Better borrowing power a boon for pre-Christmas sales

Laing+Simmons’ Leanne Pilkington has said that the recent decision by a number of lenders to drop their assessment rates could potentially deliver “a major boost in borrowing capacity for people looking to buy property”.

Subsequently, it will see vendors become the real winners, especially in the near term.

Ms Pilkington noted that at the time APRA relaxed the assessment criteria back in 2019, average floor rates – which ascertain whether a borrower is capable of comfortably making repayments – were around 5.4 per cent.

She believes the recent creep lower of floor rates could effectively increase the amount of finance that borrowers are able to access.

Westpac and its subsidiaries BankSA, Bank of Melbourne and St.George are among the banks to recently slash their required rate for serviceability considerations.

Weighing in on the financial side of things, Nectar Mortgages’ Justine McDonald is expectant of more lenders following suit, stating that a reduction in floor rates “can mean tens of thousands of dollars of additional finance with which to proceed with their property search”.

According to Ms McDonald, it means borrowers will broaden their property search – “with more properties now within their comfortable reach”.

“The scope of options is considerably greater,” she said.  

Ms Pilkington flagged that the potential for easier borrowing comes as strong clearance rates and a supply shortage means vendors already have plenty of reasons to be ready to list.

“Strong prices are being achieved and low interest rates give buyers the confidence to proceed,” she said.

“Now, it appears those buyers will be able to borrow more.

“The buyer pool for properties coming to market potentially grows larger. More competition from more finance-ready buyers is great news for vendors.”

The current situation has led Ms Pilkington to forecast that buying and selling will run right up until Christmas this year, and “with fewer people going away on holidays, the listing season in 2021 is expected to kick off earlier as well”.

“We expect the next few months to deliver a steady stream of strong prices with properties selling comparatively quickly,” the managing director continued.

Further, Ms Pilkington believes that increased borrowing capacity for buyers, coupled with the extension of the HomeBuilder scheme, has the potential to support new dwelling commencements, including those relying on pre-commitments.

“It’s no secret that supply is a major issue for the residential market,” she said.

Ms Pilkington warned that “demand is strong and this will only increase if borrowers can access more finance. But without adequate choice, the result will be further upward pressure on prices.”