Potential home buyers can get a loan more easily now than during the last housing recession, but the amount of money they can borrow has shrunk as interest rates rise.
Easier access to credit is helping to put a floor under auction rates, alongside a change in expectations of sellers who are increasingly likely to respond to the market.
Sydney recorded a preliminary clearance rate of 62.1% on Saturday, while Melbourne’s was 62.6%, down from levels of 80% reached last autumn.
The numbers are usually revised down mid-week as more auction results are reported, and 60% is seen as the threshold below which prices are likely to fall.
During the last major real estate downturn at the end of 2018, auction clearance rates fell into the 40% range and home prices plummeted as buyers struggled to secure a home loan.
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Scrutiny from the Royal Financial Services Commission has prompted banks to audit borrowers’ spending, even asking how many coffees they paid for. This slowed loan approvals and made it harder for buyers to bid at auction.
Now, mortgage brokers say there is less focus on individual spending, even as rising interest rates drive home prices down.
Atelier Wealth chief executive Aaron Christie-David said banks had recruited staff and now had better resources to approve loans quickly.
Home loan approval times are less than three to four business days with many lenders, he said.
“It’s not that there’s less scrutiny, but there’s probably less attention on it. [expenses] compared to what we have had in the past,” he said.
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“Customers have in mind that this is a bigger deal than banks and brokers are considering.”
A bank that used to scrape customers’ bank accounts to calculate living expenses has now shifted to accepting living expenses reported by customers, he said.
“It’s the shrinking ability to borrow that becomes the problem,” he said, as interest rates rise and banks assess buyers’ ability to repay their loans if rates rise. interest increase more than expected.
The maximum loan size of potential buyers has been reduced by approximately 20% since the cash rate began to rise in May, the Reserve Bank said Monday.
Monthly repayments on a new loan are around 25 per cent higher now, at a cash rate of 2.35 per cent, than before May, said the RBA’s head of domestic markets, Jonathan Kearns.
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He repeated April’s modeling which showed that a 200 basis point increase in interest rates would reduce real house prices by around 15% over two years, stressing that this was not a a prediction.
Several banking economists expect house prices to fall between 15% and 20% from peak to trough, including Barrenjoey who on Monday expect 16% national falls at a cash rate of 2.85%. Sydney stocks have fallen 7.6% and Melbourne 4.9% so far, while Brisbane is down 2.9% and Perth is down 0.2%.
Mortgage broker Chris Foster-Ramsay said lender attitudes toward homebuyer spending are similar to the recent housing boom.
“Spending, as long as it’s verified and makes sense, generally doesn’t get in the way of an application,” Foster principal broker Ramsay Finance said.
He said home loan approval times are fast now, often three to four days or even sooner, although buyers’ ability to borrow has diminished.
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Director of Mortgage Choice Blaxland, Penrith and Glenmore Park, Rob Lees, said the focus on living costs is diminishing, particularly from large banks which have increased their once modest living costs benchmarks.
He was surprised auction clearance rates weren’t lower, but said property prices had fallen.
“Sellers are definitely lowering their expectations, and I think that’s how they get sales and that’s why they’re not passed on,” he said.
“Sellers are very keen to sell because they know that if they don’t sell now and wait six months, they probably won’t get the same price.”
Ray White, chief economist, Nerida Conisbee, said banks become more profitable in higher interest rate environments, which means it’s in their interest to encourage people to borrow money .
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Sellers are adjusting to the market downturn and adjusting their expectations of what price they can fetch, she said, or deciding not to list their home in the first place.
“We see less auctions taking place in a down market, so people will hold back and privately sell and decide not to sell, or only the best properties will go on the market,” she said.
Several factors still encourage buying, such as record rent increases, rising renovation costs and population growth.
‘A refurbished family home – these seem to be selling quite well and holding up in price,’ she said.
“Basically what tends to go to auction is what people want to buy, even in a down cycle.”
This article first appeared on age