbourne and Brisbane.
- First home buyers will make up a greater percentage of borrowers. Softening property prices, greater housing supply and government grants/stamp duty concessions (in states such as NSW, Victoria and Queensland) will see more first home buyers enter the market in 2018. In the first week of 2018, HashChing has already seen a considerable uptick in web traffic, with a 12% increase in home loan enquiries from first home buyers compared to this time last year.
- Mortgage brokers will continue to settle most residential mortgages. The latest industry data shows Australian mortgage brokers settled 55.7 percent of all residential mortgages during the September 2017 quarter, which is up from 53.6 percent in the same quarter last year. While the upcoming changes to mortgage broker commission structures (namely, the elimination of volume incentives) will result in lower lending volumes, brokers will still maintain significant share, and their overall footprint will likely continue to increase.
Part three – the wild card is political change
The conversation about negative gearing is heating up again, and the debate will continue through 2018. Apart from any potential changes to legislation, market activity is also influenced by elections. See below for the election dates across the country.
Part four – the reality
As Crave followers know, the top line figures for forecasts can only be used as a bit of a weather vein. Looking at the infrastructure activity all governments are undertaking, with stronger employment and population growth still on the rise there’s obviously still opportunities at all budget levels.
It is true though that successful investing is becoming increasingly technical with overlapping areas of specialization required – such as accounting structures, loan mix, land planning regulations, economics to name a few. In 2018 there’s bound to be a fair few people who will hit some potholes. Do your homework, or call us to make sure you maximise your results.
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Crave Property Advisory is a unique property strategy and buyers agent service. As the only independent and unbiased advisory that can help you use any property strategy Australia-wide, Crave’s services extend to home, investment and commercial property. A highly client focused organization, Crave developed the Modular Investing System (MI System) to provide clients with the ability to use a tailored mix of strategies and efficiently build profitable portfolios that create lifetime income.
Debra Beck-Mewing is the CEO of Crave Property Advisory, and has more than 20 years’ experience in property investing, Australia-wide. She has used a range of strategies to build her property portfolio including renovating, granny flats, sub-division and development. Debra is skilled in identifying development opportunities, and sourcing properties that have multiple uses and multiple exit strategies. She is a Qualified Property Investment Advisor, licensed real estate agent and also holds a Bachelor of Commerce and Master of Business.
Disclaimer – This information is of a general nature only and does not constitute professional advice. We strongly recommend you seek your own professional advice in relation to your particular circumstances.