Byron Bay Property Market Watch
I will be watching our local market over the next couple of months with great interest. We had a slight blimp over the end of the financial year period, but generally property here is remaining firm. It’s possible that Byron Bay, and our neighbouring postcodes (2479 – 2483), have become unhinged from following the southern city trend line. Historically, our market has been around 12 months behind whatever Sydney and Melbourne is doing.
The combination of winter, the banking royal commission, and so much media about the retreating market would usually dampen sales. But people are buying and people are selling. I thought there would be more holding back on listing until the air had cleared, but life goes on. For buyers, it is marginally better as the market is not as heated or frenzied earlier in the year. Only the ill-ease of FOMO (Fear Of Missing Out) has receded.
Interest rate update
With all the interest and focus on the banks, it is a good time to do an interest rate update. This August the RBA allowed another month to go by without any change to interest rates. It is now two years that our rates have been left on hold at a cash rate of 2.5%. It is also 8 years since there has been an interest rate increase. The last one was in 2010. This means many people have forgotten how it feels to be told they need to find more dollars to pay their mortgage. Chief economist and media commentator, Dr Andrew Wilson predicts no sight of an interest rate hike in the near future, and if anything, another rate drop is more likely than a rate hike. In any case, he is a commentator with a good track record and sees a low-interest rate environment for some time to come.
Banks tighten on lending
Following the Banking Royal Commission, the banks are seriously constricting their lending compliance regulations. Many potential buyers, who believe they have approved finance, are making offers on properties only to find that their approval level has changed. Most agents are currently asking all buyers to check their finance approval before making any offers.
One of the main problems new borrowers are having, or even lenders wanting to refinance, is higher demands around personal expenses. Applications in the past just required a borrower to estimate household expenses. The new requirements demand a complete household budget and confirmation of these expenses.
Anecdotal opinions suggest that around one-third of deals that would usually go through are falling over because of the tighter lending. This is sure to affect sales and turnover in the short term. People who are thinking of buying should double-check their finance approval. I thought that sellers would be holding off for a while before listing, but I am seeing no reduction in the listing alerts hitting my in-tray each morning.
More on lending tightening
Macquarie Bank does an interesting survey each year. They send their employees out and pretend to be punters to make applications to a number of banks. They found that banks had tightened their credit standards by a further 5% over the past year as a result of policy changes. From the peak of mortgage activity in 2015, borrower capacity has fallen by 13% for owner-occupiers and 22% for investors.
The survey found some banks were willing to lend up to $1 million to a property investor earning $105,000 a year, but typically less than $600,000 to an owner-occupier on the same income. The average loan capacity for owner-occupiers fell from $700,000 in 2015 to $600,000 presently, while average loan capacity for investors has fallen from $1 million to $800,000.
Westpac has a good point
Probably in reaction to the drop in business, local Byron Branch lending manager for Westpac, Caroline Maggs, is offering 200,000 Velocity points for any loan that settles over $250,000. Offer ends September 30. 200,000 points are probably enough for a return flight to London or New York on a half decent airline.