Cheap finance powered the booming property market. That’s ‘cheap and readily available’ finance.
The property market is undergoing an adjustment as the Australia Prudential Regulation Authority (APRA) enforce lending regulations on the retail banks. The regulations are not necessarily harsh in and of themselves. The impact on the market is harsh given the lofty level prices rose to on cheap credit.
According to consensus, we can all expect finance to remain cheap, just don’t expect it to be as easily and readily available.
Cashed up, ready-to-buy buyers have been in abundance to the point that vendors did not even need to entertain conditional offers or cooling off periods. As the retail banks were forced to clamp down, firstly on investors and then home buyers, the abundance of cashed-up buyers disappeared.
Buyers need to be aware that ‘qualifying’ for a home loan on an internet quiz is not a loan approval, it’s called marketing. This marketing is simply a ‘lead generator’ for the respective financial institution or mortgage broker.
If you are dealing with a mortgage broker on your finance, note that they are often inherently optimistic about attaining finance. They have to be, that’s their job. A mortgage broker promising a buyer an unconditional loan offer is the equivalent of the real estate agent promising a seller a high price to get the listing. In reality, the crash rate is equal to the success rate.
The banks have become slow and cautious. No amount of harassment from a mortgage broker is going to see the banks by-pass due diligence.
Sellers need to be aware of non-binding offers. If you receive an appealing ‘offer subject to finance’ keep the bubbly on ice. There is still a long way to go! There is nothing more upsetting than celebrating a sale that ultimately crashes.
Sellers should also acknowledge that buyers are acting in good faith and doing their best to secure finance. The credit squeeze is legitimate and definitely not a beat up.
By Peter O’Malley