Chapter News

Residential lending: The current state of play

In the second of our two-part series, the Journal explores the state of play in the residential lending market.

Residential agency

Jennifer Wittmann
National Network Development Manager at First National Real Estate


Q. What is the current state of the residential lending market in NSW?
A.
Our preferred mortgage supplier, AFG, arranged $21.7 billion in home loans in the second half of 2013, compared to $18.3bn in the first half of 2013. NSW showed the largest increase. They were 33 per cent higher in the second half of the year, so there’s definitely increased confidence following the change of government.

The average loan fell to 67.3 per cent LVR, which means that people are borrowing less. They’ve got more equity. This is the lowest level of LVR since June 2012.

Q. How does this compare to previous trends?
A.
Back in 2000–2001 prices were lower, but the rental returns were good and people had equity in their homes. All of a sudden, people were paying for lifestyle items on their mortgages because there were revolving lines of credit. It was a generation of ‘everything now’.

What are people doing now? There has been a big reality check and people have been going without, paying down their credit cards and personal loans, increasing savings, and getting on top of their mortgage. Not all, but most people. I think the market has self-corrected.

Q. Why are people now taking a more conservative approach to lending?
A.
I think it was forced upon lenders because the post-GFC environment required greater accountability as well as more stringent policy and there was waning confidence in the government.

The banks also tightened up their lending criteria and there was less competition from non-bank lenders.

Financial institution

Rod Cornish
Division Director at Macquarie Capital (Real Estate)


Q. What is the current state of the residential lending market in NSW?
A.
It’s a healthy market for new finance commitments. Demand is strong from owner-occupiers (most particularly from upgraders) and investors looking for housing finance. An increasing number of those investors are actually people who would typically have been first-time buyers. Instead of buying a first property to live in, they are renting it out for investment purposes.

Q. How is the financial environment affecting lending?
A.
We’re at a many decade low in terms of mortgage rates. The unemployment rate is rising, but from a historical perspective the rate is still reasonable in NSW and below the national average.

Existing mortgage holders certainly paid down debt as interest rates were cut. More recently, the banks are experiencing an increase in new business, with new borrowers confident to take out loans. At the same time, though, conditions are becoming more competitive with banks reducing fixed rates to access more of the market as house values rise and lending risks decline.

Q. How does this compare to previous trends?
A.
If you look at the total annual rate of growth of housing finance outstanding, including existing loan balances, it’s actually a lot more subdued than what we’ve seen in previous upswings as borrowers have been paying down principal amounts.

Q. Is this is a good thing for the property market?
A.
Broadly, people are probably a bit more conservative than they have been in previous upswings, so when things do eventually slow down it won’t be such a marked downswing because existing borrowers have typically reduced gearing levels. I think that’s probably positive for the market and should result in more stability when rates eventually rise.


This article was first published in the May 2014 edition of the REINSW Real Estate Journal.