u/marketrent

Excerpts from article by investment adviser Mark Gardner:

[...] The people holding five investment properties at 2% yields in suburbs they've never visited, telling themselves they're sophisticated investors, they're not. They're policy dependents. The budget just sent them a bill that was always in the mail.

[...] Residential mortgages dominate [bank] loan books, comprising 54% to 70% of assets depending on the institution. Those mortgages are secured against a property market explicitly inflated by the policy settings the budget just started unwinding.

Australian household debt-to-income sits at 182%, among the highest in the developed world. Mortgage serviceability is at 45% of income, well above the 20-year average of 34%. Big four bad debt expenses: 0% to 0.2% for four consecutive years. That's not a destination. That's a temporary address.

Here's the specific new risk. Remove the buyer pool, no negative gearing incentive on established properties for new investors. Increase sell incentives, lock in old CGT rules before 1 July 2027 or absorb the hit.

You don't need a crash. You just need a few percent of price softness and rising arrears to push bad debts from 0.1% toward the historical average of 0.3%. On a multi-trillion dollar mortgage book.

The exquisite irony: CBA's own chief economist flagged these changes were "locked in" before budget night, and the CEO has publicly supported property tax reform. The bank most exposed to this was telling us it was coming.

Excerpts from article by the Fin's Angira Bharadwaj:

Westpac has told mortgage brokers it will not honour pre-approved investor loans for customers, which would need to be reassessed after the federal government banned negative gearing for existing properties in the budget.

On Wednesday, Australia’s second-largest mortgage lender, emailed its broker network warning them to “set expectations early by clearly discussing [with customers] where the removal of the negative gearing benefit may create a serviceability shortfall in the future”.

“Document the customer’s acknowledgement of potential impacts to future servicing capacity and how they intend to respond if their position changes.”

Mortgage customers seeking an investor loan are expected to have their borrowing capacity reduced because they can no longer factor in savings from negatively gearing a property.

Mortgage brokers expect some customers’ borrowing capacity could be slashed by as much as 20 per cent.

Westpac cautioned brokers against making promises about future lending arrangements. “Do not provide assurances about future tax benefits,” it said. Westpac’s subsidiary St George also sent a similar note to its broker network.

Property investors with conditional investor loan pre-approvals have a three-month window to purchase a property up to an agreed amount, but Westpac said this would need to be reassessed.

“Conditional approvals will be assessed at unconditional approval using the latest applicable credit policy,” the lender said.

Excerpts from article by the Fin's Nick Lenaghan:

[...] Preliminary clearance figures collated by data provider Cotality showed the national clearance had been in the doldrums for almost two months, dipping below 60 per cent for the fifth time in the past seven weeks.

Tim Lawless, Cotality’s research head, said the market had been battling the “macro headwinds” of higher interest rates and living costs, with the tax changes delivering “an almost instant impact on market confidence and sentiment”.

“Now you have the downside impact of the budget announcement which will be even more impactful on Sydney, given the NSW market has the highest portion of any state of investors.”

While the loss of tax benefits gave would-be property investors the most reason to step back from the established housing market – new builds are exempt from the changes – even first home buyers, already daunted by high mortgage costs and affordability, would be cautious as the market weakened, Lawless said.

“You don’t want to catch a falling knife,” he said.

Over the long run, clearance rates average about 65 per cent. During a growth period clearance rates typically rise above 70 per cent.

“During a downturn, you generally expect clearance rate to be below 60 per cent. So this is a clearance rate that’s well and truly in downturn territory. You can see that in housing values,” Lawless said.

Excerpts from article by Stephen Johnson:

The Reserve Bank’s chief economist Sarah Hunter has warned entrenched inflation could force up interest rates and induce a recession after a lone member of the RBA’s monetary policy board voiced concerns about an economic slowdown.

In a speech about the Middle East conflict, Dr Hunter warned of inflation expectations leading to firms putting up prices.

“Moreover, if expectations rise persistently, it becomes harder for the central bank to bring inflation back to target, as it must both bring expectations back down and restore the balance between supply and demand,” she told the Bloomberg Forum for Investment Managers in Sydney on Tuesday.

“Doing so may require a more substantial slowing of economic activity, as we saw during the early 1990s recession.”

The RBA’s assistant governor for economic policy also suggested more price rises were likely as a result of higher fuel prices since the Iran war began in late February.

“Reports from our liaison program suggest that some firms have responded already, with fuel surcharges raised by firms at the start of supply chains that flow into a broad set of industries,” she said.

Excerpts from article by the AFR's Angira Bharadwaj:

Macquarie has told its network of mortgage brokers to update their lending policies to apply the federal government’s ban on negative gearing for existing properties, even though it has not yet passed as legislation, and as other major banks consider following suit.

Macquarie decided to move quickly after the government said the changes were effective from the federal budget. On Monday, Macquarie wrote to its broker network to alert them of the lending changes.

The bank told brokers it was working on a new borrowing calculator factoring in the changes that would be launched soon.

“In light of the federal budget, we have made changes to our investor lending policy to ensure we continue to comply with our responsible lending obligations,” a Macquarie spokesman said. “These changes help us ensure property investors are able to afford their loan when the changes to negative gearing come into effect.”

Westpac also advised its home lenders on Friday that the proposed negative gearing ban could affect a customer’s borrowing capacity in the future, but had not yet implemented any changes to its lending policies.

Excerpts from article by the Daily Telegraph's Aidan Devine:

Property investors are being told their borrowing power has been wiped out in the wake of the government decision to restrict negative gearing perks in the recently unveiled federal budget.

Mortgage brokers reported that major lenders have already begun to factor in the loss of negative gearing perks into their assessments of investors’ borrowing power, despite the changes only taking effect in 2027.

The typical reduction in the amount banks will lend new investors was about 30 per cent in some instances, one broker claimed.

This change in borrowing power calculations has meant some investors who were eligible for loans over $1.1m before the Budget release will only be able to borrow about $800,000.

[...] Kingfisher Finance founder and broker Alex Gee said it became apparent some lenders were reducing their exposure to investors on Wednesday morning, mere hours after the budget release.

Mr Gee, based in Brisbane, said he had clients who had their pre-approvals knocked back because they could no longer receive negative gearing benefits.

One client was told their borrowing power would reduce by $380,000, Mr Gee said.

In Victoria, there is currently no obligation to publicly disclose the final sale price of a property, with many listings simply marked as “price withheld” or “contact agent” once sold, or taking months to be available.

Excerpts from article by Nathan Mawby:

A shocking 94 per cent of [about 1,000] Victorian property owners have revealed they would look to dodge government plans to ban auctions unless sellers disclose their reserve price.

[...] Using the survey’s findings as a base, the REIV is calling for substantive reforms to regulatory and tax settings to better attract investment and sustain economic growth, improved transparency for home sales and a more stable housing market.

“Because what we are continuing to see across much of the sector – not least in the state’s flatlining rental market – is flawed, one-sided policy initiatives that are failing to address material issues,” Mr Balazs said.

Lonergan Research polled responses from more than 1000 Victorian respondents.