Most people need finance to buy property, and using a mortgage broker is a great way to save time and money and also secure the best deal for your personal circumstances.
So I frequently refer buyers and sellers to Alex Lambros and his team at Loan Market Unlimited.
Alex has more than 15 years’ experience in mortgage broking and has won many awards, including multiple Real Estate Association’s Broker of the Year awards. He’s also an Eastern Beaches local who knows the area inside out and partners with our office to offer loans from over 60 different lenders.
Alex and I recently sat down and had a chat about what buyers and sellers need to know about the lending market right now.
So, Alex, how did you end up in the world of mortgage broking? What do you enjoy about it?
Originally I trained and worked as a cabinet maker for six years before I reached a career crossroads and decided to make a complete change. Mortgage broking interested me and, while it is a competitive industry, I was lucky enough that someone gave me a foot in the door and I never looked back. I’m now 15 years into mortgage broking, and I love it. While I don’t often use my cabinet-making skills, I certainly find the work ethic of being a cabinet marker comes in handy. “Measure twice, cut once” is from cabinet making, but it’s also a saying I still apply to my mortgage work. I tell my team we need to be well-researched and accurate if we’re going to serve our clients effectively.
So we’ve all seen the media headlines about rising interest rates – what’s happening in the mortgage market right now and how is it affecting the property market?
Firstly, as you said, interest rates have been increasing over 2022. The RBA first lifted the cash rate in May and has lifted them again every month since. The fourth rate rise was in August when the Reserve Bank of Australia increased the cash rate target by 50 basis points to 1.85%.
There’s a direct relationship between interest rates and borrowing power, so people’s borrowing power is decreasing. Typically, every 50 basis points impacts borrowing power for mortgages by around $50,000. So the last four rate rises have wiped off about $200,000 of borrowing power. That clearly reduces what people can spend on property.
Secondly, we’re seeing bank credit assessments becoming tighter. Lenders are scrutinising more and digging deeper into applications. They want to make sure that the borrower is going to be able to manage future repayments, factoring in the potential for further future rises, maybe up to 5% or more on a home loan. Overall, this has the effect of slowing the application process down.
That said, although prospective borrowers may be impacted, the reality of interest rate increases may not yet have fully filtered into buyer sentiment about the property market. There’s often a delay of several weeks or months before it really manifests, depending on when the banks apply the rate change and when you pay your mortgage. So borrowers may not yet have really felt the last couple of interest rate rises from July and August in the hip pocket yet.
If you couple the rate rises with the cost of living increases, we may see people deciding to review their budgets over the next few months as they acclimatise and recalibrate to the new norm.
So with interest rates impacting borrowers, how’s competition between lenders?
The mortgage market is a pretty competitive space right now. Banks and lenders are competing for market share through refinance rebates. So, while the majority of borrowers are choosing to stay on variable rate home loans for the moment, we’re starting to see more attractive and longer-term fixed rates.
We carry out regular reviews for our clients to make sure they’re on the most competitive deals. We’re seeing banks making changes to borrowers being able to discharge a mortgage and trying to retain these clients by making it harder for them to leave. Sometimes they only offer something truly competitive at the final step of this negotiation.
Which types of buyers are most impacted by interest rate rises?
First home buyers, for sure, because a lot are trying to borrow to their limit. Because of interest rate rises, we’re seeing someone who may have been pre-approved last year for $1 million now only able to spend $800,000. This means they may need to readjust their property search from a house to a unit or look at a different location.
While the market has flattened or fallen a little bit, it hasn’t fallen that far here in Sydney’s East. People who are simply moving house, upgrading, upsizing or investing are generally a bit more insulated from rate rises as they have a bit more of a buffer thanks to any existing equity and not needing to borrow to their absolute limit.
So, what’s your advice for those looking to borrow for the first time?
My general advice to first home buyers is to be ready to buy and have your finance pre-approved. Make sure your broker is keeping you informed of rate changes and how they impact your borrowing approval. My advice is not to spend up to your maximum limit if you can avoid it. Always try and have a few months’ buffer in cash – that’s relevant to all buyers, because having three- to-six-months’ worth of mortgage payments set aside, in offset or redraw, can really protect you. You don’t want to be month-to-month in a rising interest rate environment, but you can aim to build up to that over time if you haven’t already got savings set aside.
And what’s your advice to those already with a mortgage?
Review your mortgage. Particularly if you already have a mortgage and have not taken a fixed rate over the last three years, you should review your current mortgage and make sure it is working for you and is competitive. Plus, as I said earlier – no matter how long you’ve had your mortgage, you always need a buffer or cash reserves.
You get a very good view of our local eastern suburbs property market based on lending activity. What are you seeing right now?
As you well know, Adrian, the property market can change in as little as a week! Over the last two to three months, we saw a lot of properties with longer days on market. Buyers were not keen to make an offer and were happy to take a “wait and see” approach. But people quickly adjust to the idea of rising interest rates, and they will still want to buy, move house or enter the market. So we have seen that atmosphere change over the past few weeks, with more transactions taking place, more people purchasing and seeking approvals, and overall more activity in the lending market, which flows on to the property market.
Is it a good or bad time to buy or sell?
It’s actually a good time to be transacting. My view is that now is a good time to sell and that holding off won’t serve you well because sellers need buyers who are able to borrow. It’s still relatively good right now for borrowers, even if interest rates have risen, but they may go higher yet over the year ahead.
If you’re a downsizer, it’s probably the best market to be downsizing in that we’ve seen for some time. You’re selling at what’s probably the top of the market, and it may drop or flatten a little bit more. By that same logic, even if you’re upgrading it’s a good time.
In terms of buying, the time to enter the market is when it’s good for you – when you are ready and everything lines up. Over the next year, I think there will be some good buying opportunities.
Thanks again for talking with me, Alex. Buyers and sellers have a lot to think about right now, and, as you point out, it’s not all doom and gloom. You can contact Alex and his team at firstname.lastname@example.org.
Source: Director, Auctioneer Adrian Bo