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Property market update – June 2022


 RBA rate rises a slippery slope to downturn

In a decision that took many experts by surprise in both May and June, the Reserve Bank of Australia has now lifted the official cash rate by 50 basis points, the largest increase we have seen in 22 years. The RBA is not likely to slow down as it attempts to catch up with the rise of inflation, with experts suggesting another increase of 50 basis points to follow in July, with CBA predicting a cash rate of 2.10% by the end of 2022.
With almost 40% of borrowers who took advantage of the ultra-low covid-induced rates on a fixed term, the majority of households arent expected to feel a sting from the recent hike in cash rate until next year, or even towards 2024. 

Capital cities: Lowest preliminary auction clearance rates so far

Last weekend’s auction results were another shocker for Sydney, with the city’s preliminary clearance rate plunging to only 55.4% – the worst result in more than two years. Sydney’s poor result off strong volumes caused the nation’s preliminary auction clearance rate to sink to  57.8% – the lowest preliminary result since August 2021. These auction results auger badly for Sydney house prices given the strong historical correlation between clearance rates and house price growth:

Stamp duty overhaul for FHB

First home buyers will now have the option to pay upfront stamp duty or opt-in for an ongoing land tax of 0.3% of the land value plus a one-off fee of $400. The scheme is capped at a max purchase price of $1.5m and will begin on the 16th of Jan, 2023. If the property is later sold to a non-first home buyer, upfront stamp duty will be applicable (no land tax option).

Currently, stamp duty is waived up to $650k with a reducing discount of up to $800k. For prices under $800k, stamp duty costs roughly 4.4% of the purchase price.

With the new changes in place, a $1.5m property purchase for a first home buyer could see an upfront saving of $67k, which in comparison to land tax would be $3000 per annum, taking roughly 15 years before the land tax exceeds the upfront stamp duty.

Tighter lending standards introduced

Financial institutions and regulators are preparing for the impact of rising interest rates on mortgage customers by cutting back new lending to more highly indebted borrowers.

ANZ Bank this week said it would no longer accept loan applications from borrowers with total debts more than 7.5 times their income. Previously, the bank was prepared to consider applications from customers with debt-to-income (DTI) ratios of up to nine times.

NAB has followed suit, which this month has reduced its debt-to-income ratio limit from nine to eight times.

As the period of ultra-cheap debt comes to an end and interest rates rise, lenders are cutting their exposure to higher-risk lending.

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