Source AFR Duncan Hughes
Cautious property lenders are ditching deals at the last minute amid growing nervousness as the value of property sales plunges by more than 50 per cent since the market peak, analysis reveals.
Mortgage brokers and buyers agents’ claim million-dollar property sales are collapsing as increasingly risk-averse lenders reassess their exposure and pull out, causing deals to collapse.
Sales between $3 million and $5 million and settlements for off-the-plan apartments – where preliminary lender offers were made two-to-four years ago – are among the hardest hit, according to market specialists.
“Buyers are being stripped naked,” said Emma Bloom, director of Morrell and Koren, a buyers’ agency.
“Lenders want buyers’ financial records completely exposed going right back to their earliest transactions,” Ms Bloom said.
“It is pretty brutal,” she says. “Buyers are getting seriously knocked back.”
For example, a buyer had to pull out of a deal on Saturday for a three-bedroom Victorian conversion in leafy Armadale, about seven kilometres south-east of Melbourne, after the lender cut its credit from $3 million to $2.25 million.
Martin North, principal of Digital Finance Analytics, said: “We are now entering a whole different ball-game – this is a major credit crunch and may become business as normal – and a very different normal too boot.”
Mr North, an independent financial services consultant, said property markets are entering a second round of tougher credit tightening.
The first started in 2016 when the Australian Prudential Regulation Authority introduced 30 per cent speed limits for investment mortgages that had a short-term dampening on demand.
The second phase, which started last year and has been exacerbated by the banking royal commission, includes a focus on interest-only lending and tighter underwriting standards.
“Credit availability is the primary driver of home prices,” said Mr Martin. “Less credit means less demand and falling prices.”
The average value of property transactions in November 2016 was about $1.35 billion a week, according to Domain monitoring of markets.
It fell to about $900 million a week in June last year and has since slipped to around $500 million, Domain analysis shows.
‘A significant correction’
“So sales values are one-third down on a year ago, and more than 50 per cent lower than 18 months,” according to Mr North. “This is a significant correction,” he said.
Mortgage brokers are also claiming deals are falling over as lenders lower their exposure, or decline a borrowers’ application.
“It is becoming more of a problem,” says Christopher Foster-Ramsay, of Foster Ramsay Finance, a mortgage brokerage. “It is widespread across the market,” Mr Foster-Ramsay said.
Deals where lenders have made a conditional off-the-plan offer are having to be renegotiated in the lead-up to settlement because of falling prices, he said.
Some longer-term buyers with finance are snapping up apartments and houses, particularly around inner-cities, according to Steve Lusi, a director of Direct Property Group, a real estate agency.
“There are still investors with a long term view looking for deals,” Mr Lusi said.
It is tougher in Perth and Darwin where years of falling – or stagnant – prices are resulting in repossessions.