Welcome to this month’s edition of the Dot Monthly!
Regardless of your views on the election outcome, from a real estate perspective it can only be seen as good news. The threat of changes to negative gearing and capital gains tax are gone, interest rate cuts are likely and APRA is easing restrictions on lending – removing it’s serviceability guidelines and allowing banks more leeway in assessing borrowers.
Let’s get into this month’s other topics
- – Optimism Returns With Election Result
The Federal Election result has created a wave of optimism in the housing market, with two of the major brakes on activity removed by the Liberal Party victory.
Real estate consumers declined to make spending commitments in the lead-up to the election and the prospect of the Labor Party policy on negative gearing created additional uncertainty. Real estate experts now believe property markets can return to normal and consumers can make decisions in an atmosphere of political certainty.
Tyron Hyde, director of depreciation experts Washington Brown, expects to see a flurry of activity from people getting into the market in coming months. He says the defeat of Labor and its policies will mean the current negative gearing provisions will remain in place for a long time. “I don’t think we’ll see those changes proposed again in my lifetime,” Hyde says.
it’s now “full steam ahead” for property investors who were worried about the prospect of a Labor victory and changes to negative gearing.
- – APRA Move To Lift Lending
APRA has begun moves to ease its restrictions on how lenders assess mortgage applications, with likely positive consequences for residential real estate.
Under the current Australian Prudential Regulation Authority rules, lenders have to assess borrowers’ ability to service loans assuming an interest rate above 7%, even though most can borrow at below 4%. Now APRA says it will remove its guidance – instead, lenders will be permitted to set their own minimum interest rate floor for use in serviceability assessments. It has also proposed that serviceability assessments use an interest rate buffer of 2.5%.
The changes will mean borrowers are assessed on interest rate levels closer to the ones they’re actually paying. APRA’s scrapping of the 7% “stress test” buffer will effectively see a 9% increase in borrowing capacity for owner-occupiers which will rise to between 13% and 14% if the RBA undertakes two interest rate cuts before the year is out.
- – NAB Tips RBA To Cut Twice
The Reserve Bank of Australia appears poised to slice official interest rates, with governor Philip Lowe saying it would be on the bank’s agenda next month. In a speech to the Queensland branch of the Economic Society of Australia in Brisbane, Lowe said without a cut in interest rates it was unlikely the bank’s forecasts for lower unemployment and a lift in inflation would be met.
Declaring that Australia could “do better” than have an unemployment rate around 5%, he said there were few options for the RBA but to consider a rate cut. NAB has brought forward its forecast for a cash rate cut and now expects the Reserve Bank to act in both June and August, with a third 25 basis point movement to below 1% possible in early 2020.
The nation’s fourth biggest lender says an unexpected uptick in the jobless rate provided further.
What has Dot been up to for the month?
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