1. Home lending rules change from July 1
Last week the Reserve Bank announced debt-to-income (DTI) ratio restrictions would take effect from July 1. The details of the new rules had already been flagged earlier in the year: 80% of bank lending will now be governed by a set multiple of the applicant’s pre-tax income. For owner-occupiers, it’s a multiple of six, and for investors, it’s a multiple of seven, although the rules won’t apply to new-builds or non-bank lenders.
Of course, as has been widely covered in the past, the DTIs won’t do much straightaway because at the moment high mortgage rates are already limiting loan sizes. But the new rules still mark a significant shift in the lending landscape, and as mortgage rates drop, DTIs will become more visible, tying house prices more closely to incomes over the medium term and slowing down the rate that investors can start or expand their property portfolios.
The Reserve Bank also announced it was loosening its loan-to-value ratio (LVR) rules. From July 1, 20% of bank lending can be to owner-occupiers with a deposit of less than a 20%, and up to 5% bank lending can be to investors with a deposit of less than 30%. My hunch is that this could benefit investors the most, given that the current LVR settings seem to be hitting them hardest. But even with a smaller deposit requirement, investors still face big hurdles, most notably the large cashflow top-ups required on a typical rental purchase.
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* On a side note, investors will also note that July 1 is also the date when the bright-line period comes down from 10 years to two years.
2. Low deposit finance still a support for first-home buyers
Meanwhile, the latest mortgage lending figures from the Reserve Bank showed further growth in lending volumes, albeit from a subdued starting point. Compared to the current 15% allowance for low deposit lending to all owner-occupiers, the actual volumes are only running at around 9%. But first-home buyers are cashing in, accounting for around four-fifths of that low deposit activity (important now that first home grants have been axed).
CoreLogic chief economist Kelvin Davidson: "The new rules still mark a significant shift in the lending landscape, and as mortgage rates drop, DTIs will become more visible." Photo / Peter Meecham
3. A pretty sensible Budget for recessionary times
Last week’s Budget didn’t contain any new, direct measures for the housing market, so the key issue boils down to whether or not there’ll be an indirect effect – i.e. will income tax cuts be inflationary, therefore keeping interest rates even higher for longer? Only time will tell, but it does appear that the Government has been very careful to offset the tax cuts with reduced spending elsewhere. So on the whole, a pretty sensible and straight-laced Budget for the recessionary times that we face, without any clear implications for the housing market in either direction.
4. Sluggish economy a reason to be cautious about the housing market
The incoming economic data over the past few days has also remained fairly subdued, with filled jobs only up by 0.1% in April, and the annual growth rate slowing to 1.4% – the softest since March 2021. Meanwhile, ANZ’s business sentiment survey showed that firms remain downbeat about their prospects in the coming months. More reasons here, then, to expect a subdued housing market too.
5. Keeping an eye on all the buyer groups
It’ll be a quiet week for new data releases, but I’ll certainly have a close eye on the CoreLogic Buyer Classification data for May, due out at the end of the week. For several months now first-home buyers have been the focus, and this isn’t set to change, but movers might just be starting to perk up a bit too, as more listings become available. Investors should never be overlooked either, especially with the lending and tax rules easing.
- Kelvin Davidson is chief economist at property insights firm CoreLogic
