Housing affordability has been a hot-button issue in Australia for some time. Various factors, including an influx of foreign investors and stagnant wages, have made it more difficult than ever for young Australians to buy their first homes. If you are thinking about buying a home, what will you face while trying to get approved for a home loan? Thanks to new regulations by the Commonwealth Bank of Australia, you may have a harder time than you would have just a few months ago. Due to fears about a cataclysmic housing bubble, the CBA and many other lenders have become much stricter about the mortgage lending process. Even if you can afford to buy, securing a loan may be easier said than done.
The CBA’s New Guidelines
Citing concerns about skyrocketing home prices, the CBA recently put more stringent lending rules into place. Most notably, the bank will now perform stricter background checks on Australians trying to secure loans to buy real estate. The hope is that this will reduce the number of people who qualify for such loans, which will theoretically help make prices level out. Among the new guidelines that have been put in place, the new servicing loading requirement is probably the most concerning to first-time home buyers in particular. Prospective buyers now must show they have the ability to repay a loan equal to 20 percent more than the amount they are requesting. Also, prospective buyers’ incomes and debt loads will be assessed much more thoroughly.
Skyrocketing Home Prices
Even if your credit is in excellent shape and the CBA’s new rules won’t affect you, can you afford to buy real estate in Australia in the current climate? Moreover, should you? If you are an investor looking to cash in on the red-hot market, proceed with caution. Many experts, including housing economists Philip Sous and Lindsay David, believe that there is currently a bubble and that it’s going to burst before too long. If and when that happens, home values could plummet, leaving investors in a very bad position.
New Loan Application Fees
Despite the fact that household debt in Australia has nearly tripled in the last 25 years, home values continue to soar. Foreign investors — particularly from China — are largely to blame for the phenomenon. In a supposed effort to reduce the number of loans being approved for such investors, a new application fee has been introduced. However, the fee — $5,000 on properties worth $1 million or less and $10,000 for properties worth more than $1 million — is really a pittance to investors who can afford to buy expensive properties in major markets like Sydney and Melbourne, so it’s unlikely to do a whole lot.
Lackluster Economy Complicates Matters Further
Finally, the Australian economy as a whole is making it more difficult than ever for many to be approved for home loans at this time. Economists believe the Australian dollar will most likely keep falling in value over the next year, and the unemployment rate is the highest it’s been in more than 10 years. With the median house price in Australia currently around $660,000, it’s little wonder that so many are struggling to buy real estate. Unfortunately, it appears that the real estate market will continue to benefit investors — especially foreign investors — while leaving home buyers in the lurch.