Australia’s post-pandemic sales surge and the continuing deluge of refinancing applications is resulting in settlement delays, while at the same time lower-than-expected valuations are beginning to cause headaches for homebuyers.
While positivity has been flowing through Australian property markets for much of the last three months, fuelling price growth predictions throughout 2021, first homebuyers and small business owners are reporting emerging challenges in obtaining finance.
Pitcher Partners client director Jason Fallscheer told Australian Property Investor Magazine that banks were already near capacity dealing with a big pile of refinancing applications with interest rates at historic lows, and the recent sales surge had resulted in an increasing number of settlement deadlines being missed.
“I’m not trying to be alarmist, it’s just a fact,” Mr Fallscheer said.
“If you rang up a Big Four bank with a 30-day settlement, in most instances they would struggle to meet settlement.
“For the 2020 year, a lot of banks’ home loan-writing demand has been fuelled by cash back incentives, and people are still chasing cash back.
“Those incentives kept people busy during a period of low activity when there weren’t a lot of sales going through, the problem is that refinance activity continued and the sales have kicked in, and it’s just led to a surge in volume.
“When you haven’t got your backlog cleared and there is a surge in volume, it means that you can’t cope.”
Mr Fallscheer said delays in settlement were an issue affecting small business owners most harshly, with onerous application processes hindering their ability to obtain a new loan or refinance an existing one to lock in a lower rate.
“I’ve got one file that I submitted in May that hasn’t been drawn down yet,” he said.
“This is for a self-employed tradesperson, and now the bank is asking for a description as to what’s happening with their income related to COVID.
“Every application you have to comment on whether you’ve been affected by COVID, and if they’re in small business and have received any sort of incentive, it’s likely that their accountant will need to prepare 2020 financials and have them submitted before the bank will look at the application.
“If you’re in small business and ring up your accountant and say ‘can I have my tax return submitted please’, they will need to do it ahead of their usual schedule and this can trigger tax payable when for years these may have been done in February or March.
“It’s easy if it’s you or me, where we would have one employer and maybe some shares and an investment property, but if you’re talking about a whole business, it’s a big ask.”
Mr Fallscheer said there was also additional scrutiny being applied to valuations, particularly in markets where transactions ground to a halt earlier in the year because of the pandemic, or regional areas with historically low levels of transaction activity.
He said while it was a limited sample size, three of his clients had reported valuation shortfalls this month, and had been forced to chip in more cash.
“In all three cases where the valuations came in short the clients still wanted to buy the property but it creates an additional hurdle,” Mr Fallscheer said.
“There’s no doubt there’s an activity bubble in property to qualify for the stimulus and it’s leading to an increased element of urgency in the first home owner community.”
His advice to those currently searching for a home was to negotiate a subject-to-valuation clause as well as the conventional subject-to-finance condition in the purchase contract.
“It’s only an extra two words but subject to finance and valuation would be the preference,” Mr Fallscheer said.
“The finance may well be approved but if the valuation comes in short the transaction simply may not work.”