Summary of Australian Lending Changes: 2021 Update

https://www.youtube.com/watch?v=yD__-JjLsOI There's been a lot of changes this year when it comes to property finance in Australia. Lowering interest rates, government incentives, easing lending requirements have all played a role in easier access to money. In this episode we discuss with Michael Brown from MortgageBrokerSydney.com.au about what's been happening as well as some of the changes on the horizon. 0:00 - Introduction0:43 - The Tighter Lending Environment of The Last Few Years3:57 - Covid's impact on lending5:22 - Government making lending easier7:45 - Investors vs Home Owners9:35 - Things to do to get a loan more easily11:08 - Will lending get easier in 2021?13:05 - Discounts for low risk investors16:20 - Refinancing18:11 - Deposit requirements Transcription Ryan 0:00There's been a lot of changes this year. And in the last couple of years when it comes to housing finance and investment, property finance in Australia with everything that's happened with COVID-19, this year, lowering interest rates, government incentives, there's just a lot that's been going on. So today I've got with me, Michael Brown, who's a mortgage broker from mortgage brokers sydney.com.au. He's going to talk us through, you know, some of the changes that have been happening, and what the lending landscape looks like at the moment. So hey, Michael, thanks for coming on today. Michael 0:30Thank you very much, Ryan. Glad to be here. Ryan 0:32So obviously, it's been an absolutely crazy year. With everything that has happened. He really through I guess, you know, going back to I think last time I really did not date on this was when Apple was bringing in their changes. This was even prior to Royal Commission. What was it like kind of going through that period of time where lending was getting tighter and more restrictive? Michael 0:56Look, that was an incredibly frustrating time for any mortgage broker. And lending in general, particularly mortgage broking because we had our profession splashed all over the headlines, in a disproportionate manner, I would have said give to the banks, who, broadly were the real culprits, if I can put it that way at the time, and I found it very difficult. But as a general ism, everyone became so careful, and really, just just wouldn't do anything. It was such a cautious atmosphere to try and get anything done. And it was, it was very difficult. It's a bit easier now. But certainly, Ryan 1:41I kind of wanted to set up the contrast of what it's been like for the last couple of years to kind of what the landscapes like Now, obviously, COVID here, we had lock downs in Sydney, you know, around March or April, I can't even remember anymore. It's been that kind of year. But how have things changed now in the lending environment? Michael 1:59Is it easier to get lending at the moment. So if you if you walk through that period, very quickly, without trying to bore anybody, as the Royal Commission started to release findings, and you know, when people or institutions preemptively changed some rules, and then as they were advised of Royal Commission outcomes, they subsequently changed their rules, that produced a tightening of credit, which meant that it was more difficult to get money. And some of those rules you've seen, or you would have seen, sort of discussed with within the the media broadly around things like the level of investigation into people's living expenses, all the way down to what you had for lunch this week, which is a little bit excessive, but that's where we got to, and, and so at its worst, the the requirements for information were, you know, extensive, as much as information as you could possibly give, and even then more, I would have imagined, it'd be quite hard for investors to get bones around that time, just because of how tedious it would be to go through that process. Look, there were plenty of people who just gave up. And certainly, that period of time made it a little bit easier for me, because, you know, within the industry, at least we know how to sculpt an application, what exactly what information is required and what isn't. But it's still a long list and and very difficult. And the focus was absolutely, as you say, on owner occupied finance, not so much investors, they were trying to do anything to effectively, I suppose, make sure that their book was as safe as it possibly could be, and owner occupiers are always those. Ryan 3:54Yeah. And then with COVID, and then obviously, the government wanting to stimulate the economy, has that changed and become more relaxed now? Michael 4:02Well, COVID, obviously, brought another very brief tightening of rules as everybody's job became less and less secure. That that was, you know, that required that that did actually require, if you're going to do responsibly, some tightening around the information you would provide as an applicant, to determine whether or not you are going to have a job because, you know, no one wants to be in, in finance that they can't afford that started that that all of those requirements, or most of them have started to loosen. Now as you know, the way forward becomes a bit clearer through various pandemic advancements such as vaccines. And you know, and certainly given that Victoria is out of lockdown, so some of those job issues are overcome. We still have to do basic questions around it, but it certainly got a lot better. And since then, of course, we've had The government announced that they want to change the Responsible Lending outcomes or reduce some of those. And, and that also is starting to have, you know, a small effect on the documentary requirements and the accessibility of credit. Ryan 5:19So it's becoming easier now, to get Michael 5:21credit, it is becoming easier. It's only the first steps now, because the government only just recently released that bill in or introduced it to Parliament last week or this week. And so some of those effects won't take place until it becomes until they've had the industry stakeholders report back to them. And it becomes law assuming that it does. But you can already see some of the the banks angling with minor changes as to how they look at, again, things like living expenses, some some easing in some documentary, age, age of documents required that kind of thing. So it is becoming an easier, it's not I don't think we'd go so far yet to say is, it's easy, but it's getting there. Ryan 6:08When was a point in time where you feel like it was easy, because you've obviously been in this industry for a number of years now. Is that correct? Michael 6:16I've been in this industry for 30 something years, but way too long. Ryan 6:20I've been through so many things, that means you would have been through the interest rates of 14 15% 17%. Michael 6:27Yeah, all those early 1990s. I've certainly lived through all of those. I'm a bit of a contrast, we've got interest rates of 2% now and back then 17% for home loans and 20% for commercial. Ryan 6:39Yeah, I just I just did an interview with a investor, young guy that 25 who's investing in property. And he was disappointed, because he'd locked in a fixed interest rate about 18 months ago. And you know, what have been in that, you know, for four to 5% range. As we were joking about how years ago, if you had a locked in interest rate like that, it would have been goldmine. And now that's disappointing. Michael 7:04Like, I can remember a time when people were jumping at fixed rates of 14.9%. And they thought that was fantastic. So yeah, what a change. And that certainly does make it easier. Now, when you're fronting up, your capacity to borrow obviously is much higher, because the sums are worked on so much lower numbers, because the sounds are being worked out on Ryan 7:28you know, can you repay interest rates? The Father, Michael 7:31not 14%? Yeah, exactly. Look out on your actuals, as you probably know, but they're doing their sums now at around just a touch over five, which means you can borrow up a pretty reasonable sum of money. Ryan 7:44And are they still approaching it very differently as investors or homeowners, because I know they were doing that a couple of years ago, it was very focused towards first homebuyers or homeowners, we had better interest rates, it was easier for them, investors were having trouble, obviously, most of my audiences, people wanting to invest so Michael 8:03well, that probably dates back to around I think maybe I think it's for 2014 or 15, when APA really put their origin for the first time. And we really saw some clamping down on things like interest only finance, all the interest rates separated with an and all of a sudden, you know, the investors were paying these significant premiums over an owner occupier. And we are actually now starting to see those really come much closer together. You know, like you can get interest only finance at a premium only of 20 points over principal and interest for an investor and the difference between those rates and an owner occupiers only 30 or 40 points. To a couple of years ago, it was probably 100 points or more. Ryan 8:56Yeah, is 100 points. 1%. Michael 8:58Sorry, shouldn't talk the jargon. It absolutely is 1%. So when I talk about 20 points, we're talking about point two of a percent. Ryan 9:05Yeah. Which is, you know, not a huge amount when you're looking at previously, it was a whole 1% difference. Michael 9:11Yeah. And and we shouldn't remember, I'm not I'm not suggesting that, you know, we decry the difference, but the investor gets to claim it. So if your point 2% up, then potentially your real difference is only as much as maybe point one of a percent because, you know, it's tax deductible, generally speaking, whereas the occupiers obviously aren't. Ryan 9:33Yeah. And so we're moving forward or for people who are looking at investing,