Economic changes leaving mortgage holders vulnerable
New research shows Australian mortgage holders are far more sensitive to economic changes than their international counterparts, with dramatic shifts in interest rates and property prices likely to trigger a flood of property sales, according to an article from the Smart Property Investor.
Research by global investment management firm PIMCO found Australian households that have taken on more debt in the low-interest, high-value property market are highly vulnerable.
However, this willingness to take on more debt may have significant consequences if rates spike upwards and house prices dip, as this sensitivity to changes in wealth and the mortgage rate is also indicative of a lower threshold to negative change.
“We also found changes in asset values and the mortgage rate in Australia flow through to the debt-to-income ratio faster than they do in the US (i.e., it takes only two lags for a change in the mortgage rate to impact leverage as compared with four lags in the US). Therefore, Australian investors are more sensitive to changes in wealth and the mortgage rate,” the summary stated.
Lending rules affecting first-time buyers
Tighter lending standards for investors are hurting first-time buyers trying to get on the property ladder, according to an article from Yahoo Finance.
According to the report, banks are turning investors away amid a banking regulator crackdown on risky mortgage lending but the measures are also making it harder for anyone looking to buy an investment property as their first step into the housing market.
Mortgage broker Mortgage Choice has already experienced a drop in investment approval volumes, from 34 per cent to 29 per cent – a 20-month low – in June alone.
“Unfortunately, I think the vast majority of those people would be first-time investors, first-time buyers,” Mortgage Choice spokeswoman Jessica Darnbrough said.
“They’re the people that are going to be affected the most. Not those people who tend to have multiple properties that they can leverage against and higher incomes that they can use to prove servicing.”
Chinese buyers grab billions worth of real estate in three months
One quarter of all Chinese capital invested in foreign real estate in the first three months of 2015 was directed to Australian shores. New data from international real estate service firm CBRE shows that in the first three months of 2015, Chinese investors purchased US$4 billion worth of overseas real estate, with US$1 billion worth of that located in Australia.
That figure is almost as much as Chinese investors spent in Australia throughout all of 2014, when they purchased US$1.5 billion worth of real estate. Growing ties between ourselves and the Asian superpower have been identified as one of the reason for the increased flow of capital.
“Capital flows from China to Australia are complemented by growing numbers of Chinese tourists, students, settlers and an increased bi-lateral trade relationship,” CBRE’s head of Australian research Stephen McNabb said.