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Housing boom tipped to ‘get bubbly’ as mortgage rates fall

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Economists are talking of a Sydney housing bubble as mortgage rates fall to all-time lows and Australian Bureau of Statistics data released on Tuesday showed house prices in Australia’s capital cities continued to rise in the December 2014 quarter.

Sydney prices rose another 3.4 per cent, the ABS figures showed, while Brisbane and Melbourne recorded 1.4 per cent and 1.3 per cent growth respectively.

In the year to December, prices in Sydney increased 12.2 per cent, those in Brisbane by 5.3 per cent, and those in Melbourne by 4.5 per cent.

Mortgage Rates Fall

Mortgage Rates Fall

“Although we do not see a national housing bubble, we believe that growth in Sydney housing prices is currently running at an unsustainable pace.”

HSBC economist Paul Bloxham warned on Tuesday that “Australia’s housing boom may get bubbly” and that Sydney could face house price falls when interest rates rose.

“It is also possible to have too much of a good thing,” he said in a research note.

“Construction of new housing is welcome, but further housing price gains may present challenges. Recent cuts in mortgage rates to new all-time lows increase the risk of the housing market over-inflating.

“In response, the prudential regulator announced new mortgage guidelines in December 2014, to attempt to tighten lending standards. But since then mortgage rates have fallen further, as the Reserve Bank cut again. New prudential measures seem designed to allow the Reserve Bank room to cut rates further without excessive house price growth, but they remain untested.

“Although we do not see a national housing bubble, we believe that growth in Sydney housing prices is currently running at an unsustainable pace and that any future growth is likely to be met by housing price declines in future years, when interest rates do begin to rise.”

Mr Bloxham said that “at the least we now expect that Sydney housing prices are likely to fall when interest rates start to rise, which could be as as soon as 2016.”

Mortgage Rates Fall

CoreLogic RP Data figures for January, released last week, showed that Melbourne’s house prices grew the quickest in that month: 2.7 per cent. Sydney prices rose 1.4 per cent and Brisbane’s 0.6 per cent. Darwin, Adelaide and Perth all fell.

Geoff Schippers, a mortgage broker in Sydney, has had an increase in clients looking for homes to buy since the Reserve Bank dropped its benchmark rate to a record low last week.

“At least 70 per cent of my clients are now contemplating investing in a residential property or properties,” Mr Schippers, principal at Scout Finance, said. “A few months ago that proportion was very small. People who were sitting on the sidelines are now motivated to get into the market.”

Other economists also said a housing bubble could form. “The rate cuts by the banks will provide a real impetus for the property market,” Savanth Sebastian, an economist at Commonwealth Securities, said. “There is certainly a lot of risk in an asset bubble forming in property.”

However, Mr Sebastian said that while there was “certainly the risk” of a bubble, it was “certainly not in the short-term…it would have to be in the medium term if you saw a bubble and for a bubble you would have to see ridiculous growth in prices – we’ve only had substantial growth.”

Mr Sebastian said that unemployment and vacancy rates were low and interest rates were still falling. It was, therefore, “still too early” for a bubble.

Martin North, a Sydney-based principal at researcher Digital Finance Analytics, said: “Falling yields on deposits have triggered a hunt for assets and investors are doing that without understanding the consequences. While house prices are already full on any measure, the quest for yield is going to have a stimulatory effect into the property market and build more risk into the economy.”

But other economists dismissed talk of a bubble in the Sydney housing market and said prices were not about to go down.

“I don’t think there’s a bubble, although Sydney is a red-hot market,” said Andrew Wilson, the senior economist of Domain. “There’s no bubble, it’s still a strong market in Sydney with plenty of upside for prices growth.”

Michael Workman, senior economist with the Commonwealth Bank, also said a bubble was unlikely.

“I doubt it,” he said. “There’s still reasonable scope for price rises this year across most of the suburbs within 20 kilometres of the city. There reserve bank has cut interest rates once, it’s likely to go again pretty soon.”

The International Monetary Fund estimated in October that Australia had the most overvalued housing market after Belgium on a price-to-income basis.

Source: www.smh.com.au

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Finance

The property party is over as our biggest bank curbs lending

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The property party is over as our biggest bank curbs lending

Australia’s housing-market extravaganza is over. That’s the call the nation’s biggest mortgage-lender is making when it comes to its own money.

In the past year, the Commonwealth Bank has reduced its exposure to apartment developers by more than $1 billion, or 23 per cent, according to data included in its first-half earnings report, released on Wednesday.

When the nation's biggest lender starts reining back it's a good sign the party is over.

When the nation’s biggest lender starts reining back it’s a good sign the party is over.

What’s more, the bank included a chart in its results highlighting its overall home-loan portfolio is growing notably slower than its competitors.

It’s also pulling back on loans to property investors, which rose just 0.5 per cent compared to 7.5 per cent growth for owner-occupier loans.

Sydney house prices, which surged 75 per cent between February 2012 and July, have now dropped 3.1 per cent from their peak, data released last week showed. But Sydney prices are still up 70 per cent on their cyclical low hit in February 2012.

Melbourne fared somewhat better, thanks in part to rapid population growth, with prices easing 0.2 per cent in January to be 8.0 per cent higher for the year.

CBA records $4.7b half-year profit, but Austrac fine and compliance costs weigh

CBA records $4.7b half-year profit, but Austrac fine and compliance costs weigh

Housing loans have been the driver of Australian banks’ recent run of bumper profits. So when the nation’s biggest lender starts reining back it’s a good sign the party is over.

Originally Published: www.brisbanetimes.com.au

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Finance

New postcode restrictions for home loans

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New postcode restrictions for home loans

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.

Commbank is rolling out a range of changing which will make it tougher for customers to successfully get a loan.

Commbank is rolling out a range of changing which will make it tougher for customers to successfully get a loan.

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.

Home loan lending with the nation’s largest bank is about to get harder.

Home loan lending with the nation’s largest bank is about to get harder.

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.

Home Loan Experts managing director Otto Dargan encourages borrowers to get unconditional approval before buying a property.

Home Loan Experts managing director Otto Dargan encourages borrowers to get unconditional approval before buying a property.

“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: www.ipswichadvertiser.com.au

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Finance

New postcode restrictions for home loans

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brisbane

brisbane

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.

Commbank is rolling out a range of changing which will make it tougher for customers to successfully get a loan.

Commbank is rolling out a range of changing which will make it tougher for customers to successfully get a loan.

In the notice it said on Monday, December 4 the key changes will include:

– Reducing the maximum loan-to-value ratio from 80 to 70 percent 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 percent 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.

Home loan lending with the nation’s largest bank is about to get harder.

Home loan lending with the nation’s largest bank is about to get harder.

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 particular 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.

Home Loan Experts managing director Otto Dargan encourages borrowers to get unconditional approval before buying a property.

Home Loan Experts managing director Otto Dargan encourages borrowers to get unconditional approval before buying a property.

“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 buying 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: www.ipswichadvertiser.com.au

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