in Sydney and Melbourne have fallen slightly in recent months. Falling house prices can be due to various factors, like increased interest rates, or oversupply. In current times, the drop in house prices has largely been attributed to what they call a ‘credit crunch’.
What’s a credit crunch?
A credit crunch is a sudden reduction in the availability of loans or credits. In this case, the credit crunch is in response to the Australian Prudential Regulation Authority (APRA) clamping down on loan criteria, and in more recent months, the banking royal commission’s investigation into lax lending practices. Lenders are responding to the enquiry by tightening lending criteria.
What’s the impact of a credit crunch?
A credit crunch effectively means it’s harder to get a loan. Borrowers need to comfortably meet the lender’s loan criteria, and may need a bigger deposit than at other times. With less money to spend on houses, sales tend to slow. There is less competition in the buying market, which means house prices may drop slightly.
First home buyers borrowing more than ever
Turns out, though, that the credit crunch is not a blanket effect. While the average owner-occupier’s loan size has reduced slightly in recent months,are actually borrowing more. The first home buyer size is, on average, growing.
So why are first home buyers less affected by the credit crunch? The data indicates that the loan restrictions are predominantly affecting investors, rather than first home buyer owner-occupiers.
“Given that first home buyers are likely to have less equity than upgraders, the fact that their loan size is still growing highlights that the credit tightening is very focused on investors,” says David Plank, Head of ANZ Australian Economics.
This bodes well for property market predictions. Thanks to first home buyers, house prices might be slow, but are still steady, and loans are still being made. This, coupled with the steady 1.5 per cent cash rate set by the Reserve Bank of Australia, helps keep the property market stable, and keeps doomsayers at bay.
If you’re a first home buyer and want to talk about loan options available to you, book a chat with your Smartline Adviser today.