2019 is posed to be a very challenging credit market with numerous negative headwinds combining to create the “perfect storm”.
Some of these elements include:
- The Banking Royal Commission and resultant tightening of credit policies by banks ahead of the commission’s findings/directive, with particular focus on verifying expenses and adherence to HEM.
- Falling house prices coming off record highs, predominately in Sydney and Melbourne, but also across the broader Australian housing market.
- Tightening of government policy for some overseas investment markets (e.g. China).
- The completion of a high number of residential apartments which are due to come onto the market in 2019, particularly in Sydney & Melbourne.
- Publicity around the Opal Apartment saga, highlighting poor construction practices that have occurred in the boom market, potentially causing an increase in caution and concern for potential buyers and in turn placing further down pressure on prices.
- The upcoming 2019 Federal Election and concerns about a possible federal labor government cracking down on negative gearing and capital gains tax concessions.
- Borrowers with interest-only mortgages worth around $300 billion are bracing for a credit crunch as their fixed terms, taken at the height of the east coast property boom, begin to expire. It is estimated that based on the nations $1.7 trillion mortgage loan book, close to 900,000 loans, or 1 in 6 mortgages will be under review and either extended with existing lenders, switched to higher principal and interest repayments, or transferred to a new lender.
- The above will inevitably increase the number of people placing their properties on the market with holiday homes and investment properties the first off the cap. This in turn would place further downward pressure on housing prices.
- Even more concerning for our industry, there will potentially be a contagion over to small business lending, given residential properties are used as collateral security for majority of small business borrowers further restricting / impacting access to funding.
Whilst the above paints a gloomy picture, adversity can often create opportunity and those in a more fortunate position can take advantage that will create long term prosperity.
It also creates a wonderful opportunity for the Finance Broking industry to assist clients to navigate these challenging conditions and ever changing dynamic bank credit policies.
Where appropriate, we can assist in spreading clients credit risk to ensure they are not over exposed to any one bank. This will also mitigate risk through reduced reporting and financial covenants. In other cases, we may be able to assist in changing credit limits, or extending loan terms.
With our knowledge of the market, we can often prepare and assist the client to source the best finance options available according to banks varying credit policies and appetite to certain industries. We can also prepare them ahead of certain events, such as annual reviews (valuations, etc).
Nothing solidifies client loyalty more than when we assist them through a period of adversity.