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Banks at War: The Fight Over Your Future Home
167 Plays1 month ago
Australian banking giants are clashing in a high-stakes battle over home ownership, with massive implications for first-time buyers. In this episode, we dive into the key issues under review by a parliamentary inquiry: a strict lending buffer, the possibility of moving from stamp duty to a land tax, and the challenges of housing supply. Tune in to explore how these debates could shape the future of Australia's housing market, potentially giving you more room to step onto the property ladder.
Need help navigating the home buying journey? Get a free pre-approval and explore your options with Hunter Galloway – a trusted mortgage broker for homebuyers across Australia. Call 1300 088 065 or visit huntergalloway.com.au
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Transcript
Banking Giants Clash Over First-Time Buyer Policies
00:00:00
Speaker
Australian banking giants are at war and it's all over the future of home ownership. Right now, two powerful factions that tear each other apart over whether it should be easier for first home buyers. There's a parliamentary inquiry pulling back the curtain on this battle and what we're finding could be a game changer for anyone dreaming of buying a first home. Will the winners be the buyers or the banks? Stick around because we're going to find out what's happened.
00:00:21
Speaker
Welcome to the Buying Your First Home Podcast, your personal guide through the Australian housing market. Here we tackle the big questions and the small details that come up when buying your first home. From financial prep to finding the right neighbourhood, we're here to ensure that you've got all the knowledge at your fingertips. So let's take the first step towards unlocking the door to your new home.
Are Lending Standards Hindering Home Ownership?
00:00:46
Speaker
why was the inquiry launched? The en inquiry was launched in response to Australia's housing affordability crisis. Home prices have risen dramatically, especially in major cities, making it nearly impossible for many first home buyers to enter the market. The inquiry is questioning whether strict lending standards put in place by APRA, Australia's finance regulator, are keeping the market stable or actually preventing home buyers from getting into the market.
00:01:06
Speaker
The goal here is to see if we can find a balance, making home ownership more accessible without risking the financial stability of the system. As you'll see, there's no simple solution and the banks themselves are in complete disagreement on the best way forward.
Buffer Debate: Flexibility vs. Strictness
00:01:18
Speaker
A big topic of the en inquiry is the serviceability buffer. Right now, the buffer requires banks make sure you can afford a loan if interest rates increase by 3%. It's a safety measure to protect both the banks and the financial system from shocks. Why do banks assess your home loan repayments at a higher interest rate?
00:01:34
Speaker
When you apply for a mortgage, the lenders use a series of criteria to assess how likely you are to repay the loan. As a pilot's assessment, the lenders need to consider whether or not you can afford to make repayments if the interest rates increase in the future. During COVID, when interest rates were emergency lows, this buff was increased to 3%. So if you're applying for a home loan today at 6.5%, the banks are actually calculating repayments as if the interest rates were at 9.5%. Now it definitely made a lot of sense when the cash rate was below 1%, but now it's over 4%.
00:02:01
Speaker
And it definitely made a lot of sense when the interest rates were below 2%. But today, when the forecasters saying interest rates are at peak, is this still appropriate? Well, NAB and the Australian Banking Association believe that this 3% buffer is way too rigid. They suggest a dynamic buffer that adjusts with the economic cycle, expanding when interest rates are low and narrowing as they rise. This would mean that when the conditions are right, first phone buyers might have a bit more room to borrow and buy sooner.
00:02:24
Speaker
On the other side of the argument, Commonwealth Bank and Westpac arguing that the buffer is essential to keeping borrowers from taking on too much debt. CBA pointed out that first phone buyers are often at the highest financial risk, and he believes the buffer is a crucial safety net. Westpac added that easing the buffer might open the door for people to borrow more than they could safely repay, potentially leading to financial stress down the road. And so, herein lies the conflict. NAB and the Australian Banking Association believe that easing the buffer could help first phone buyers into the market, while CBA and Westpac believe that keeping it strict protect spies from overextending financially, it's a classic case of access versus caution. The 3% buffer might not sound like a lot, but it makes a huge difference. I was assessing someone's capacity other the other day, and if the buffer dropped by 1%, if rates dropped by 1%, she had an extra $150,000 in borrowing capacity that otherwise didn't exist. We were just doing some modeling, seeing what would happen if the rates went down. But you get why this buffer makes a difference. It can make $50,000, $100,000, $150,000 in this person's case difference in borrowing
Stamp Duty vs. Land Tax: Easing Entry for Buyers
00:03:17
Speaker
capacity. Taxation alternatives, shift from stamp due to land tax.
00:03:20
Speaker
The inquiry is also looking at other ways to reduce upfront costs, like the possibility of replacing stamp duty for an annual land tax. They tried this in New South Wales a couple of years ago with great success, but it didn't hang around long. The benefit for first home buyers with an annual land tax is instead of paying a big chunk for stamp duty upfront, it could be dripped out over five or 10 years, meaning you can save less deposit and make it easy to get into the market. But as the inquiry found out, potentially making these changes isn't a simple fix because it needs to change how the states access their revenue. Stamp duty is a huge taking for a lot of the states.
00:03:49
Speaker
By the end of the day, the inquiry is about making it easier for first home buyers to get in the market. And by spreading out the costs over time, first home buyers wouldn't be hit with this big, large upfront cost. For example, if you're buying a house in Brisbane for $800,000, the stamp due is almost 20 grand. It's an extra $20,000 you've got to save up and have ready when you're buying that home.
00:04:06
Speaker
A lot of people might only stay in their home for three or four years, so the annual land tax could work out a bit cheaper if you're only buying your first home as a bit of a stepping stone to your future home. I think it's definitely something the states need to
Extended Loan Terms: Short-Term Relief or Long-Term Burden?
00:04:16
Speaker
reconsider. Calls for mortgage term flexibility for first-home home buyers. Another proposal that came up was to offer longer mortgage terms exclusively for first-home buyers. Think of it as a bit of a first-home buyer advantage. A one-time opportunity to have a longer repayment period on your first mortgage.
00:04:29
Speaker
This could mean lower monthly repayments, making the repayments initially more manageable for first loan buyers without increasing the refinancing risks. Now the big risk here is by extending the loan term, say from 30 years to 35 or 40 years, you're increasing the interest cost because you're going to have the loan for another five or 10 years longer, you're making smaller repayments and it's going to cost you more of a time. It also means you might need to be working further into retirement because if you're applying for a loan 40 years old with a 40 loan term, you're going to be 80 when that loan term is finishing. So I think this one isn't a silver bullet, but still something that could help, especially in those first few years when you've got the mortgage, when the debt's at its peak, and you're trying to struggle with you putting kids in high school, paying for those bills and everything else.
Excluding HEX Debt: A Boost for Borrowing Capacity?
00:05:05
Speaker
The HEX or help debt issue and borrowing capacity. For so many people I talk to, HEX is a huge barrier to buying your first home. Currently, student debt or HEX is included in your borrowing capacity assessment, reducing how much you can borrow. Interestingly, NAB suggested excluding HEX from these calculations could increase borrowing capacity by up to 23% of people with these student loans.
00:05:23
Speaker
The funny thing with hexes, it doesn't matter how much you owe. You can owe a dollar, you can owe $10,000 on hex, you can owe $100,000. The repayment amount is based on your income. So like I said, if you're earning $100,000, you've got hex, you could lose 23% of your borrowing capacity just because of hex. If you do have a hex debt though, there has been some good news. The government's recently announced a 20% proposed reduction in your debt for eligible Australians who meet certain income threshold requirements starting in July 2025. These changes could give you a bit of breathing room, so definitely keep an eye on that if you're planning on paying at your hex today early. You might want to wait and see what happens there.
Mortgage Brokers: Key Players in Loan Arrangements
00:05:56
Speaker
The role of mortgage brokers and why it's a big deal. The inquiry also highlighted how mortgage brokers play a huge role in making home loans affordable and showed how we actually are helping promote competition.
00:06:05
Speaker
Right now, over 73% of home loans in Australia have been arranged by mortgage brokers, and they're shown to save the borrower on average $2,600 a year in interest by providing a variety of lenders and more competitive rates. I know this is a bit of a shameless plug, but if you are a first-hand buyer looking at working with a broker like us can help give you flexibility, access to other lenders that you might not have had if you're going direct to direct your bank, and find out special deals like cashbacks for first-hand buyers and other things that might not be available if you direct your bank. Addressing the housing supply
Supply Issues: The Real Affordability Challenge
00:06:32
Speaker
issue.
00:06:32
Speaker
Yeah, this is the big elephant in the room. Beyond the landing standards, the inquiry also examined Australia's overall housing supply. There's a widespread argument that affordability is a supply side issue. Limited housing supply is keeping prices high and restricting lending only pushes potential buyers into the rental market.
00:06:48
Speaker
This just maintains high demand and keeps property prices elevated. One proposal is to expand the build to rent sector, where institutions develop rental properties with long releases and give more stability. The inquiry also looked at increasing Australia's social housing options, but Australia's tax settings currently favor individual landlords over institutional rentals, so they need to make some changes to negative gearing around that.
00:07:08
Speaker
Interestingly, one thing the Maxwell did agree is the need for more housing supply to help bring prices down. Even if they divide on lending policies, there is a consensus that addressing supply shortage is essential to lowering housing costs, investor lending restrictions and the first home buyer impact.
Investor Restrictions: Relief or Risk for First Home Buyers?
00:07:23
Speaker
The inquiry also looked at APRA's investor lending restrictions, which were introduced in 2014 and 2017 to slow down house price growth. These restrictions indirectly benefited first home buyers by reducing competition from investors.
00:07:35
Speaker
Now, there's further debate over whether these investor lending restrictions should be adjusted further to support first home buyer affordability without completely destabilizing the market. Some argue that loosening investor restrictions would drive up demand and prices, making it harder for first home buyers to get in the market. And I'd agree with this, especially around Brisbane, we are seeing a lot of investors competing for the same sorts of properties as first home buyers. So any changes, any restrictions for investor lending could even the playing field for first home buyers to get
Rate Cuts: A Double-Edged Sword for Affordability
00:08:00
Speaker
in the market. Looking ahead, rate cuts and what that could mean for first home buyers.
00:08:03
Speaker
So what's next with the rates? Reserve Bank is closely watching inflation and if it keeps easing up we could see lower rates in early 2025 potentially later in the year. Lower interest rates would mean cheaper mortgage repayments and could open up borrowing capacity for first-own buyers. You could see double dip here where if they change the servicing buffer when rates are coming down and interest rates are cut First phone buyers could have a lot more capacity to buy homes, making you a bit more competitive in the market. There's also the counter to this though, as borrowing gets cheaper, demand is potentially going to increase, which could push up property prices. And if housing supply doesn't increase, it could make it less affordable for first phone buyers. Yeah, it just feels like a cluster sometimes with this stuff. This is where it gets a bit unfair because existing home buyers benefit from refinancing at lower costs, freeing up their cash, lower repayments, meaning they can potentially get investment properties. So the cycle goes round and round.
00:08:49
Speaker
Alright, so let's recap.
Inquiry Findings Recap: Key Takeaways and Implications
00:08:50
Speaker
The inquiry was launched to address the housing affordability crisis and assess if landing standards are helping or hurting first home buyers. NAB and the Australian Banking Association support a flexible, dynamic servicing buffer, while CBN Westpac believe a strict buffer protects buyers from risky debt. Shifting from stamp duty to land tax could reduce upfront costs for first home buyers and offering longer mortgage terms could benefit home buyers by easing monthly repayments. Excluding HEX debt from assessments could boost borrowing capacity and mortgage brokers play a huge role in driving down those costs and saving your interest. Overall it does seem supply is the biggest issue with affordability right now that they need to do and address so potentially helping address that in the build to rent sector or just making it easy to build it could be something that could help move forward. So what do you think? Are you thinking about buying in 2025? Are you waiting for the rate to drop? What's your prediction? Let me know in the comments below. If you're curious about how much you can borrow or want some guidance on your home buying options, hit us up at huntergalloway dot.com.au where the home for home buyers across Australia. We've got stacks of video on our channel, so if you're looking at getting in the market, negotiating with agents, how to buy, check out our videos. We've got so much stuff there. And until next time, I'll see you guys later.