Australia Why a home loan crackdown IS coming and the suburbs that will THRIVE
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Hong Kong's political elite will select a powerful committee on Sunday which will choose the city's next leader and nearly half the legislature under a new "patriots only" system imposed by Beijing. The financial hub has never been a democracy -- the source of years of protests -- but a small and vocal opposition was tolerated after the city's 1997 handover to authoritarian China. Huge and often violent democracy rallies exploded two years ago and Beijing has responded with a crackdown and a new political system where only those deemed loyal are allowed to stand for office.
Australians hoping to buy a house and break into the property market could soon have a harder time getting a loan.
Both Treasurer Josh Frydenberg and the country's best known mortgage broker have hinted that tougher rules are looming.
Property price records are being set in both regional areas and capital cities, causing the market to overheat as some postcodes see annual price increases of more than 30 per cent.
The Reserve Bank of Australia has vowed to leave the cash rate on hold at a record low of 0.1 per cent until 2024 and the banks are offering 2 per cent mortgage rates.
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As prices surge at an 'insane' pace, John Symond - the founder of Aussie Home Loans - warned banks could voluntarily introduce stricter lending rules.
There would be winners and losers if such a crackdown was to happen.
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Experts tip houses on large blocks in established regional areas and in wealthier suburbs could withstand such a crackdown on lending standards.
However, homes in newer, outer- suburban estates and in high-rise apartment blocks are considered risky.
Mr Symond told Daily Mail Australia he supported lenders taking action on their own to cool the market which he has described as surging at an 'insane' pace.
'I'm all for lenders taking certain action that's not going to stifle the market but it's going to help cool the market,' he said.
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'Regulators have a reputation of coming in with a hammer and we don't want that.
'We don't want overregulation, we're better having voluntary moves by the banks, particularly the big banks, they can monitor the market better than anybody and for them to softly touch the brake pedal, is a smart way of doing it.'
The Australian Prudential Regulation Authority, the banking regulator, sparked a 15.3 per cent fall in Sydney property prices between July 2017 and May 2019 after it cracked down on investor and interest-only loans to stop the market from overheating.
Should a similar plunge happen again, Sydney's median house price would fall by $198,000 from a record-high $1.293million, CoreLogic data showed.
With owner-occupiers instead of investors now dominating the housing market, Treasurer Josh Frydenberg has hinted APRA could introduce stricter rules requiring lenders to assess the debt-to-income ratios of borrowers.
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'We must be mindful of the balance between credit and income growth to prevent the build-up of future risks in the financial system,' he told.
'Carefully targeted and timely adjustments are sometimes necessary.
'There are a range of tools available to APRA to deliver this outcome.'
Mr Frydenberg has signaled intervention from the banking regulator after the International Monetary Fund called for tougher home mortgage rules targeting either debt-to-income ratios or loan-to-valuation ratios stipulating minimum mortgage deposits.
'Macroprudential policy should be tightened to address gradually rising financial stability risks,' the IMF said.
But Mr Symond said the big banks may even be forced to raise their standard variable lending rates if it became too expensive to access home mortgage funding on international money markets - like the Global Financial Crisis in 2008.
Suburbs where annual prices are surging
1. Sydney Northern Beaches: up 33.8 per cent to $2,218,510
Evergrande fuels concerns over China's housing bubble
A state crackdown on China's colossal property market has helped send one of its biggest developers to the brink of collapse, and analysts warn the fallout could lead to the bursting of a bubble that has been building for more than two decades. China's housing scene took off after key 1998 market reforms that boosted the private market from employer-designated homes -- rocketing in a breathtaking building boom on the back of rapid urbanisation and wealth accumulation.
2. Richmond-Tweed, northern NSW: up 29.5 per cent to $808,348
3. Central Coast, NSW: up 29.4 per cent to $866,690
4. Baulkham Hills, Hawkesbury in Sydney's north-west: up 28.5 per cent to $1,672,218
5. Southern Highlands, Shoalhaven: up 28.3 per cent to $795,339
6. Mornington Peninsula, Victoria: up 28.3 per cent to $854,275
7. Sunshine Coast, Queensland: up 27.6 per cent to $819,831
8. Coffs Harbour, Grafton in northern NSW: up 27.6 per cent to $621,146
9. Tasmania south-east: up 26.5 per cent to $523,699
10. Launceston and Tasmania's north-east: up 26.3 per cent to $448,715
Source: CoreLogic, CommSec data for August 2021 for houses and units together
'That's a risk. Over half of the lending banks need to satisfy their borrowers including commercial and shops and houses, come from foreign institutions,' he said.
'Rates can move very quickly by half a percent on foreign borrowings.'
Digital Finance Analytics principal Martin North said houses on bigger blocks in established suburbs, where oversupply wasn't an issue, would be better able to withstand a property market downturn.
'Where they're going up strongly: large houses on big lots - they're much more stable,' he told Daily Mail Australia.
'That's not where the risks are.'
But Mr North predicted stricter debt-to-income ratio rules for owner-occupier borrowers would cause Sydney and Melbourne property prices to fall by 10 per cent within 12 to 18 months, with regional areas less susceptible to a softening market.
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In Covid-hit outer suburbs, like Liverpool and Campbelltown in Sydney's south-west, and Werribee in western Melbourne, Mr North is forecasting a 20 per cent plunge in suburbs where borrowers have lost working hours, are suffering from mortgage stress and there's an oversupply of newer houses.
High-rise apartment values were tipped to fall by 30 per cent, especially if it was a newer block with quality issues in a city like Sydney or Melbourne with a higher rental vacancy rate as the border closure kept out international students.
In many cases, unit values have barely moved even as house price records were last month reached in 69 out of Australia's 78 sub-markets based on suburbs grouped together.
'For me, the two worrisome areas for property are the high-rise apartments close in to Sydney and Melbourne plus the new home, land packages on the outskirts of town where people are highly leveraged and their values are not going up,' Mr North said.
Borrowers wrongly expecting property prices to keep rising were at risk of owing their bank more than their property was worth should the market turn.
'It's very fragile. There is definitely a risk that we could see some people in equity going negative,' Mr North said.
Sydney's median house price in August rose at a annual pace of 26 per cent, as wages grew by just 1.7 per cent.
Melbourne's equivalent value went up by 15.6 per cent during the same time frame to $954,496.
Mr Symond said that was unsustainable.
Australians are making huge profits selling after just two years
Australians who sell after just two years are typically making a six-figure profit with close to 100 per cent of houses sold for a profit in one part of Victoria. But apartment sellers in the big cities aren't so lucky.Record-low interest rates and the ability of more professionals to work from home have pushed house prices to record highs in 88 per cent of Australia's real estate markets.
'You cannot have a housing market where values are going up by 15 per cent, 20 per cent every year - that's insane,' he said.
Sydney's mid-point house price of $1.293million is beyond the reach of an Australian earning an average, full-time salary of $90,300 and would be a stretch for a couple on a combined income of $180,000.
Australia's median property price last month surged by an annual pace of 18.4 per cent, the fastest yearly growth since July 1989.
Even with a 20 per cent deposit, an average full-time worker paying off a typical Australian home, valued at $666,514, would be on the verge of having a risky debt-to-income ratio of six - a level that concerns APRA.
Mr North said banks were more likely to be approving loans with a debt-to-income ratio of eight.
'That really is too high on any measure even with low interest rates because you've still got to pay back the debt,' he said.
'The average incomes have not gone anywhere over the last few years.
'The concern is that people are going to get in over their heads.'
The scary number that is sparking a home loans crackdown .
Australians earning an average, fully-time salary of $90,300 a year could soon find it very hard to get a home loan to buy a house in either Sydney or Melbourne where prices are well above $1million.Houses in Australia's two biggest cities are typically selling for more than $1million which would put them out of reach for a single borrower earning an average, full-time salary of $90,329.