By Paul Flakus

You may have read that real estate prices have fallen over the past few months and some of you may even be impacted. Recent property valuations have indicated a fall in real estate values, especially if the valuation is for finance purposes. Also, fair market valuations have reflected lower prices for properties.

As indicated in the Autumn Newsletter, the cycle must come to an end as most real estate punters realise, what goes up, must come down. The cycle is normally 10 years and we are experiencing the downturn of that cycle.

With the federal election now behind us, property investors may feel at ease in regards to negative gearing while potential investors may become more confident in investing. However, borrowers seeking finance for a home or investment property must remember the current strict lender’s credit policies. They are still just as tight as before. Emphasis is placed on the applicant’s living costs. Lenders are amending their finance application forms to scrutinise the borrower’s living expenses including groceries, petrol, childcare, school fees, utility bills, mobile phones, cable TV, pet insurance etc. Other expense items that lenders look at include contactless payments such as Uber Eats, online streaming, and gambling etc.

The qualifying rate is currently unchanged between 7.25% to 7.85% depending on funder. In practice, banks test whether customers can manage loan payments if the interest rate hits 7.25% which is much higher than the actual rate, currently as low as 4% being offered by many mortgages funders (a gap of 3.25%).

With rates sitting at low levels and likely to remain for some time, APRA has advised that they are reviewing the “floor rate” that banks utilize to reduce it or Assessment rate to 7%. However, the “floor rate” could vary from lender to lender. This was introduced in late 2014 by APRA in an attempt to contain soaring house prices. Overall, this is a positive move forward and banks would no doubt reduce it accordingly to enable customers to obtain a mortgage loan.