{"id":8347,"date":"2016-06-28T01:00:39","date_gmt":"2016-06-27T15:00:39","guid":{"rendered":"http:\/\/realestatetalk.com.au\/?p=8347"},"modified":"2016-06-28T01:00:39","modified_gmt":"2016-06-27T15:00:39","slug":"lender-restrictions-hold-the-market-back","status":"publish","type":"post","link":"https:\/\/channels.realty.com.au\/realtytalk\/lender-restrictions-hold-the-market-back\/","title":{"rendered":"Lender restrictions hold the market back – John Flavell"},"content":{"rendered":"

 
\nThe Mortgage Choice Annual Investor Survey has found that investors are being affected by lending restrictions introduced by the banks. What sort of restrictions have the banks had to make and how does this affect borrowers?\u00a0 John Flavell<\/strong>, Mortgage Choice Chief Executive joins us to outline what is happening.
\n <\/p>\n

Transcript:<\/strong><\/h4>\n

Kevin:<\/b>\u00a0 Over the last 16 months, most of Australia\u2019s lenders have been forced to tweak their policy and pricing in order to stem their level of investment lending growth. Let\u2019s get a bit of an insight on this. Mortgage Choice chief executive John Flavell joins me.
\nJohn, thank you for your time.
\nJohn:<\/b>\u00a0 Thank you very much for having me.
\nKevin:<\/b>\u00a0 There is a changing landscape, isn\u2019t there? But even in recent times we have heard that some of the lending criteria may actually just be being loosened again, John. Is that correct?
\nJohn:<\/b>\u00a0 I think our markets find their own level after a while, don\u2019t they? We saw quite a lot of change starting with the September\/October period last year in relation to policy and pricing, specifically regarding investment lending on the back of the Prudential Regulator\u2019s desire and direction to our lending institutions to cap the growth on investment lending to no more than 10% annually.
\nKevin:<\/b>\u00a0 The Mortgage Choice Annual Investor Survey found that investors are being affected by lending restrictions introduced by the banks. Tell us about those restrictions. How strong are they?
\nJohn:<\/b>\u00a0 Sure. As I said, the intention from the regulator was to cap the growth in investment lending to 10%, and in order to limit that, you saw a number of changes from a policy front and also from the pricing front. Both of those things actually have an impact of subduing demand and also restricting supply.
\nFrom a pricing perspective, you see differences in pricing for investment lending compared to owner-occupied \u2013 it may be 0.8% or 0.9% \u2013 and then from a policy perspective, a lot of lenders turned around and capped the loan-to-valuation ratios on investment lending and may have made adjustments in terms of concessions for proportion of rental income that can be contributed to debt servicing. Then they may have precluded lenders from certain geographies or lending in certain geographies, and all of those things have changed the shape of the market a little bit.
\nKevin:<\/b>\u00a0 Of course, all of this is on the back of people wanting to make housing more affordable. Do you think it\u2019s really having that impact?
\nJohn:<\/b>\u00a0 It\u2019s an interesting thing because I suppose at the end of the day, when I went to school, the worth of an asset was always determined by supply and demand, and in the instance of housing, then housing affordability is also determined by the cost of credit and the access to credit. You don\u2019t really change the overall demand, but what you end up doing is changing the shape of the market.
\nWhat we\u2019ve found is that those investors who have been pushed out of the market are the ones who are actually the would-be first-home buyers who are looking to use an investment property as a leg up into the market.
\nMiddle age, middle class Australia who have equity in their home who are typically paying higher rates of tax, then these sorts of changes haven\u2019t taken them out of the investment market, but the younger people who are saying, \u201cLook, I can\u2019t quite afford to buy my first owner-occupied place, but I\u2019ll get in an investment property and leg myself into the market,\u201d they\u2019re the ones who are being pushed out of the market, so it\u2019s a real challenge.
\nIf you\u2019re saying that the object of the exercise in some parts is to actually increase housing affordability or access to housing, then the people who you want to encourage and give a leg up to the most are the ones who are being pushed out.
\nKevin:<\/b>\u00a0 As we head towards a Federal election, typically at this time we tend to see the market slow down. But that certainly is not what we are seeing. Let\u2019s have a look at Brisbane, as an example, where we\u2019re seeing a lot of investors now flocking back into the market. How much of that has to do with trying to get in just in case Labor win the next election and play around with negative gearing?
\nJohn:<\/b>\u00a0 It\u2019s a great question. You\u2019re always going to have an impact on the market when you talk about legislative changes. There will be those people who, as you\u2019ve said, are saying, \u201cGoodness. In advance of the change, I\u2019ll make my move now,\u201d and they might accelerate activity. There will be people who are possibly contemplating selling investment properties who are saying, \u201cGeez, if I sell this investment property, my ability to get these sorts of concessions under a Labor government might not be there in the future, so I won\u2019t sell.\u201d
\nIt distorts markets. Even talk of legislative changes \u2013 to your point \u2013 distorts markets. There probably is a good portion of acceleration in the market at the moment in anticipation or in the off-chance that there might be some changes, and that\u2019s not unique to this market.
\nIf you look at the buy-to-let market in the United Kingdom in particular, where there is a raft of legislative changes coming in to restrict the tax concessions to investors, what that has done over there is effectively stalled the market. People are not selling property at all. It\u2019s actually driven prices up, and it\u2019s also driven rents up, as well.
\nSo you have to be very careful about what you even utter, let alone what you do, because it does have an impact and it does distort markets.
\nKevin:<\/b>\u00a0 We\u2019re certainly seeing that right now. I guess the politicians will never learn those kinds of lessons. They tend to play around the edges.
\nLet\u2019s talk about interest rates. Where do you see them going? There is talk that there may even be another drop in the next 12 months. Do you subscribe to that?
\nJohn:<\/b>\u00a0 If you take the widest and best-considered view of the market, then you look at the forward rates, and if you have a look at the forward rates, then the market is actually pricing in another cut in the cash rate over the next 6 to 12 months. It\u2019s in the forward rates there.
\nIf you ask yourself the question, \u201cWhere does this go in the next 12, 24, and 36 months?\u201d then things that are happening globally have an impact on that. In the US just last week, Yellen made comments to the effect that the Fed was contemplating actually upping rates again and that they were probably going to consider doing so moderately. The last time she said that, of course, that led to a real sell-off in the equities markets.
\nThe markets globally are very, very, very, very, sensitive. But if you looked at this next 12 months or 24 months, the market is pricing in another cut to the cash rate over 12 months. And if you look further out, the market is actually expecting the cash rate, within Australia certainly, to stay at these lower levels. There is not a pricing in there with an expectation of a rate increase in the next 12 or 24 months.
\nKevin:<\/b>\u00a0 It\u2019s always great talking to you, John. Thank you very much for your time.
\nJohn Flavell, Mortgage Choice chief executive. Thanks for your time, John.
\nJohn:<\/b>\u00a0 Thank you for having me. Bye-bye.<\/p>\n","protected":false},"excerpt":{"rendered":"

  The Mortgage Choice Annual Investor Survey has found that investors are being affected by lending restrictions introduced by the banks. What sort of restrictions have the banks had to make and how does this affect borrowers?\u00a0 John Flavell, Mortgage Choice Chief Executive joins us…<\/p>\n","protected":false},"author":176692471,"featured_media":8349,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[34,10,11,13,36,17,22,25],"tags":[101],"class_list":["post-8347","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-finance-topic","category-kevin-turner-sponsored-channels","category-kevin-update","category-latest-story","category-property-investment-topic","category-property-investment","category-research-topic","category-sponsored-channels","tag-podcast"],"yoast_head":"\nLender restrictions hold the market back - John Flavell - Realty Talk<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/channels.realty.com.au\/realtytalk\/lender-restrictions-hold-the-market-back\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Lender restrictions hold the market back - John Flavell - Realty Talk\" \/>\n<meta property=\"og:description\" content=\"  The Mortgage Choice Annual Investor Survey has found that investors are being affected by lending restrictions introduced by the banks. 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