General Information

Since the May Federal Election, there have been several key events or initiatives which are anticipated will have a positive impact on consumer confidence, the economy and property markets around Australia. The Morrison Government was successful in having its full income tax reform package passed through the Senate and low to middle income earners are already seeing the benefit of this legislation through their annual income tax returns. It is expected that some of the additional funds received by these taxpayers will lead to increased domestic consumption and provide broader economic stimulus. This in turn is hoped to provide support within the residential property markets.

One of the key issues affecting the property market is interest rates. As anticipated, at its July meeting the Board of the Reserve Bank of Australia lowered the cash rate by 25 basis points to 1.00%. This follows a similar reduction at the Board's June meeting. This easing of monetary policy is aimed at supporting continued employment growth and providing greater confidence that inflation will be consistent with the medium-term target. The major banks have now passed on the majority of the last two rate reductions to their customers.

One of the other key issues home buyers face is their ability to borrow to buy a home. This has now received a major boost through changes to APRA serviceability requirements. Previously banks were required to use a floor of 7.0% as the assessment rate for loan serviceability however the major banks adopted 7.25% to provide a buffer. Lenders are now able to set their own minimum interest rate floor and make their serviceability calculations using a 2.5% buffer above the rate paid on the loan. This has resulted in the four major Australian banks currently setting their assessment rates at 5.5% - 5.75%. Anecdotally, these changes have increased the borrowing capacity of a typical borrowing couple by approximately $100,000. The table below demonstrates the potential improvements from this regulatory easing.

In another key initiative, support for replicating WA's Keystart 2% - 3% deposit home loan scheme nationally is growing, as first home buyers battle to secure a large enough deposit to satisfy bank mortgage requirements. Satterley has been actively lobbying for this initiative for some time and a number of major east coast developers and home builders have now also confirmed their support for such a scheme.

Prime Minister Scott Morrison has made tackling housing affordability a key part of his re-elected government's agenda, having appointed Victorian MP Michael Sukkar as housing minister and in charge of its deposit guarantee scheme. Mr Sukkar has said the Morrison government was committed to assisting first home buyers into the property market.

So far, the WA Keystart scheme has helped more than 100,000 first home buyers get onto the property ladder during the past 30 years with just a 2% deposit. It comes with a slightly higher interest rate but no costly lenders mortgage insurance. Once they have built up enough equity, Keystart borrowers’ transition into traditional bank loans. With first homebuyers accounting for approximately 40% of the market nationally, this is a key initiative to assist the housing market.

(Source: APRA, ANZ Research)

Policy easing and an associated lift in market sentiment appears to have driven a sharp improvement in auction clearance rates in Melbourne and Sydney. After 2 years of decline, there appears to be some stability ahead for house prices. The change in sentiment has been driven by a combination of the factors outlined above. The RBA rate cuts, APRA’s easing of serviceability assessment, and the recent Federal Election result have delivered tax cuts and certainty of taxation arrangements on housing. These factors have helped to shift sentiment from broad negativity to cautious optimism.

House prices in Sydney and Melbourne have posted their first monthly gains since 2017 in a sign the country’s worst housing downturn on record could be coming to an end. Sydney and Melbourne dwelling values recorded a slight rise in June of 0.1% and 0.2% respectively. This was the first monthly increase in Sydney since the market peaked in July 2017 and in Melbourne since its peak in November 2017. Capital city auction clearance rates in July were the highest in over 12 months at more than 70%. These results appear to be an early sign that lower mortgage rates and improved sentiment are already having a flow-on effect.

(Source: CoreLogic)