Summary of Australian Lending Changes: 2021 Update

There’s been a lot of changes this year when it comes to property finance in Australia. Lowering interest rates, government incentives, easing lending requirements have all played a role in easier access to money.

In this episode we discuss with Michael Brown from about what’s been happening as well as some of the changes on the horizon.

0:00 – Introduction
0:43 – The Tighter Lending Environment of The Last Few Years
3:57 – Covid’s impact on lending
5:22 – Government making lending easier
7:45 – Investors vs Home Owners
9:35 – Things to do to get a loan more easily
11:08 – Will lending get easier in 2021?
13:05 – Discounts for low risk investors
16:20 – Refinancing
18:11 – Deposit requirements


Ryan 0:00
There’s been a lot of changes this year. And in the last couple of years when it comes to housing finance and investment, property finance in Australia with everything that’s happened with COVID-19, this year, lowering interest rates, government incentives, there’s just a lot that’s been going on. So today I’ve got with me, Michael Brown, who’s a mortgage broker from mortgage brokers He’s going to talk us through, you know, some of the changes that have been happening, and what the lending landscape looks like at the moment. So hey, Michael, thanks for coming on today.

Michael 0:30
Thank you very much, Ryan. Glad to be here.

Ryan 0:32
So obviously, it’s been an absolutely crazy year. With everything that has happened. He really through I guess, you know, going back to I think last time I really did not date on this was when Apple was bringing in their changes. This was even prior to Royal Commission. What was it like kind of going through that period of time where lending was getting tighter and more restrictive?

Michael 0:56
Look, that was an incredibly frustrating time for any mortgage broker. And lending in general, particularly mortgage broking because we had our profession splashed all over the headlines, in a disproportionate manner, I would have said give to the banks, who, broadly were the real culprits, if I can put it that way at the time, and I found it very difficult. But as a general ism, everyone became so careful, and really, just just wouldn’t do anything. It was such a cautious atmosphere to try and get anything done. And it was, it was very difficult. It’s a bit easier now. But certainly,

Ryan 1:41
I kind of wanted to set up the contrast of what it’s been like for the last couple of years to kind of what the landscapes like Now, obviously, COVID here, we had lock downs in Sydney, you know, around March or April, I can’t even remember anymore. It’s been that kind of year. But how have things changed now in the lending environment?

Michael 1:59
Is it easier to get lending at the moment. So if you if you walk through that period, very quickly, without trying to bore anybody, as the Royal Commission started to release findings, and you know, when people or institutions preemptively changed some rules, and then as they were advised of Royal Commission outcomes, they subsequently changed their rules, that produced a tightening of credit, which meant that it was more difficult to get money. And some of those rules you’ve seen, or you would have seen, sort of discussed with within the the media broadly around things like the level of investigation into people’s living expenses, all the way down to what you had for lunch this week, which is a little bit excessive, but that’s where we got to, and, and so at its worst, the the requirements for information were, you know, extensive, as much as information as you could possibly give, and even then more, I would have imagined, it’d be quite hard for investors to get bones around that time, just because of how tedious it would be to go through that process. Look, there were plenty of people who just gave up. And certainly, that period of time made it a little bit easier for me, because, you know, within the industry, at least we know how to sculpt an application, what exactly what information is required and what isn’t. But it’s still a long list and and very difficult. And the focus was absolutely, as you say, on owner occupied finance, not so much investors, they were trying to do anything to effectively, I suppose, make sure that their book was as safe as it possibly could be, and owner occupiers are always those.

Ryan 3:54
Yeah. And then with COVID, and then obviously, the government wanting to stimulate the economy, has that changed and become more relaxed now?

Michael 4:02
Well, COVID, obviously, brought another very brief tightening of rules as everybody’s job became less and less secure. That that was, you know, that required that that did actually require, if you’re going to do responsibly, some tightening around the information you would provide as an applicant, to determine whether or not you are going to have a job because, you know, no one wants to be in, in finance that they can’t afford that started that that all of those requirements, or most of them have started to loosen. Now as you know, the way forward becomes a bit clearer through various pandemic advancements such as vaccines. And you know, and certainly given that Victoria is out of lockdown, so some of those job issues are overcome. We still have to do basic questions around it, but it certainly got a lot better. And since then, of course, we’ve had The government announced that they want to change the Responsible Lending outcomes or reduce some of those. And, and that also is starting to have, you know, a small effect on the documentary requirements and the accessibility of credit.

Ryan 5:19
So it’s becoming easier now, to get

Michael 5:21
credit, it is becoming easier. It’s only the first steps now, because the government only just recently released that bill in or introduced it to Parliament last week or this week. And so some of those effects won’t take place until it becomes until they’ve had the industry stakeholders report back to them. And it becomes law assuming that it does. But you can already see some of the the banks angling with minor changes as to how they look at, again, things like living expenses, some some easing in some documentary, age, age of documents required that kind of thing. So it is becoming an easier, it’s not I don’t think we’d go so far yet to say is, it’s easy, but it’s getting there.

Ryan 6:08
When was a point in time where you feel like it was easy, because you’ve obviously been in this industry for a number of years now. Is that correct?

Michael 6:16
I’ve been in this industry for 30 something years, but way too long.

Ryan 6:20
I’ve been through so many things, that means you would have been through the interest rates of 14 15% 17%.

Michael 6:27
Yeah, all those early 1990s. I’ve certainly lived through all of those. I’m a bit of a contrast, we’ve got interest rates of 2% now and back then 17% for home loans and 20% for commercial.

Ryan 6:39
Yeah, I just I just did an interview with a investor, young guy that 25 who’s investing in property. And he was disappointed, because he’d locked in a fixed interest rate about 18 months ago. And you know, what have been in that, you know, for four to 5% range. As we were joking about how years ago, if you had a locked in interest rate like that, it would have been goldmine. And now that’s disappointing.

Michael 7:04
Like, I can remember a time when people were jumping at fixed rates of 14.9%. And they thought that was fantastic. So yeah, what a change. And that certainly does make it easier. Now, when you’re fronting up, your capacity to borrow obviously is much higher, because the sums are worked on so much lower numbers, because the sounds are being worked out on

Ryan 7:28
you know, can you repay interest rates? The Father,

Michael 7:31
not 14%? Yeah, exactly. Look out on your actuals, as you probably know, but they’re doing their sums now at around just a touch over five, which means you can borrow up a pretty reasonable sum of money.

Ryan 7:44
And are they still approaching it very differently as investors or homeowners, because I know they were doing that a couple of years ago, it was very focused towards first homebuyers or homeowners, we had better interest rates, it was easier for them, investors were having trouble, obviously, most of my audiences, people wanting to invest so

Michael 8:03
well, that probably dates back to around I think maybe I think it’s for 2014 or 15, when APA really put their origin for the first time. And we really saw some clamping down on things like interest only finance, all the interest rates separated with an and all of a sudden, you know, the investors were paying these significant premiums over an owner occupier. And we are actually now starting to see those really come much closer together. You know, like you can get interest only finance at a premium only of 20 points over principal and interest for an investor and the difference between those rates and an owner occupiers only 30 or 40 points. To a couple of years ago, it was probably 100 points or more.

Ryan 8:56
Yeah, is 100 points. 1%.

Michael 8:58
Sorry, shouldn’t talk the jargon. It absolutely is 1%. So when I talk about 20 points, we’re talking about point two of a percent.

Ryan 9:05
Yeah. Which is, you know, not a huge amount when you’re looking at previously, it was a whole 1% difference.

Michael 9:11
Yeah. And and we shouldn’t remember, I’m not I’m not suggesting that, you know, we decry the difference, but the investor gets to claim it. So if your point 2% up, then potentially your real difference is only as much as maybe point one of a percent because, you know, it’s tax deductible, generally speaking, whereas the occupiers obviously aren’t.

Ryan 9:33
Yeah. And so we’re moving forward or for people who are looking at investing, are there things that they should be doing to help them get alone more easily?

Michael 9:45
Yeah, well, there are always things we can get people to help maybe that can

Ryan 9:49
be a full episode in and of itself.

Michael 9:52
Look at probably could and we could summarize a couple of them at the moment we still have some focus on living expenses. So if you know you’re fronting up for a loan in the next three months, let’s just try and keep them tidy. If we could put it that way. There’s certainly the rental returns that that investors would have seen in days gone by perhaps at the moment are a little under pressure, because some of the people probably most affected by COVID. Perhaps the rental market, and and so I think we’re seeing a real, or certainly within some apartment. Within the apartment segment, there are some returns there that are suffering. You know, they might have been, you know, 444 and a bit percent. And you might be lucky to be getting in the threes at the moment. So, you’d need to be prepared to

Ryan 10:48
this is in Sydney, right?

Michael 10:50
Of course. Sorry, just in Sydney. Yeah. Being based here. And so you need to be prepared to understand that some of those rental returns are a little bit different to where they were pre COVID. But there’s no reason to suspect that over time, they won’t come back.

Ryan 11:07
Yeah. And what about moving forward? Do we think lending is gonna keep getting easier? You mentioned there was, you know, a new bill that was recently passed a couple of weeks ago, does a look like moving into 2021, we’re going to be towards a year of easier money easier for people to get lending? Well, there’s,

Michael 11:27
I think there’ll be some easier requirements. I would hope that as we work through 2021, most if not all, of the COVID component of that difficulty will disappear. I mean, I’m no health expert, but hopefully we can see some of that behind us, it gets crossed. Absolutely. There’s a couple of other things which are, I guess, incidental. But when you’re sitting down and contemplating the list of documents that you’re required to provide, and the open banking regime means that more and more banks are starting to rely on what is actually on your credit report, rather than you providing an endless stream of statements and documents to support that. And look at the assessment rates for lending have been progressively coming down, as the interest rates have been coming down. So your capacity with you know, if you’ve got an income of $1, then your what you can afford to borrow with that is going up per dollar, because the assessment rights are reducing. So for an investor, that’s pretty good news. And look, there will be other things that that come through that I’m not sure how much further those assessment rates will fall. And the banks are always keen to lend to quality business. So if you’ve got a few dollars in your or some equity within your properties, you’ll probably see a better price, so that a lot of the banks are moving and are being encouraged to move by some other regulatory changes to pricing for risk. So if you’ve got a 50% lending margin, that is to say, you’re borrowing only half of what the property’s worth, you’re going to see some pretty good rates. And

Ryan 13:24
so there’s an opportunity for people who say they purchased property a couple of years ago, and their property’s gone up in value, if they’ve got a better loan to value ratio than they used to. Does that mean they could potentially renegotiate for a better interest

Michael 13:39
rate? Absolutely. And if they can’t do it with their bank, because their bank hasn’t got around to pricing for risk, then there are already banks out there, who will price for risk. And and what that means is as a as a lender, as a borrower, you are being rewarded if you have been fortunate enough to it to increase the equity in your property, either by paying offered a decent whack of it, or because as you say, your place has gone up.

Ryan 14:08
Yeah. And does this mean that people who have smaller deposits are being punished for that? Or is it less they’re being punished, and more just people with larger equity portions are being rewarded?

Michael 14:18
Well, I guess if someone’s being rewarded, it’s hard to argue that the other people aren’t being punished. But I don’t really believe that’s the case that this what actually has happened is that they have brought in a new tier of a discount. And so the you know, the exists. If your sub, the sweet spot at the moment seems to be a lending margin of 60%. And if you are sub 60%, so your home loan is, you know, 600,000 or less over your $1 million property, then you’ll get a better rate than if you’re at 80%. But the 80% rate hasn’t changed over the last, you know, as a comparison over the last few years. It’s just that they’ve introduced this sub 60% ti.

Ryan 15:03
Yeah. And I guess, this is why it’s so important for people to work with good professionals in the industry and good mortgage brokers, because some of these things, you just, you don’t hear about this through normal mainstream media, even more niche property podcasts are probably unlikely to kind of discuss this, that I knew nothing about this. But obviously, being a mortgage broker in the industry,

Michael 15:24
it’s what you do every day. It is and so this, the news of my industry crosses my desk every morning, I have to spend, you know, a good half an hour just trying to stay current, that has certainly been a feature of 2020 the amount of information that has come out. And yeah, there have been plenty of reasons why there have there has been an increase in information, but you really don’t get that kind of thing publicized, because it’s just a minor good news story. And it doesn’t really spend the whole market, you know, you know, you’re reaching to the to the people who have got

Ryan 16:05
it. And I guess mortgage brokers, you would mainly deal with people buying new properties, less people owning existing properties, as well. So there’s that kind of disconnect there.

Michael 16:13
Yeah, look,

I guess that depends. Certainly my work over the last six months would include a really good component of people who were refinancing, because we had all of these, you know, COVID, induced changes interest rates. Without the pandemic, I’m pretty sure we don’t see 1.99 or 1.89%, fixed rates. Perhaps, yeah, it was easier to get there. But what that has meant is that a whole lot of people who perhaps otherwise wouldn’t have bothered, and we do have in this country, I think, a bit of apathy about moving, because we just sort of set it and forget it. But there are real reasons why you should at least have a look at it every now and then. And what we’ve just been talking about are probably a couple of them. So

Ryan 17:00
and how often should people reassess getting refinance? Or whether there are loans the best? Is it something that you do every year, every five years?

Michael 17:12
You do it in between that period every year is probably a little early. But we are certainly seeing that anyone from three or four years ago, absolutely is is now did one this morning, I wrote a loan for a customer of mine in 2016. And today, we could get him as much as point six of a percent better over his current rate, which doesn’t necessarily sound like much, but his loan was $600,000. So it’s a good three and a half grand a year. Now, whether that

Ryan 17:52
chunk of change, I’d rather count into my pocket than into the banks. Well, that’s

Michael 17:56
just about to say whether you think individually, three and a half $1,000 is a lot of money, it’s 300 bucks a month, it’ll pay for something. Exactly.

Ryan 18:03
It could help you pay off your property faster, or it could just go towards your lifestyle. What about, like deposit requirements is kind of I guess the last question I would have here, people required to get higher deposits like 20%? Or are we seeing banks willing to lend 10% or even under 10% in the current market?

Michael 18:23
Well, that is something that really hasn’t changed. But the one thing I would mention in that in that sort of sphere is that the government brought out a home loan deposit scheme at the start of this year. And I would have said that of all of the schemes that I’ve seen over time, that particular scheme is by far the best and it has been wildly successful. And what it does is it means you don’t need the normal 20% for a first home buyer to buy a house, you can buy it with as little as 5%. Now that has always existed in this industry, but you’ve then been charged a great big one off mortgage insurance premium, which has meant people still did it, but you still had that amount added onto your loan. And that could potentially be into the 10s of 1000s of dollars depending upon, you know, at various parameters, the home loan deposit scheme, and I’m not here to spook the government, but that particular scheme has has really made a big difference to a first home buyer because whatever cash they’ve got just becomes their deposit. And they still enjoy the same rights that everyone who has a 20% deposit would get without having to pay the great big chunk of mortgage insurance. Yeah, it’s a winner.

Ryan 19:37
So that’s what people buying their first home right?

Michael 19:41
If you’re buying a second one and you don’t have it, then unfortunately you can still do it. You’re just gonna have to pay mortgage

Ryan 19:47
and the same if you’re buying an investment properties well you can still do it you just gonna have to pay Lenders Mortgage Insurance.

Michael 19:53
Yeah, absolutely.

Ryan 19:55
So I hope that gives people a bit of an update of where the markets at in terms of lending, obviously, how many people are borrowing and how easy money is to get does affect property prices and can be a leading indicator on that. So it’s interesting to keep tabs on this and see where it’s happening. Michael, where can people get in contact with you if they’re interested in getting a home loan, buying their first property investment property refinancing?

Michael 20:22
Look, the easiest places to go straight to my website, which is mortgage broker There’s some information there you can find our phone number and you can just basically come straight through to us happy to help.

Ryan 20:35
Awesome, thank you so much for your time and for this update. Thanks, everyone out there so much for tuning in. And until next time, stay positive

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