Category: Property Market

Housing affordability: Experts see stamp duty cuts hiking prices

From The NewDaily.

House prices will increase thanks to a Victorian government decision to scrap stamp duty on some properties, according to experts who warn the move would benefit owners – not first home buyers – if rolled out across the country.

Victorian Premier Daniel Andrews on Sunday announced first home buyers would be exempt from paying stamp duty on properties under $600,000.

Tax discounts will also be rolled out on new and existing homes worth between $600,000 and $750,000 from July 1 under the plan to tackle housing affordability.

It estimated the stamp duty exemptions would benefit 25,000 first home buyers, who would save up to $15,000 – or an average of $8000 – on new purchases.

The move comes as NSW Premier Gladys Berejiklian and the Turnbull government face calls to address skyrocketing house prices in Australia’s south-east.

Prices rose 18.4 per cent in Sydney and 13.1 per cent in Melbourne in the 12 months to February, according to CoreLogic data.

Changes benefit owners

Despite Mr Andrews saying the reforms would place “downward pressure on prices” by creating more housing stock, experts warned buyers should expect to pay more for a home following the changes.

Leading Australian economist Saul Eslake said the only benefit for new buyers was that it “may reshuffle the queue of would-be house buyers”.

“This decision would be welcomed by owners and vendors of existing properties. It will allow those who have properties for sale to sell them at higher prices than they would otherwise get,” he told The New Daily.

“It will do nothing to assist those who want to join them as owners of one property.”

The stamp duty cuts form part of a series of recent housing reforms in Victoria, with the government doubling the first home buyer’s grant in regional areas and making changes to planning laws in Melbourne’s outer suburbs.

Mr Eslake, who advocated replacing stamp duty with a broad-based land tax, warned other states against following Victoria’s lead on stamp duty.

“If it were adopted by other states, the result would be to enrich those who already own properties to the detriment of those who don’t,” he said.

Grattan Institute chief executive John Daley said the Andrews government’s changes may help new buyers in areas where they were competing with investors.

“If you take places where most of the buyers are investors or second home buyers, it will genuinely help first home buyers. It will push up the prices a little but not very much,” he said.

“However, for areas where most of the purchasers are first home buyers, such as the areas on the city fringes, essentially most of the benefit will be passed on to the sellers.

“This will be a huge windfall for the large development companies who do developments on the edge of our cities.”

As the NSW Government mull its own plans to tackle rising house prices, Mr Daley urged the Premier to prioritise changes to planning rules, particularly Sydney’s middle-ring suburbs, to boost housing supply.

“Everyone agrees that’s the right answer, as long as it’s in the suburb next to theirs,” he said.

“Any government that is going to be serious about this, needs to make the public and political case.”

On Sunday, NSW Premier Gladys Berejiklian, who has declared house prices a top priority, said the government was keeping its options open.

“We know in the past governments have had made decisions which unfortunately have had the opposite effect,” she said.

“We don’t want to be in that situation; we want to make sure every decision we take on this important issue has the desired effect.”

Last month, CoreLogic data showed median house prices had reached $970,00 in Sydney and $711,000 in Melbourne.

The Property Market, By The Numbers

In our latest video blog we walk though some of the most important numbers in the mortgage and property market, including the latest findings from our household surveys.

Some of the questions we answer are:

  • How big is the mortgage market?
  • How many borrowing households are there?
  • What is the average mortgage size?
  • How many households are excluded from the market?
  • What will happen if mortgage rates rise by 3%?
  • Where is mortgage stress worst?
  • How does the Bank of Mum and Dad in Australia compare with the UK?

 

 

First Time Buyer Stamp Duty Cut In Victoria As Part Of Housing Strategy

Changes to stamp duty for first time owner occupiers and a vacant property tax have been confirmed by the Victorian Government today.  Separately an equity share scheme was announced to assist first time buyers.

As a package of measures they will certainly impact the market, and whilst the tax breaks and first owner grants may simply lift prices, the tax on vacant properties and equity share strategies could certainly re-balance the market towards owner occupied purchasers. Our research shows there are more than 500,000 households in Victoria are currently struggling to enter the market.

Stamp duty will be abolished for first home buyers for purchases below $600,000, helping thousands of Victorians find their first home, as the Andrews Labor Government tackles housing affordability head on.

Those buying a home valued between $600,000 and $750,000 will also be eligible for a concession, applied on a sliding scale. The exemption and concession will apply to both new and established homes, in a move that is expected to help 25,000 Victorians find their first home.

In a further move to help tilt the scales back towards home owners, the Government will also remove off-the-plan stamp duty concessions on investment properties.

The off-the-plan stamp duty concession will now be available solely for those who intend to live in the property or who are eligible for the first home buyer stamp duty concession.

At the same time, a Vacant Residential Property Tax will address the number of properties being left empty across inner and middle suburbs of Melbourne.

Under the changes, owners who unreasonably leave these properties vacant will instead be encouraged to make them available for either purchase or rent.

The Vacant Residential Property Tax will be levied at 1 per cent, multiplied by the capital improved value of the taxable property. For example, if the property has a capital improved value of $500,000, the amount paid will be $5,000.

There will be a number of exemptions, recognising there are some legitimate reasons for a property being left vacant, including holiday homes, deceased estates and homes owned by Victorians who are temporarily overseas.

Each of these changes are part of the Labor Government’s plan to help more Victorians break into the housing market.

The Equity Share scheme HomesVic was also announced.

Thousands of Victorians, dreaming of buying their first home, will be able to make their dream a reality, thanks to two new changes announced by the Andrews Labor Government.

A new $50 million pilot scheme, HomesVic, will target first home buyers who are able to meet regular mortgage repayments, but because of rising rental costs, haven’t been able to save a big enough deposit.

Under the scheme, to be introduced in January 2018, HomesVic will co-purchase up to 400 homes, taking an equity share of up to 25 per cent in these properties. It will be available for both new and existing homes.

By allowing homebuyers to purchase less than 100 per cent of the property, they will require a smaller deposit and are able to enter the market sooner. In the long term, it will also mean having a smaller loan to service.

Eligible applicants will include couples earning up to $95,000, and singles earning up to $75,000.  Buyers will need to have a 5 per cent deposit. The pilot will be tested across the state, and when the properties are sold, HomesVic will recover its share of the equity.

To further improve buyers’ chances of owning their own home, the Labor Government will also contribute $5 million to a national, community sector, shared equity scheme, Buy Assist.

With similar goals to HomesVic, Buy Assist will help deliver an additional 100 shared equity homes and help low to medium income households get a foothold in the property market.

The Government is also set to give first home buyers priority in government-led urban renewal developments, with at least 10 per cent of all properties allocated to first time buyers.

This approach will be used for the first time at the Arden development.

The plan to develop the 56 hectare site Arden, announced by the Labor Government last year, could be home to around 15,000 people. Under this policy 1,500 of those could be first home buyers.

Finally, in a separate release, the overall portfolio of actions were summarised under “Homes for Victorians”

Every Victorian deserves the safety and security of a home.

But for many, that’s becoming increasingly harder.

A significant number of Victorians, particularly young Victorians, are struggling to break into the housing market.

House prices are rising and upfront costs – a deposit, stamp duty and fees – quickly add up.

It’s getting harder for renters too.

Many struggle to meet high rental prices, or instead choose to live in unsuitable housing. Some don’t have the security they need, or the capacity to personalise their home as they would like.

At the same time, the number of Victorians who need to access public and community housing is growing. Waiting lists are long, and many of our existing homes have fallen into disrepair.

In short, too many Victorians don’t have a real choice about where they live, or the type of home they live in.

And as our population grows, inaction will only make things worse.

Fixing this problem isn’t simple.

It’s why Homes for Victorians provides a co-ordinated approach across government, and across our state. It includes:

  • abolishing stamp duty for first time buyers on homes up to $600,000 and cuts to stamp duty on homes valued up to $750,000
  • doubling the First Home Owner Grant to $20,000 in Regional Victoria to make it easier for people to build and stay in their community
  • creating the opportunity for first home buyers to co-purchase their home with the Victorian Government
  • making long-term leases a reality
  • building and redeveloping more social housing – supporting vulnerable Victorians while creating thousands of extra jobs in the construction industry.

It builds on existing work being done, including the soon to be released Plan Melbourne 2017-2050, reform of the Residential Tenancies Act 1997, the Better Apartment guidelines and the Family Violence Housing Blitz.

It also builds on our efforts to better connect Victorians with services and infrastructure. From schools to health care, roads to public transport, regardless of where they live, every Victorian should have access to the things they need.

It’s a big job, but the aim is simple: to give every Victorian every opportunity to find a home.

Nearly 2M Households Locked Out Of Property Market

The latest data from our households surveys highlights the core problem facing many Australian households at this time. There are nearly 2 million households who are unable to purchase their own home.

Across the states, 33% reside in NSW, 26% in VIC, 20% in QLD and 11% in WA.

We can segment these households using our core analytics. Around 8% of these we classify as “first time buyers”, who are actively seeking and saving to purchase; 28% we identify as “want to buy”, who are saving with the hope to buy in the future; and 64% as “property inactive”, who for all intents and purposes are not actively seeking to enter the market at the moment. This inactive group continues to grow relative to the general population. All three groups are likely to be renting, living family or friends, or in other less permanent housing options.

We can also split these down across the states. From example, in NSW there are 228,000 households actively trying to get into the market, 185,000 in VIC, 158,000 in QLD and 85,000 in WA.  This provides important insights into the size of the housing problem in the country.

This is an critical additional perspective, which we need to bear in mind as we consider the 20% of existing households with a mortgage who are in some degree of mortgage stress at the moment and the 30% of households who hold investment property.

Once again, this is a big, systemic issue which needs mature and joined up policies to address the core elements that have combined to make such an intractable problem. Changing settings at the margins will not be sufficient to rectify an inter-generational emergency.

Households who do not hold property are significantly less confident finally speaking, as results from our household finance confidence security index show.

 

Auction Clearances Through The Roof This Week

The preliminary auction clearance results from Domain for today nationally hit 77.9%, higher than last week, and the comparable week last year. The total volume of property listed was 2,158, higher than a year ago, but lower than last week. 1,329 properties were sold, compared with 1,906 last week and 1,289 a year ago.

Sydney cleared 78.3%, with 426 sold, whilst Melbourne cleared 80.6% with 772 sold.

Brisbane cleared 59% of the 118 auctions scheduled, Adelaide 67% of 78 and Canberra 68% of 83 auctions scheduled.

Mortgage Stress Grinds Higher

We have just rerun our mortgage stress models, incorporating data to 1st March 2017. Household budgets remain under pressure, thanks to flat incomes and rising living costs – and some lifts in mortgage rates. You can read more about our approach to measuring mortgage stress here. Our current analysis concentrates on owner occupied mortgages.

Overall, 21.78% of households are in some degree of mortgage stress. We look at mild stress, meaning they are managing to meet repayments, but are doing so by cutting back on other expenditure, putting more on credit cards, and seeking to refinance or restructure to reduce monthly payments.  19.08% of households fall into this group. An additional 2.7% of households are in severe stress, meaning they are likely to miss repayments, or are in default, or are looking to sell. We look at household cash flow, not a set percentage of income going on the mortgage.

Here are the postcodes across Australia with the highest levels of stress.

Harristown, QLD 4350, which was the highest count in December 2016, still is first, followed by Leumeah NSW 2560. Leumeah  is a suburb of Sydney, Macarthur/Camden, about 40 kms from the CBD.  The average age of the people in Leumeah is 35 years of age. Around 37% of households there have a home loan mortgage.

Third is Frankston VIC 3199, which is a suburb of Melbourne, Bayside, It is about 39 kms from Melbourne.  Frankston is in the federal electorate of Dunkley. The median/average age of the people in Frankston is 38 years of age. Around 30% of households here have a mortgage.

Fourth highest is Merriwa 6030, a suburb of South Western, Heartlands, WA. It is about 35 kms from Perth in the electorate of Pearce. 41% of homes here are mortgaged.  The average age of the people in Merriwa is 35 years of age.

Once again, remember interest rates are very low, and are expected to rise, so the OECD warning about the risks in the housing sector seem well placed.

Editors Note. We updated this post to reflect the total of mild and stress, when it first appeared, we sorted only on mild stress, which changed the results slightly – and we also added back the latest probability of default metrics as well.

 

Expect Irresponsible Lending Complaints To Rise

From Australian Broker.

A number of consumer advocates have predicted that complaints about irresponsible lending by brokers will trend upwards in future.

Speaking to Australian Broker at the Responsible Lending and Borrowing Summit in Sydney, Alexandra Kelly, principal solicitor at the Financial Rights Legal Centre of NSW said that while she had not seen any evidence of a “systemic problem” with fraud in the broker channel at present, more consumer claims could emerge once rates start rising.

“We’re still in the stage where some consumers haven’t gotten into trouble yet so we’re not necessarily seeing any issues yet because interest rates are very low,” she said.

If interest rates did start rising however, some consumers would feel the pinch, lead them to wonder whether the information supplied by the broker in their loan application was entirely correct, and approach their nearest consumer advocacy group.

“We’ve seen some very tightly wound consumers,” Kelly said. “That’s going to be the issue when there’s an increase and their mortgages start rising.”

Gerard Brody, CEO of the Consumer Action Law Centre in Victoria, agreed that there was going to be a spike in complaints.

“I think that a lot of loans – particularly broker loans – are generally higher amounts,” he told Australian Broker. “They encourage people to get bigger properties and that stretches people if interest rates go up.”

An increase in consumer complaints as a result of rate increases in the future was realistic, he said.

However, he noted that the lenders could do more to fix this issue now.

“At the end of the day, the lender has also got the same responsible lending obligations when it comes to requirements objectives, enquiries about affordability, and verification.”

Victoria To Release Land For New Housing

The Andrews Labor Government has announced it is taking action to boost land supply and cut delays in approvals to make housing more affordable for Victorians. They will rezoning 100,000 lots within two years in key growth corridors spread in seven of Melbourne’s growth councils. They claim it will help tackle housing affordability head on.

 

The planning of these 17 new suburbs will include the services, infrastructure and amenity that are the very cornerstone of great communities.

While these plans roll out over the next two years, we’re slashing the time it takes for land to be shovel-ready.

The Streamlining for Growth program is also being extended another three years, helping councils streamline subdivision processes, unlock sites and speed up applications for residential and employment land.

This will ensure planning projects can progress without hold ups. Some 37 projects have already begun tackling the red tape that once delayed subdivision approvals from councils and utilities –saving time and money for both developers and buyers.

This will help build up a four-month stock of lots for sale in growth corridors to create a more competitive market, and ensure Victoria retains its strong land supply that underpins our affordability edge. Melbourne land prices remain around half that in Sydney, and this Government intends to hold on to that competitive edge.

The Government will also commence a pilot program to deliver 100 new social housing dwellings on government land as part of developments in established suburbs.

This pilot is part of a program so private developers can innovate to provide inclusionary housing in new developments.

The Labor Government is making record investments to give Victorian communities the resources and services they deserve, including $3.3 billion for the state’s public transport system and $1 billion in health infrastructure.

 

Signs of More Risk Taking In The Mortgage Book

The latest APRA data on ADI Property Exposures to December 2016 tells an interesting story.  Essentially, whilst the proportion of higher LVR loans slides, in recent times lenders – especially the big four – appear to be more willing to make interest only loans (on the back of higher volumes of investment loans) alongside out of normal criteria loans. The APRA guidance has not it seems trimmed risk appetite so far.

ADIs residential term loans to households were $1.49 trillion as at 31 December 2016. This is an increase of $110.0 billion (8.0 per cent) on 31 December 2015. There are 5,728,000 housing loans (up 3.6% a year ago). The average balance is $257,300, up 3.5% from a year ago.  $101.0 billion of loans were written in the December quarter.

Total Book

Looking in more detail, first at the aggregate data, we clearly see a rise in the proportion of new investment loans being written to December 2016.

Interest only loans are rising, to 40% and the share via brokers also trended up to 48.8%. We know loans via brokers are higher risk. The proportion of loans approved outside serviceability is also higher.

The proportion of higher LVR loans continues to trend down whilst the 60-80% LVR loans are higher, we also see a slight uptick in the 80-90% LVR bands.

The Four Majors

Turning to the aggregate data from the 4 majors, the rise in investment loans is more pronounced, to 38.4%.

The proportion of interest loan loans has risen, to 40%, from a recent low of 37%. Loans outside serviceability sits at 3.5%.

The high LVR loans are lower, more than half of new loans are in the 60-80% LVR band.

Other Banks (Regionals Etc.)

Looking at the other banks (excluding the big 4), the share of investment loans are down to 27%.

We see a fall in interest only loans, down to 30.7%, whilst the share of broker loans has risen to 52.2%, higher than the majors.

We see a similar trend in a fall in higher LVR loans.

Worth also noting the volumes through credit unions and building societies are no longer being report, thanks to low volumes. So much for the “new force” in banking from the Customer Owned Institutions.

Mortgage demand has surged in New South Wales and Victoria

From CoreLogic.

New South Wales and Victoria now account for a historically high proportion of national mortgage demand which continues to drive dwelling values much higher across these two cities compared with other regions.

The current housing market growth phase has really been all about Sydney and Melbourne. When you look at dwelling value growth, increases have been substantially higher in Sydney and Melbourne than in all other capital cities. At the same time, demand for mortgages has surged across NSW and Vic (both of which are proxies for Sydney and Melbourne) while it has barely increased across the remaining states and territories.

The first chart highlights the change in capital city dwelling values over the current growth phase. The growth phase broadly began in June 2012 and over the period, only Sydney and Melbourne have recorded value rises greater than 21%. The rise in values has been supported by low interest rates and availability of mortgage finance however, other factors such as localised economic performance, population growth and foreign demand have driven the much stronger growth in Sydney and Melbourne than across the other capital cities.

Change in capital city home values
over current growth phase

2017-02-27--image1

Looking at mortgage finance across the states and territories, in December 2016 the value of mortgage lending across each state and territory was recorded at: $14.5 billion in NSW, $9.6 billion in Vic, $5.1 billion in Qld, $1.6 billion in SA, $2.7 billion in WA, $0.3 billion in Tas, $0.2 billion in NT and $0.7 billion in ACT. Over the month, NSW (41.8%) and Vic (27.7%) accounted for a combined 69.5% of the value of all housing finance commitments which was an historic high. In June 2012 when the current growth phase commenced, 33.6% of housing finance commitments were in NSW and 27.1% were in Vic.

Value of monthly mortgage lending
by states and territories

2017-02-27--image2

The value of housing finance commitments for owner occupier housing in December 2016 across the states and territories were recorded at: $7.7 billion in NSW, $6.0 billion in Vic, $3.5 billion in Qld, $1.1 billion in SA, $2.0 billion in WA, $0.3 billion in Tas, $0.1 billion NT and $0.4 billion in ACT. Since the current value growth phase commenced in June 2012, monthly mortgage lending to owner occupiers has increased from $4.3 billion in NSW and $3.9 billion in Vic.

Value of monthly owner occupier mortgage lending
by states and territories

2017-02-27--image3

In December 2016, the value of mortgage lending to investors across the states and territories was recorded at: $6.8 billion in NSW, $3.7 billion in Vic, $1.7 billion in Qld, $0.5 billion in SA, $0.7 billion in WA, $0.1 billion in Tas, $0.1 billion in NT and $0.2 billion in ACT. More than three quarters (76.3%) of investor mortgage finance nationally in December 2016 was in NSW (49.6%) or Vic (26.7%). While the proportion of lending to investors has previously been higher in each state, combined they make up the largest share on record. At the beginning of the current growth phase, 37.3% of national investor finance commitments were in NSW and 25.1% was in NSW.

Value of monthly investor mortgage lending
by states and territories

2017-02-27--image4

The data shows just how concentrated mortgage demand nationally is currently in NSW and Vic. With the demand focused so much on those two states, it’s no wonder values in Sydney and Melbourne have increased so much more than in the other capital cities. While steps have been made to cool mortgage demand, particularly from investors in Sydney and Melbourne, the data points to the fact that demand remains unquestionably strong. With interest rates remaining at close to historic lows, it is clear that further changes will be required in order to slow mortgage demand and dampen the increases in dwelling values being experienced in Sydney and Melbourne.