Ask the Experts – Lending

ask the experts-lending

In our second ‘Ask the Experts’ article, we talked to Tribeca’s Director of Lending Jason Kloszynski about what an unstable property market will mean for people looking to buy, sell and refinance over the months and years ahead.

How has COVID-19 impacted the property lending market?

Probably the biggest impact from a broker’s perspective is the speed with which the market is now not moving. To give you some context, if you were refinancing a home loan pre-COVID with one of the big four, generally from the first client meeting through to approval of the loan it would take four to six weeks. Now, due to reduced resources at the banks such as call centre staff, that four to six weeks is commonly six to eight weeks and can blow out to eight to twelve weeks. I even had a very straightforward deal with a major bank that took a record 52 business days to get approved and a further 21 days to get the loan documents prepared!

Part of the delay are banks being a lot more credit savvy – crossing the T’s and dotting the I’s off the back of the banking royal commission. And it’s how banks have reacted to certain technologies being challenged or, in some instances, certain lack of technologies that have been challenged through COVID.

But despite all the doom and gloom around, we’re still seeing a lot of property transactions taking place. It’s just critical to get the fundamentals of the applications together early enough so you don’t miss out on opportunities.

Read more about Tribeca’s lending services here.

Are there any specific trends you’re seeing emerge?

There are three key trends we’re witnessing.

Top of the list are first homebuyers. They’re probably the best poised for quite some time to buy property. Prior to all the COVID restrictions, a $500,000 – $1,000,000 property could attract a dozen or more serious bidders at an auction. Now, those twelve buyers have dropped to maybe two or three. So it’s a great time for first homebuyers who have savings already accrued and are just waiting to buy the right property, especially with rates so low. We’ve doubled the amount of first homebuyers that we’ve been working with this year.

We’re also seeing early signs of people who are reconsidering their discretionary property. That holiday house down at the beach which they’ve realised isn’t used as much as they would like to, and maybe it’s best to sell it with potentially tough times ahead. And better to sell it now whilst the market is still reasonably strong, considering the view that 2021 will be a poor property year. We are certainly seeing some clients selling off those assets.

Then on the flipside, the final trend we’re seeing are clients with investments who are in a really strong financial position, and with rates so low are ready to gear up and go again. So we’re doing markedly more pre-approvals or preparation for clients anticipating to buy property in the back half of this year and early into next year. Refinancing today to set themselves up for tomorrow.

Where do you see interest rates and property prices going in the next 6-12 months?

My most asked question.

I think we’re in for quite a long period of these historically low rates, although it will be hard to see them going much lower. Banks lending margins at the moment are as compressed as they’ve ever been. Having said that, if you asked me this question back in February my position was the same. I didn’t think that rates could drop any further, and they’ve dropped a little bit more this year.

When will rates go up? Not in the next year or so; it’s pretty hard to see that happen. And that’s a global trend.

With property prices, my gut feel says that as this year progresses, we will see some property prices drop. But how much is largely a question of government action. I think there’s been enough advice and government response with subsidies such as job seeker now being extended into next year, that this will keep some normality in the property market. But, if you were looking to potentially buy that bargain holiday house, I think that window over the next 12 to 18 months is probably as good as it’s going to be for a while. It’s very hard to see a big surge in property prices now for quite some time. You look at the fundamentals of the economy with unemployment increasing and incomes either stagnating or deflating, it’s pretty hard to see property prices bouncing back anytime soon.

But there may be pockets where this doesn’t happen. There’s a lot of people living in Melbourne in lockdown at the moment, who are realising that they can work from home and don’t really need that three bedroom $2 million apartment near the city anymore. They can move down to the Mornington Peninsula for instance and have a spectacular home with the swimming pool and triple garage with a beautiful outlook and walk to the beach. In fact, if you have a look at property prices along the Peninsula, over the last 12 months they’ve actually gone up.

What this says is that COVID is educating people that they don’t necessarily need to live in the metro hub. I think that will potentially mean that outer bayside regions will actually hold a little bit due to this increased demand and change in lifestyle choice.

For great resources and helpful information on property lending, check out the Mortgage & Finance Association of Australia’s (MFAA) website.

With interest rates so low, what’s the best strategy around fixed and variable rates?

We are certainly seeing a lot more client inquiry on fixing rates. Traditionally as a business, it’s not something that we’ve recommended because it does restrict flexibility. But there is some value at the moment, especially in considering a split loan.

Say you have a million dollar home loan. You might take half in a fixed rate for two years, and the other half variable. The reason you might do that is because fixed rates are still around a half a percent cheaper than variable rates. But you’d want to be really confident that your circumstances over that period of time are not necessarily going to change.

For example, if you’re a young couple planning to have children in the foreseeable future, now’s not a great time to be fixing your interest rates, because you just don’t know what the world’s going to look like. But if you’ve got an investment property that you’ve had for ten years and don’t have any intention of selling it for the next few years, it might make sense to fix rates for a period of time.

The first step is to speak to an advisor and/or mortgage broker for advice before committing to anything.

What should people be considering to either shore up or take advantage of the lending market at the moment?

Definitely have a financial review with an advisor such as Tribeca. If you take COVID out of the discussion for a minute, we would say to all our clients that you really should review your lending arrangements annually. Can you get a better deal? Are you unhappy with your current loan?

Banks and other services such as utilities and insurances rely on their clients’ apathy. If you don’t check your circumstances every year, you could be missing out on significant savings.

As a mortgage broker we get a very good line of sight over the market, because we’ve got access to more than 30 lenders and a range of products. Our work is about reviewing people’s finances and looking if we can get you a better deal, balanced with your overall needs.

A lot of people say, ‘well what’s half a percent?’ On a million dollars, half a percent is a very big chunk of change that you’re just giving to the bank in extra interest that you could spend on a variety of other things. And that doesn’t mean you have to shift banks every year; it’s probably more likely every two or three years. But it pays to check by asking: Are you making the most of your money? Are you making the most of your borrowings?

In terms of taking advantage of the market at the moment, if you’ve got a long-term investment strategy now is definitely the time to put yourself in a strong position. We’re seeing some savvy people who recognise that over the next 12 to 18 months, property prices are expected to decrease. So what they’re doing now is getting onto their valuations to shore up their equity position. By getting that pre-approval they can buy tomorrow when today’s property drops another 10% and leverage their equity.

Why would someone engage a mortgage broker and what makes a good mortgage broker?

It’s a really good question. I actually love it when a first-time client asks me that question. There are a few reasons.

First of all, if you approach a bank directly that lending manager can only offer you their product. They’re not going to tell you about the other brands; they’re not going to tell you about the pros and cons of the other products. So why wouldn’t you use a broker?

It costs you nothing as banks remunerate brokers for the introduction of a client – with a similar fee structure across lenders there is no conflict in our recommendations as we are motivated by best meeting our clients’ needs. We hold a broad view of what the market is doing. Now I’m not going to suggest that of the 30 to 40 relationships we have with lenders means that we use all 40 lenders, but it gives us line of sight over what the market is offering so we can source the most competitive rates and fee structures to meet our clients’ needs.

We can also advise clients on the best packages to meet their needs. And that may not be going with the cheapest loan if that lender isn’t offering certain features the client requires. That could be the technology, such as Apple or Android Pay which some of the lenders don’t offer. Or you could be someone who has an aspiration over the next ten years of building a property portfolio. There are certain lenders that you just simply wouldn’t go to because they’re not as good at understanding clients who want to leverage equity to buy the next property and rely on rental income. And if you’re self-employed, there are lenders who have a better understanding of what self-employment looks like and are positioned to support those people.

A really good broker will look at their client’s objectives with the long (10 years), mid (3 years) and immediate goals in mind (what we call 10/3/now) and leverage their experience to establish a plan to meet those needs. A particular lender may be great for a first home buyer now where there is a limited equity position. But in two or three years time, a funding package is likely to be more favourable at another lender where the client is better rewarded for a stronger equity position and can establish a relationship with a lender to have them on the path for those longer term goals.

It’s about understanding the client really well and leveraging the broker’s experience and market knowledge to find the most favourable package to meet that client’s needs on an ongoing basis.

If you would like to discuss your lending situation or need financial advice on any matter, we’re always ready to chat. Please talk to your advisor or arrange an appointment with one of our Tribeca Tribe here.

Want to hear more from our experts? Click here to see our recent Ask the Expert article on superannuation.

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