As 2019 draws to a close, it is an appropriate time to reflect on some of the highlights in what has been a very eventful year in Australia. A number of these major events have impacted the economy and the housing markets in particular.

The Royal Commission into Misconduct in the Banking, Superannuation and financial services sector concluded in February 2019. In his final report into the industry that touches almost every Australian, the Honourable Kenneth Hayne AC QC unveiled 76 recommendations which challenged key aspects of banking, superannuation, financial advice and the rural lending industries. Since the report was handed down, lenders have adjusted to the new requirements and credit has become more available for credit-worthy borrowers.

The lead-up to the May Federal election saw the major parties in full election mode. Whilst the Liberal party made some early ground on Labor on a two-party preferred basis, the general expectation and polling suggested Bill Shorten would become Australia’s next Prime Minister. A number of very senior Liberals announced they would retire at the election including Defence Minister Christopher Pyne, Foreign Minister Julie Bishop, Defence Industry Minister Steven Ciobo, joining previous retirements of Ministers Kelly O’Dwyer, Michael Keenan and Nigel Scullion. The exodus of experience from the Morrison Government was seen to further undermine an already weak position.

In a surprise Federal Election result, the Liberal - National Party Coalition lead by Scott Morrison was returned to power. Pre-polling had consistently predicted a win by Bill Shorten and the Labor Party, although the gap was narrowing as the election drew nearer. Exit polling also pointed to a Labor win however a narrow swing to the Coalition delivered a result for the Government that defied all expectations.

The fallout from the election indicates that Labor policies to limit negative gearing to new properties in the future, reduce capital gains tax concessions by 50% and abolish cash refunds for dividend franking credits proved unpopular with the majority of voters. Bill Shorten was succeeded as leader of the Labor Party by Anthony Albanese.

The return of the LNP Coalition meant tax concessions or cuts for 10 million low – medium income Australian workers commenced immediately post-election, with further, broader cuts in future years. With a projected return to Budget surplus in 2020, it is hoped that these cuts will flow on to provide broader economic stimulus.

The Government announced a new First Home Loan Deposit Scheme as part of its proposed stimulus package. The scheme allows first homebuyers to save as little as a 5% deposit and the Government will guarantee the remaining 15% deposit. The scheme commences on 1 January 2020 and is available to the first 10,000 applicants. The big 4 banks are all vying for selection to offer mortgages under the scheme. Only two of the big 4 will be allowed to participate in the scheme alongside smaller lenders across the country.

In July APRA announced significant changes to borrowing 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 per cent 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.

July home loan data was much stronger than expected, with the value of new housing finance commitments rising by 5% over the month. This was the largest increase since March 2015 and reflected a 5% rise in new loans to both owner-occupiers and investors. This data suggests that recent interest rate cuts and relaxation of mortgage serviceability requirements are boosting activity in the housing market.

The recovery in national housing values accelerated in August with dwelling values increasing by 0.8% over the month. The lift in housing values through August was substantial, however the recent growth is a continuation of the trend seen throughout the year. Housing values increased across Melbourne, Sydney, Brisbane, Hobart and Canberra. This was the third successive month of capital gain in Melbourne, Sydney and Canberra, and the second successive month of increase in Brisbane.

(Source: CoreLogic)

After commencing the year at 1.5%, the cash rate was reduced by 0.25% at both the June and July meetings of the Reserve Bank of Australia. At its October meeting, the Board of the RBA decided to lower the cash rate by 25 basis points to a record low of 0.75%. The Board took the decision to lower interest rates further to support employment and income growth and to provide greater confidence that inflation will be consistent with the medium-term target.

(Source: Reserve Bank of Australia)