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Blue Crane's March Observations

Interest rates and its impact on households and the property market continue to be the popular topic of conversation around water coolers, in bars and at Sunday BBQs all around Australia.

You may not be aware, but Blue Crane runs the entire credit market, from construction loans to mortgages. We see different credit policies and appetites depending on the type of deal and the relevant lender: bank, non-bank, and private credit. These policies continue to evolve and change, so it’s important to work with finance brokers who (a) understand your scenario, (b) understand the current appetite of relevant lenders and, (c) have deep relationships with these lenders to ensure you gain comfort and certainty in your borrowing arrangements.

What we are seeing at Blue Crane:

A rise in partial-complete construction deals. This is due to a number of factors (largely outside the developer’s/borrower’s control) such as rain delays last year, builder mismanagement or insolvencies. In many cases, we’re seeing loans nearing the end of the facility/loan term expiry and requiring refinancing, or developers who had the intention to cash fund the build, but are now highly geared on the land and unfortunately run out of cash reserves to complete. At Blue Crane, we only work with lender partners who we trust and know can help our clients finish their project in a cost-effective manner.

Uptick in refinancing transactions on land banks (land with DA). Some non-bank lenders are not looking to renew or extend land bank loans, and most are dropping LVRs to 50%. Some investors are holding off building until there’s more stability in the construction sector, also causing an increase in land bank refinancing needs.

Banking home loan investment interest rates are closing in on some non-bank home loan rates. This is interesting as the quantum of information required for a bank home loan (full doc and servicing) is a lot more than non-banks, who often only require either an accountant’s certification or the latest BAS to prove up servicing.

Assessment rates from lenders have increased (naturally), from 5.50% p.a. six months ago to now approx. 8.50%. This has had obvious impacts on the borrowing capacities of households (which have generally decreased 20%) and the ability for people to refinance their existing loans. Banks are advising that customer cash reserves in offset accounts are still at an all-time high, built up during the pandemic, and in general, customers are ahead of their repayment program with their lender. If you know your existing loan facility is due to expire soon, it’s best to prepare for your inevitable increased repayments sooner than later. After March’s cash rate increase, this is what you could be expecting to pay on a $500,000 loan.

This table is based on a $500,000 home loan with a 25-year term, paying Principle & Interest. To work out what interest rate rises could mean for you, head to Commbank's home loan repayment calculator. Peak cash rate predictions are as of 22 March 2023.

Uptick in First Home Buyers seeking pre-approvals as the new Stamp Duty Property Tax exemption becomes more appealing to new entrants to market. Kicking off at the beginning of this year in NSW, the new Stamp Duty Property Tax allows First Home Buyers to choose between paying stamp duty or an annual land tax. Without having to save for an upfront Stamp Duty cost, first home buyers wouldn’t need to save for as long, and potentially have more funds to put towards other investments or renovations.

This table is based on the current NSW threshold. Time it takes to equal property tax is based on the assumption that the unimproved land value is 605 of the purchase price. The annual tax is calculated based on the NSW property tax proposal of $400plus 0.3% of the unimproved land value each year, factoring in a 2.5% increase in land value per year. Source: Domain.

Positive sentiment is starting to grow regarding the apartment market and the lack of new supply in the market over the next 12-24 months. This bodes well for developers looking to kick off their projects (with minimal presales) over the next 6-12 months.

Some private funders are having liquidity issues as investors hold back to see the outcome of the interest rate increases and inflationary pressures.

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