Many questions have been circulating around the relaxation of lending laws and it's impact on the property market.
Firstly, let's assess how the availability of credit comes into the Meridian Australia property selection process. Our process is analysis-driven and utilises the application of our unique research model and Meridian Investor Panel.
At a macro level, our research team carefully analyses only 7 key fundamentals, which together completely influence property price movements across Australia. One of the fundamentals which is currently trending amid the global pandemic is the availability of credit.
The Importance Of Credit.
Almost all property owners will use credit to purchase their property, whether it is their first purchase or fifth purchase.
Put simply, when credit is easier to obtain, this allows purchasers to demand property at higher levels. This higher demand will place upwards pressure on property values.
The opposite scenario (experienced in 2017-2019) will have the opposite influence. This was one of the negative fundamentals, which lead to Sydney property values moving backward 18%, and Melbourne 15%, in only 18-24 months.
How Has COVID-19 Impacted Lending?
As a part of the attempt to ignite economic activity to recover from the impact of COVID-19, the Australian Federal Government announced an improvement to the responsible lending obligations under the National Consumer Credit Protection Act 2009.
The purpose of this is to reduce barriers for Australian's to access credit, which helps stimulate credit-fuelled spending, investment, and economic recovery.
A factsheet to summarise how improving the flow of credit will impact the economy can be found here: Click here to download the Government Factsheet.
Will these changes help prospective buyers?
Yes, easing lending criteria will make it relatively easier to borrow money from the bank to purchase one or more residential properties.
The “reasonable inquiries” test as recommended as conduct for lenders, will likely be changed.
Meaning that the stringent standard that lenders had to adhere to when assessing new finance applications will be relaxed.
The degree to which a borrower’s financial situation will be dissected to determine whether an application is suitable/unsuitable for credit will be reduced.
Banks will no longer be sifting through bank statements and declining applications based on minor spending on hobbies, cheat meals, or Netflix subscriptions.
The change also means that the self-employed, sub-contractor types of workers will now have better chances of obtaining finance, as will first homebuyers. This will allow an easier flow of credit with faster approvals at a higher volume.
The Federal Government is aiming for the reform to begin on 1st April 2021.
This is yet another fundamental, which will contribute to the nationwide property upswing that we are now entering to begin 2021.
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Adam Duffy - Partner at Meridian Australia
P: (02) 9939 3249
Disclaimer: When considering purchasing a property, it's always prudent to seek the advice of an appropriately qualified professional to determine which strategy is most appropriate for your individual circumstance.