You’d be forgiven for panicking.
Is it getting harder to get a mortgage these days?
How much harder?
This is the ‘mortgage conversion ratio’ from Digital Finance Analytics – a firm of property and finance analysts.
What it tracks is how many mortgage applications come in against how many end up getting across the line.
Back in 2015, 80% of all mortgage applications that were made went on to become successful mortgages.
That success rate is now down to 50%.
That means the banks are knocking back every second mortgage application!
I’ve been in the game a long, long time and I don’t know that I’ve seen anything like it.
I should point out that it’s maybe not as bad as it seems. Because of the tighter lending environment, and how easy it has become to lodge an application, there has been a rise in applicants lodging multiple applications at the same time (either directly but most probably through their broker).
That is, put a few horses in the race and see which one gets across the line first.
So say I put in three applications but I only take one – the best one. In that case, the conversion rate would be 33% (one of three), but it’s just as true to say that it’s 100%.
So it’s perhaps not as bad as it seems.
But then again, the only reason that people are lodging multiple applications is because the lending environment is so much tougher than it used to be.
It’s also a much more fluid environment. Because banks are aiming at mortgage growth targets, calculated year on year, then what they’re willing to issue this month will have a lot to do with what they’ve issued over the past twelve months.
That means it can be changing week to week. Banks can be your best friend one week, and want nothing to do with you the next.
So it’s a tougher, more dynamic lending environment that has become seriously tricky to navigate.
And mortgage conversions are down from 80% to 50%.
At the same time, the latest data suggests that prices in Sydney are stalling, perhaps even falling.
And the banks have become very wary of lending into the over-supplied Brisbane high-rise market. A new ‘black-list’ emerges every day.
Is it time to panic yet?
No one would blame you.
But into the midst of all this strides Louis Christopher – the manager of SQM research.
Christopher has one of the better track records in the market. He has a cool head and a steady hand.
And what does he reckon? Are we going to hell in a hand basket?
We’re going for growth… across the board.
“Despite some of Australia’s heavyweight property markets – including Sydney – recording price declines, one expert is forecasting significant house price growth in 2018 across Australia.
Melbourne’s property market is expected to climb between 7 to 12 per cent in 2018, while Sydney is anticipated to soar between 4 and 8 per cent next year, SQM Research managing director Louis Christopher’s Housing Boom and Bust Report 2017 shows.
And in Canberra, prices are anticipated to increase by 5 to 9 per cent, the report claims.
…While a strong growth outlook for Sydney would come as a surprise for some after recent data found prices had fallen in the harbour city, Mr Christopher said the market was “a repeat of the second half of 2015”.
In late 2015, prices declined but soon picked up again in 2016, posting another $100,000 in house price growth in the months since.
“It’ll be slow [for the first half of 2018] and will pick up in the second half,” he said.
Despite this, it wasn’t Sydney or Melbourne that Mr Christopher tipped for the strongest growth next year, but Hobart, with up to 13 per cent price growth on the cards.
And Brisbane is also likely to experience strong growth, with forecasts in the 3 to 7 per cent bracket.
Perth and Darwin were also predicted to be entering their “first-year” recoveries, with 1 to 4 per cent growth anticipated in both cities.”
All sensible stuff. These aren’t wildly exciting predictions, but they’re more than enough for property investors to work with – especially if you are manufacturing growth yourself.
The swing factors of course are APRA and interest rates.
If APRA comes down harder on the banks (and the conversion rate falls even further) then that will take some wind out of the sails.
Same too if the RBA decides to hike rates… but I see that are a very low likelihood outcome.
So with that caveat, Christopher is exactly right. The market is entering a growth pause – as the APRA restrictions work their way through the system. After that, expect lending and the market to bounce back.
So deep breath. Don’t panic yet.
What do you think about Christopher’s predictions for your city?
Are you freaking out… or all good?