Market Update: Lockdown Lifted And New Lending Rules Introduced

October 29th, 2021 - by Brad Gillespie

It’s been an incredible year so far for the Sydney property market, with price growth outpacing all expectations.

What will happen to the market now that lockdown has lifted, and new home loan rules have been introduced?

What does the end of lockdown mean for the real estate market?

Now that we’ve passed the 80 per cent vaccination milestone here in NSW, many lockdown restrictions have eased, and we’re able to move freely around Sydney once more. We’re thrilled to be conducting open homes and in-person auctions again, albeit with some rules, like mask-wearing and checking in with the Service NSW app, still in place for everyone’s safety.

As consumer confidence rises, we’re anticipating more homes will come onto the market as those vendors who were holding off until lockdown lifted make their move. And while lockdown didn’t dampen buyer enthusiasm one bit, we’re expecting to see a further increase in active buyers now that it’s easier to get out and view properties for sale once again.

What are the experts predicting for the Sydney property market?

Across the board, the big four banks and leading economists have all predicted strong growth for the Sydney property market this year.

CBA’s revised predictions, released in August, forecast a total of 24 per cent growth by year’s end. ANZ is not far behind, saying in August that they expect to see a total 23 per cent increase. Westpac has tipped a 22 per cent rise in Sydney dwelling values for 2021, while NAB has forecast 21.6 per cent growth over the course of the year.

The Sydney Morning Herald Scope survey, released in August, collected property market predictions from 18 leading economists. On average, they forecast a more conservative 16 per cent rise in Sydney housing prices this year.

As for 2022, growth forecasts from the banks range between 3 and 5 per cent, while the economists interviewed for the Scope survey predict, on average, 4 per cent. Declining affordability is cited as the main factor likely to slow down the rate of growth next year, although real market disruption isn’t expected until interest rates rise. With the Reserve Bank governor Phil Lowe recently ruling out the use of interest rates to put the brakes on the housing market, it seems likely that they will remain low until 2024.

What about the new home loan rules?

There’s been a change to home loan lending criteria. The banking regulator, the Australian Prudential Regulation Authority (APRA), has announced stricter serviceability tests for home loans. From 1 November, the minimum interest rate buffer will be raised from 2.5 to 3 percentage points on all mortgage applications. This means that banks will have to ensure that new borrowers can still afford their home loan repayments if interest rates were to rise 3 percentage points above their current rate.

APRA said it made the change in response to the big jump in people borrowing large amounts of money over recent months. For example, in the June 2021 quarter, more than 20 per cent of new lending was to people who were borrowing more than six times their gross income. APRA estimates that the change will reduce the “maximum borrowing capacity for the typical borrower by around 5 per cent.” It also says that the change won’t affect mortgage interest rates.

What impact will these changes have on the property market?

The experts seem unanimous in their agreement that the change is likely to have only a minimal impact on the real estate market.

ANZ’s head of Australian economics, David Plank, says, “in the context of the current strength of the housing market this is a modest change.” Adrian Kelly, president of the Real Estate Institute of Australia (REIA), noted that given that most borrowers don’t take out loans at their maximum capacity, the change should only have a minimal effect. Even APRA itself admits that the “overall impact on aggregate housing credit growth flowing from this is expected to be fairly modest.”

However, several experts have said that they wouldn’t be surprised if further measures were deemed necessary in the future. CBA’s chief executive Matt Comyn said that the bank “expect that it may be necessary to consider additional steps as lockdowns end and consumer confidence increases.”

What does it mean for buyers and sellers?

The Sydney property market went from strength to strength during the lockdown, and now that restrictions have eased, all signs indicate that it will maintain this momentum for the time being. Buyer demand remains high, and properties continue to sell quickly, so if you’re thinking of selling, there’s no reason to wait.

Now is a good time if you’re looking to buy in the inner city or inner west. With more properties coming on to the market, there’s stock to choose from, and with experts forecasting prices to rise for some time to come, buying now could well save you money in the long run.

Whether you’re looking to buy, sell or invest in the inner city or inner west, we’re here to help. Get in touch today.