Category: News

Undeterred by property prices in Melbourne and Sydney coming off the boil or the threat of higher interest rates, expatriate Australians are continuing to snap up properties priced considerably higher than median city values.

Helen Avis, the SMATS Group Director of Finance, said the expatriates that had recently returned to Australia were moving from rentals into their own properties and could afford prestige real estate in highly sought-after areas.

“The $2 million to $4 million bracket has been very active as expats plan their eventual return and want to buy the future home, or move from their temporary rentals having recently returned,” Ms Avis said.

The recently-name finalist in the national Better Business Awards, in Best Residential Broker category, said she had also seen a lot of buyers targeting regional areas, holiday locations and the holiday home market.

“There’s very little investor or expatriate interest in CBD city apartments – that market has dried up – but there is still a lot of demand for luxury apartments as well as houses in the higher-priced suburbs.”

The first quarter of the year has seen Australian dwelling values rise by 2.4 per cent, less than half the pace of the same period last year.

But expatriates seeking a home rather than an investment can afford to pay the premiums that two years of rapid price growth has delivered and are not phased at the prospect of higher interest rates.

Interesting times

The big four bank economists are forecasting official cash rate hikes could begin between June and September.

Not waiting for the Reserve Bank of Australia, Australia’s third and fourth largest banks, NAB and ANZ, on Friday (1 April) hiked fixed rates by up to 0.40 percentage points.

“We have seen all banks raise fixed rates so many times in the last six months and I expect the RBA will raise rates from June,” Ms Avis said.

“I don’t think they want to raise them and then continue to raise them regularly, so it should be a slow progression, but the market is expecting interest rates to rise.

“All borrowers are assessed at 3 per cent over the benchmark rate, so it shouldn’t put stress on people’s ability to maintain their loans.

“With the borders just opening back up, we should have a two-year backlog of intended migrants, expats and international students start to push up the rental market as well as CBD sales.

“The intended migrants will likely rent to start off with, but most will likely want to buy, so demand will again be strengthened.”

Ms Avis said SMATS Group’s aussieproperty.com had clients looking at all states’ markets but Queensland was generating the most interest.

Sydney, Melbourne, Perth and the West Australian southwest were also on the radar of returning expatriates, she said.

The Better Business Awards seek to champion the leading players of the broking industry in each state and territory of Australia.

Reaching the finalists stage is regarded as an incredible achievement across the Australian broking industry, showcasing the depth of dedication and commitment each individual and team brings to advancing the industry.

Ms Avis said she was humbled to be recognised and proud to be named as a finalist. Winners are announced at a ceremony on 19 May.

Any joy renters might have had that there had been a fractional improvement in vacancy rates around the country have been extinguished by rents still rising.

For home owners struggling to pay the mortgage, the picture is no brighter.

New research has shown that a worrying one in eight borrowers has missed one or more payment deadlines in the past six months.

An additional 32 per cent of borrowers who did pay on time told the Finder survey that they were worried a missed payment was looming as a scary possibility.

Renters have arguably been the hardest hit cohort of Australians as the cost of living and housing crises have become increasingly problematic.

In a glimmer of good news was PropTrack’s Thursday data showing the share of available rentals further increased in May, with the national rental vacancy rate up 0.08 percentage points (ppt) to 1.30 per cent.

This is the highest rental vacancy rate since July 2023, and the first instance of three successive monthly improvements since late-2020.

With overseas migration and student visa applications having peaked, the number of prospective tenants per rental property slightly easing, and more renters entering shared housing options to reduce costs, these factors combined could help to relieve some pressure on the rental market.

According to Rent.com.au statistics released Wednesday (5 June) there was a 7.1 per cent increase in the number of rental properties available nationally in May 2024.

All states and territories recorded increases in rental listing volumes, however, the vacancy rate in Darwin dropped 0.3 per cent to 1.1 per cent in May.

The very modest improvement in vacancy rates the remain chronically tight there was still a 1.7 per cent rise in rents nationally, from $600 to $610 per week. The highest increase in median house rent was recorded in Brisbane (+3.2 per cent; +$20 to $650) while the largest fall was in Canberra (-4.2 per cent; -$30 to $690).

The critical undersupply of current and new rental properties, along continued strong demand and rental price growth, means that it will still be tough going for renters and the rental market will remain extremely challenging for the rest of 2024.

Paul Ryan, Senior Economist, PropTrack, said that while any easing in conditions will be welcomed by renters, available properties remain very scarce with the vacancy rate at around half the levels seen before the pandemic.

“This means competition for rentals will remain strong and rents will continue to increase.

“The easing in conditions over the past three months has been most evident in Perth, Sydney and the ACT, with Perth seeing a substantial improvement after very tough conditions recently.

“While availability remains low across all markets, Adelaide and Brisbane remain the toughest for renters, with rental vacancy rates of 1.03 per cent and 1.11 per cent, respectively.

“We expect renters will face continued difficulty securing rentals and strong rent price growth over the rest of 2024 in these markets,” Mr Ryan said.

Borrowers trying to make ends meet

A worrying number of homeowners are struggling to keep up with their mortgage repayments, according to new research by Finder, Australia’s most visited comparison site.

A Finder survey of 1,071 respondents – 342 of whom have a mortgage – revealed 12 per cent have missed one or more repayments over the past six months.

That’s an estimated 396,000 borrowers who have fallen behind on their mortgage.

The research found 4 per cent of mortgage holders – 132,000 households – say they have missed one repayment.

A further 8 per cent of mortgage holders – 264,000 households – have missed more than one repayment.

The data revealed 3 per cent have had to ask for a repayment holiday or applied for hardship from their lender.

Richard Whitten, home loans expert at Finder, said mortgage defaults were a growing concern.

“Thousands of mortgage holders have weathered rate rises but are now experiencing extreme financial strain as savings and emergency funds run dry.

“Any further hikes would push many to breaking point.”

Shockingly, 1 in 3 borrowers (32 per cent) are worried they will miss a repayment due to mortgage stress. That’s over 1 million Australians at risk of delinquency.

Of those who missed a repayment, a third (33 per cent) said they ran out of money because of other bills, while 31 per cent said interest rates increased and they could no longer afford it.

Whitten said many Aussies are forking out a disproportionate amount of their income paying off their home loan.

“Interest rates rose so rapidly that mortgagors have reached breaking point with some unable to stay financially afloat.”

Variable rate loans remain the near-unanimous choice of borrowers, according to Helen Avis, Director, Specialist Mortgage.

Back in March 2020, at the start of the pandemic, 13.38 per cent of new borrowers were choosing fixed-rate loans and 86.62 per cent were choosing variable. But in March 2024, a staggering low of only 1.40 per cent of new loans were fixed, compared to 98.60 per cent variable, according to the Australian Bureau of Statistics.

“The reason so many borrowers are going variable right now is because of a widespread belief that interest rates are at or near their peak, which means variable borrowers would benefit from any future rate cuts.

“Conversely, in July 2021, when interest rates were at record-low levels, 46 per cent loans were fixed, while only 54 per cent were variable.”

Most affordable rental markets

For those renters wondering where they can get an even break, they might want to head to the southern states.

When it comes to suburbs with listings under $500 per week, nowhere comes close to Melbourne.

According to data released by Ray White on Wednesday (5 June), Melbourne contains all ten of the top 10 list of suburbs with the most house rentals listed under that benchmark price.

The list is slightly more diverse for renters looking for units. Of the top 10 most affordable suburbs, half come from Melbourne, three come from Adelaide, while Hobart and Sydney offer one.

Atom Go Tian, Senior Data Analyst, Ray White Group, said the share of median asking rent versus weekly earnings was 40.5 per cent for houses and 38.4 per cent for units.

According to ABS, average weekly earnings as of November 2023 was $1,431 per week, a 35 per cent increase from 10 years ago. During the same period, rent has outpaced our growth in earnings with the median asking rent for houses growing by 56 per cent to $580 and the median asking rent for units growing by 52 per cent to $550.

Mr Tian said the balance between real income and rent costs has shifted dramatically, with the past two years having crunched renters.

“For the first eight years of the last decade, the share of rent versus earnings stayed relatively flat between 33 and 35 per cent.

“Weekly earnings growth even outpaced rent growth, with the share of rent reaching its lowest point in 2020 for houses at 32 per cent of weekly earnings and in 2021 for units at 31.4 per cent of weekly earnings.

“Since then, however, rent has skyrocketed.”

Meanwhile, on the rental supply front, the Property Council of Australia on Wednesday welcomed the introduction of the Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024 as recognising the role of build-to-rent (BTR) housing in Australia but warned it does not create a level pathway to support 150,000 new BTR homes by 2034.

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The RBA continues to perform its balancing act of trying to contain inflation without causing an economic hard landing.

Given all 38 commentators in a Finder survey tipped a rate hold, the decision to retain the official cash rate at 4.35 per cent at its Tuesday (18 June) meeting comes as no surprise.

The RBA did, however, say it won’t tolerate high inflation indefinitely.

The recent falls in the inflation rate reversed last month, when it inched up and spooked borrowers hoping its continued decline would mean a rate cut was imminent.

But short of a major international economic shock that rattled the local economy, a rate cut now seems a distant prospect.

There have been 13 interest rate increases since May 2013 but the latest decision marks the fourth successive hold.

The holding pattern may run for some time yet, although the RBA made it clear that economic uncertainty could see it spring a surprise if that was necessary to contain inflation. Borrowers will have to wait until 6 August for the next RBA meeting.

Australians spending money they don’t have

In making its decision, the RBA indicated it is keen to see the positive of lower unemployment rates continue and mass job losses avoided, but with spending levels contained to ensure inflation fell to within its preferred band of 2 to 3 per cent.

There are worrying concerns that spending is continuing in the face of cost of living pressures and heightened levels of loan delinquency.

Worldpay’s Global Payments Report 2024 revealed buy now pay later (BNPL) use is at an all-time high in Australia – accounting for 15 per cent of eCommerce transaction value in 2023.

Almost half of experts who weighed in (44 per cent) say the current level of BNPL use is alarming.

Finder’s Consumer Sentiment Tracker shows two in five (42 per cent) Australians have used a BNPL service in the past six months.

Those who have used BNPL are carrying an average of $1,073 in debt, up from $916 in 2022.

Spending on property also appeared unlikely to be curtailed in the short term.

Helen Avis, Director of Finance, Specialist Mortgage, said rising property prices were unlikely to be stifled by the RBA.

“With the high migration there is not enough supply, while we have also seen an exodus from Sydney to regional NSW and Queensland that has applied price pressure to those markets.

“So despite the fact that rates are high we are still seeing people buying.

“I had a period earlier this year where my clients were ‘wait and see’, but recently they have had the confidence to buy.

“Some people have cut back on spending and adjusted their finances to manage the increased cost of their mortgages and also the cost of living, but overall clients seem to be coping with the current market conditions.”

RBA keeps it short and sweet

In the RBA’s shortest Monetary Policy Decision in this reporter’s memory, inflation and economic uncertainty were its key themes.

“Inflation is easing but has been doing so more slowly than previously expected and it remains high,” the Board’s statement noted.

“The Board expects that it will be some time yet before inflation is sustainably in the target range (and) while recent data has been mixed, they have reinforced the need to remain vigilant to upside risks to inflation.

“The path of interest rates that will best ensure inflation returns to target in a reasonable timeframe remains uncertain and the Board is not ruling anything in or out.”

On the economic front, the RBA suggested it could be a bumpy road ahead, noting that, “the economic outlook remains uncertain and … the process of returning inflation to target is unlikely to be smooth.”

The possibility of another rate increase is on the cards and that will push many mortgage borrowers over the edge, and take many other Australians with them.

– Peter Boehm, Pathfinder Consulting

Conceding that economic momentum was weak, savings rates and high spending were weighing more heavily than slow GDP growth, a rise in the unemployment rate to 4 per cent and slower-than-expected wages growth.

“There are uncertainties regarding the lags in the effect of monetary policy and how firms’ pricing decisions and wages will respond to the slower growth in the economy at a time of excess demand, and while conditions in the labour market remain tight,” the RBA noted.

There also remains a high level of uncertainty about the overseas outlook.

“Output growth in most advanced economies appears to have troughed.

“There has been improvement in the outlook for the Chinese and US economies, and many commodity prices have picked up.

“Some central banks have eased policy, although they remain alert to the risk of persistent inflation.

“Nevertheless, geopolitical uncertainties, including those related to the conflicts in the Middle East and Ukraine, remain elevated, which may have implications for supply chains.”

Where the experts expect interest rates to head

The consensus among economists is that rate hikes are finished and the next move from the RBA will be a cut, but the timing is highly uncertain.

Financial markets, based on the ASX cash rate futures, have brought forward the timing of a rate cut from around mid-year 2025 to a fully priced in cut by March of next year. Meanwhile three of the big four banks’ economic units are forecasting a 25 basis point cut in November 2024.

Housing markets seem to be somewhat insulated from higher interest rates, with CoreLogic’s Home Value Index continuing to rise through June, and the combined capitals daily index already 0.4 per cent higher over the first 18 days of the month.

“The RBA made a point of calling out an increase in household wealth via higher housing prices which, together with a rise in disposable incomes, could support household spending,” Tim Lawless, Research Director at CoreLogic Asia Pacific, said.

“Similarly, the volume of home sales is tracking higher than a year ago and above the five-year average, demonstrating consistently strong demand from purchasers despite an array of headwinds including high interest rates, cost of living pressures, low sentiment and stretched affordability.”

The RBA had reason to be patient, according to Matthew Greenwood-Nimmo, Associate Professor of Economics, University of Melbourne.

“Although inflation is still stubbornly high, the RBA is likely to hold the cash rate constant in the near term.

“There are signs of weakness in the economy, and the full impact of past rate hikes is yet to be fully felt,” he said.

Jakob Madsen, Economics Professor at University of Western Australia, pointed to international conditions propping rates up for now.

“The US Federal Reserve fund rate is still more than 1 per cent point above the RBA cash rate and the increasing worldwide government debt-to-GDP ratio is keeping upward pressure on interest rates.”

There is no justification to reduce rates based on current economic data, according to Peter Boehm, Managing Director, Pathfinder Consulting.

“The pendulum is swinging towards an increase because of sticky inflation and a government fiscal policy that is likely to put upward pressures on inflation.

“Plus, I doubt there is a single Australian right now who is not suffering from sustained and ongoing price increases in such areas as utility/energy, health, food and just general living costs.

“By way of example, many charities cannot keep up with demand due to an increasing number of families struggling to put food on the table or cover essential living expenses.

“The possibility of another rate increase is on the cards and that will push many mortgage borrowers over the edge, and take many other Australians with them.”

A shock rise in inflation for the year to May has extinguished any hope of an interest rate cut any time soon.

The monthly Consumer Price Index (CPI) indicator rose 4.0 per cent, up from 3.6 per cent in April, according to the latest data from the Australian Bureau of Statistics (ABS).

The figure is likely to send shockwaves through the corridors of the Reserve Bank of Australia’s Chifley Square offices in Sydney.

Michelle Marquardt, ABS head of prices statistics, offered some hope that the numbers were not as bad as they appear, although the RBA may see it differently.

“CPI inflation is often impacted by items with volatile price changes like automotive fuel, fruit and vegetables, and holiday travel.

“It can be helpful to exclude these items from the headline CPI to provide a view of underlying inflation, which was 4.0 per cent in May, down from 4.1 per cent in April.”

Wednesday’s Consumer Price Index (CPI) puts inflation well off the trajectory needed to return to the RBA’s target band of 2-3 per cent by the end of 2025.

Inflation has now risen from the 3.4 per cent recorded in December 2023 and January and February 2024, and if it carries through to the June quarter result to be released just before the August Reserve Bank Board meeting, it will put a cash rate increase well and truly on the agenda.

Canstar’s Group Executive, Financial Services, Steve Mickenbecker, said an interest rate rise was now possible, and perhaps soon.

“This increase in the CPI Indicator for May makes it the third on a trot, lifting from 3.4 percent in February to a staggering 4.0 percent for May, confirming that inflation is off the trajectory towards the 2 to 3 percent target band the RBA seeks.

“The increase in the CPI Indicator will have the Reserve Bank moving towards the starting blocks and readying to fire the interest rate increase gun, just as the men line up for the 100 metre final in Paris, presuming that June quarter inflation reflects the same trend.

“The CPI rose 1.0 percent in the March 2024 quarter from 0.6 percent in the December 2023 quarter and a further rise, or even a failure to fall, in the June quarter will test the Reserve Bank’s patience.

“With scant evidence that inflation is moving towards the target band, the Reserve Bank will feel uncomfortable waiting a further three months for the following release of quarterly CPI and will surely lift rates in August – the risk of baked-in inflationary expectations is too high,” Mr Mickenbecker said.

Renters, borrowers left to tackle inflation

It was a worrisome outlook for borrowers.

An increase of 0.25 percent would add another $100 to the monthly repayment on a $600,000 loan over 30 years.

Cruelly, the very people hardest hit by inflation will be the ones to pay the price if, as seems increasingly likely, the next interest rate move is upwards.

The most significant contributors to the annual rise to May was housing (5.2 per cent), up from 4.9 per cent in April. Rents increased 7.4 per cent for the year, reflecting a tight rental market across the country.

Increased loan repayments will hit borrowers, with rents also subsequently rising as landlords look to pass on at least some of their own elevated expenses.

Around a third of Australian households either rent (31.4 per cent) or were homeowners with mortgages (36.8 per cent). It is this cohort that will carry the load when it comes to tackling rising inflation.

The stage three tax cuts that will kick in on 1 July are now being seen through a different lens too.

On the one hand, hopes they would help offset the rising cost of living are now being replaced by concerns they will only go towards higher mortgages and rents.

Just as disconcertingly, the tax cuts could have a further corrosive impact on inflation, ultimately delivering more pain than comfort.

The RBA does not meet until 6 August, giving it time to contemplate its next move with newer inflation data. On 18 June it kept interest rates on hold at 4.35 per cent.

Real Estate Institute of Australia President, Leanne Pilkington, said economic sluggishness should encourage the RBA to hold fire on interest rate increases.

“This stickiness in the final hurdle to beat inflation is the same as other countries are experiencing in getting inflation into the target range of their central banks.

“The CPI figures need to be taken against the background of an economy that is barely growing.

“While headline unemployment declined slightly in May, the trend unemployment rate rose a little from 3.9 per cent to 4 per cent, to its highest level since Covid lockdowns.

“GDP growth in the March quarter it was 0.1 per cent and 1.1 per cent for the year and trending down – on a per capita basis we have had four consecutive quarters of negative growth.

“The current uptick in inflation should not in itself flag an increase in interest rates but a delay in any drop,” Ms Pilkington said.

Building industry still struggling

The annual rise in new dwelling prices remained steady at 4.9 per cent, with builders passing on higher costs for labour and materials.

The ABS also released the March quarter engineering construction data on Wednesday (26 June) showing its first decline in two years.

The volume of engineering construction dropped by 2.3 per cent during the March 2024 quarter.

The reduction affected both public sector and private sector projects.

There was a 2.4 per cent fall in engineering construction work done for the public sector while the volume of private sector activity fell back by 2.2 per cent.

The reverse in engineering construction activity is ominous given that it was previously the main source of growth in the industry.

All three pillars of construction activity are now moving backwards.

Master Builders Australia CEO, Denita Wawn, said inflation was hurting construction too, and curtailing hopes of resolving the housing crisis.

“Inflation is a capacity killer, making investment more expensive and less attractive.

“On the ground, we continue to hear projects for new homes, commercial or infrastructure construction simply don’t stack up because it takes too long to build and is too costly.

“If we don’t get inflation under control and urgently start boosting housing supply we are in for a lengthy period of pain and depressed construction activity.

“We know governments have acknowledged that more reform is needed to reduce building costs but the rubber needs to hit the road.

“Bringing down housing and rental inflation can only be achieved once we get a move on and speed up planning reforms, address tradie shortages through domestic and skills migration pathways, reform the regulatory environment, and scrap damaging elements of recent IR changes,” Ms Wawn said.

The annual rise in new dwelling prices remained steady at 4.9 per cent, with builders passing on higher costs for labour and materials.

he mortgage and finance broking industry in Western Australia honoured this year’s achievers at the 2024 MFAA State Excellence Awards, with Helen Avis, Director of Finance, Specialist Mortgage, taking out one the most coveted awards for the second time.

The Mortgage and Finance Association of Australia named Ms Avis Residential Finance Broker WA 2024.

The accolade follows her win in 2022 that led to her also claiming the national title. She also led the Specialist Mortgage team that won the MFAA Finance Broker Business Award last year.

Ms Avis said the MFAA Excellence Awards are renowned for celebrating the highest standards of professionalism, integrity, and innovation in this finance field.

“This recognition is a significant milestone in my career, and I am deeply grateful for the acknowledgment of my hard work and dedication within the mortgage and finance industry,” Ms Avis said.

“Winning this award is not just a personal achievement but also a testament to the incredible team and clients I have had the privilege to work with.”

Ms Avis added that the award highlighted the significant contributions of women in the mortgage industry.

“It is a powerful reminder that with determination, passion, and the right support, we can achieve great heights.

“I hope this recognition inspires other women in our industry to pursue their goals with confidence and resilience.”

All Western Australia MFAA State Excellence Awards winners are finalists in their respective categories at the MFAA National Excellence Awards which will be held in Melbourne on Thursday 25 July following the MFAA National Conference.

Advice for borrowers struggling with deposit

While it’s often said a 20 per cent deposit is needed to qualify for a home loan, a significant number of borrowers are securing mortgages with smaller deposits, according to the latest data from APRA, the banking regulator.

Ms Avis said it was still possible to buy a property with a small deposit and could offer advice on structuring a loan application correctly.

In the March 2024 quarter, 31.0 per cent of new home loans (by value) had deposits of less than 20 per cent, while 6.2 per cent of new loans had deposits of less than 10 per cent.

“While more than three in 10 borrowers are taking out loans with deposits under 20 per cent, these figures are relatively low by historical standards.

“Back in December 2020, for example, 41.7 per cent of new loans had deposits of less than 20 per cent, while 11.3 per cent had deposits of less than 10 per cent.

“This illustrates how banks have tightened their lending standards, to ensure borrowers don’t take on an excessive amount of debt, yet it’s still possible to buy a property with a small deposit,” Ms Avis said.

Generally, these buyers will need to pay lender’s mortgage insurance (LMI) when purchasing a property with a deposit of less than 15-20 per cent.

Full list of MFAA winners

Residential Finance Broker Award
Helen Avis, Specialist Mortgage

Regional Finance Broker Award
Jasmine Bunter, Loan Market Geraldton

Business Development Manager Award – Aggregator
Renee Dewar, Loan Market

Business Development Manager Award – Lender/Support Service Provider
Petra Rebeira, Suncorp Bank

Commercial & Equipment Finance Broker Award
Steven McCaughey, Financewest Solutions

Community Champion Award
TAG Finance Australia

Customer Service Award – Business
Loan Market Ellenbrook

Customer Service Award – Individual
Nicole Williams, For Finance Sake

Diversified Business Award
TAG Finance Australia

Finance Broker Business Award
Loan Market Bal & Associates

Fintech Lender Award
ubank

Loan Administrator Award
Gracen Woodcock, Loan Market Geraldton

Major Lender Award
Macquarie Bank

Mutual/Credit Union Lender Award
P&N Bank

Newcomer Award
Kurtis Grace, Whiteroom Finance Goldfields

Non-Major Lender Award
Bankwest

Specialty Lender Award
Pepper Money

Young Professional Award
Robert Flynn, Vorteil Financial Group