They’re still out there – you know those property pessimists who say our real estate markets will crash.
They often they cite “astronomical” property values, unaffordability and the high levels of debt we have against our homes as reasons why property values will crash.
But recent figures from credit bureau Equifax and property data provider CoreLogic show that Loan to Value ratios are falling around Australia as banks tighten credit and first home buyers retreat.
The Australian Financial Review report that the national average loan to value ratio for housing loans fell to 73.4 per cent last month from 74.3 per cent in September.
This is in part due to the retreat of first home buyers – who typically have smaller deposits and borrow more and also because lenders have become more careful about their lending criteria as they come under pressure from APRA to lend responsibly.
Not surprisingly levels of LVR vary greatly by region.
In WA, which has a relatively high percentage of first-home buyers (21.7 per cent), LVRs are higher. The average Perth application LVRs rose 0.5 per cent from November to 77.1 per cent.
The average LVR fell in Brisbane (to 76.7 per cent) and Darwin (to 71.9 per cent), while the figure was little changed in Adelaide (75.4 per cent), Canberra (75.3 per cent) and Hobart (76.9 per cent).
What this means
Sure our property markets will slow down at some stage soon – in fact some areas are already slowing, but this won’t put undue pressure on borrowers, at least not enough pressure to cause our markets to crash.
This is because generally:
We have reasonable LVR’s with substantial equity in our properties.
Tighter lending criteria and more responsible lending means that banks are only lending to people who can service loans at considerably higher interest rates than we are experiencing today and who can even pay the higher cost of principal and interest loans
The majority of property loans are in the hands of more affluent people who can afford to repay them
Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au