The industry has never been healthier: John Flavell
GUEST OBSERVER
As a nation, Australians are fascinated with residential real estate.
Today, you cannot open a newspaper, turn on the radio, watch television, or even have a chat with a friend without the subject of residential real estate coming up.
Of course, when you consider that real estate is the nation’s number one asset class, this is hardly surprising.
Everyone has an opinion when it comes to real estate. Most recently, we have heard a number of people argue that lenders and mortgage brokers are encouraging borrowers to take out loans they cannot afford, putting them in housing stress.
I don’t want to contribute further opinion to this topic. Instead, I want to lay down some facts and figures that will hopefully go a long way to painting the true story.
Residential real estate, like any commodity, is driven by a few key fundamentals, including supply and demand, the cost of credit, employment and access to credit.
Access to credit, or the amount of money an individual can borrow, will determine what they can and will pay for a property. In recent times, there has been a lot of discussion about the high debt levels in Australia and the purported inappropriate lending practices undertaken by Australia’s lenders and mortgage brokers.
While we do have high levels of debt in Australia, data from CoreLogic shows the proportion of income needed to service current household debt is actually lower now than it was in 2011.
In 2011, the proportion of household income required to service an 80% LVR mortgage across the combined capital cities was 43.92%. By 2016, that percentage had dropped to 35.02% thanks, in part, to historically low interest rates.
So while property is certainly expensive and the level of household debt is high, it would seem many Australians are actually in a better position now than they were five years ago.
Moreover, lending practices are constantly improving. Borrowers aren’t being forced into higher loans, they are simply choosing to borrow more in order to purchase their desired asset.
The banking industry is highly regulated and both brokers and lenders are more scrupulous than ever.
20 years ago, a home loan application was a single sheet of paper and the level of data that was collected by a lender was scant.
Only 10 years ago, approximately 50% of all home loan applications in Australia required borrowers to certify their income and their asset position. These loans, commonly referred to as low-doc or no-doc loans, were very popular within Australia.
When you contrast these lending practices with what we have today, it is fair to say things have come a long way.
Today, new legislation requires brokers and lenders to forensically examine a borrower’s assets and liability situation. They are also required to verify a borrower’s employment through documentation as well as telephone checks and discussions with employers. At the end of the day, nobody - lender or mortgage broker - wants a consumer to be in a situation where they access credit they can't afford.
At Mortgage Choice, the vast majority of our customers are more than nine months in front of their mortgage repayments. They are overpaying their mortgage in a bid to quickly and efficiently reduce their level of debt.
Looking ahead, brokers and lenders will continue to do the right thing by their customers, helping them into loans they can afford and helping them to get their foot onto the property ladder.
I believe property prices will continue to rise across most markets. However, the rate of growth may be more moderate than what we have seen in the past. I do not think mortgage holders are at risk of losing their property. I believe Australia’s lenders and mortgage brokers do all they can to ensure borrowers are in the right product for their needs and long will this tradition continue.
John Flavell is chief executive officer Mortgage Choice.
