Gerry O’Donnell, General Manager of Bluebay Home Loans, has answered your most frequently asked questions in relation to 2019 and the property market.
What will happen to interest rates this year (2019)?
“Looking at a number of economists’ forecasts, it’s really a mixed bag. Most are predicting the next RBA move to upwards anywhere from mid next year, right the way through to no move until 2020. This variance highlights the uncertainty of how other market related factors play out and the RBA will be watching these closely. At a high level these factors include:
- Tightening credit conditions & the resulting contraction of credit by lenders
- Property market movements
- Lenders out of cycle interest rate movements
“I’m predicting no movement by the RBA for 2019, however I wouldn’t be surprised if we actually saw a downward movement during the year.”
What are potential areas of concern borrowers or buyers may face in the property market?
“There is a great deal of media focusing on concerns of a falling property market. This tends to happen in any market cycle. When in a falling market, we often forget the positivity of the prior periods of a rising market and think it will never get better.
“Conversely, in a rising market we also forget the negative sentiment we experienced when it was falling and think that the good times will always continue.”
“It’s important to recognise that as with most investments, property does go up in value but – it can also go down as we have experienced during 2018.
“With real estate it’s important that you enter the market with a long term view. Many consumers take out home loans that may extend to 20 or even 30 years. During that time, most will buy and sell on multiple occasions. During this journey a consumer will experience multiple cycles.
“It’s also important to remember that if a consumer is already in the market – to look at the wider picture. Buying and selling in a falling market can be more advantageous than doing so in a rising market so long as the timing of the sale and purchase is similar. Whilst they may receive a lower amount for their own home, the same is generally true for the one that they are looking to purchase. In the instance of up-grading (home size and or location) the benefits may be greater.”
Do you think the tightening in credit/lending will continue?
“The focus on credit policy and subsequent tightening by lenders during 2018 saw a raft of changes being made by lenders. Many of these changes were made as a result of the activity surrounding the Financial Services Royal Commission. Most of the focus has surrounded the investigation of a consumers ‘discretionary’ expenditure activity. Where once a consumer could disclose what they would be spending on items such as food, clothing and entertainment following the purchase of a new home, lenders are now forensically looking at bank statements before the purchase to better test the consumers declaration.”
“There are also less obvious ones that consumers need to discuss – such as Netflix, Foxtel or Spotify subscriptions. Any material differences between what you are currently spending in these areas and your disclosure need to be thoroughly explained. Most customers plan to adjust discretionary spending after purchasing a new home, however it is no longer satisfactory to simply disclose it.’
“There will be a number of recommendations made by the Financial Services Royal Commission in February 2019 which may trigger some further policy shifts however following that, I suspect some level of stability.”
“I predict that the number and frequency of credit changes during 2019 (particularly the second half) will not be as great as what we experienced during 2018.”
Anything other points you feel might be relevant to the property market/borrowers?
“It’s a wonderful time for first home buyers to get into the market. We are starting to see that with first home buyer participation levels the best they’ve been in nearly six years. With the property market at current levels coupled with historically low interest rates, it’s an ideal time to take the plunge. A word of advice though is to start planning early particularly with the many changes that we have seen in lenders credit policy.
“Have a good look at your expenditure levels and patterns well before applying for finance. What are you spending, where and how often? These questions will be asked so it’s good to have an understanding beforehand. If nothing else, its good practice to understand where your money is going. It’s a great discipline to have as you head into your home ownership journey.
“Not all home loan lenders are the same so it’s really important to talk to a lender like Bluebay Home Loans who are able to understand your goals and objectives and then match you with the most appropriate loan product.”