INTEREST RATES v LENDING RATIOS

Property market commentators have been quick to trumpet the good news from the latest interest rate cut, however, increasingly, interest rates are becoming less important.

The impact of this latest cut is unlikely to make a big difference to affordability and confidence, especially as interest rates have been at generational lows now for quite some time.

What will make a big difference to financial confidence, however, is job security and income levels. When people feel more secure about their employment and the wider economy, they will be more willing to spend. When lenders feel more secure about income levels, they will also be more willing to provide bigger loans.

But Australia’s economy is still very shaky and the current political situation is further reducing short term confidence.

This uncertainty is starting to show up as a growing reluctance by some lenders to keep their lending ratios at the traditional 80 per cent ratio. We are hearing reports that loan to value ratios are starting to slip back to 70 per cent or even 65 per cent.

While the repayment ability of borrowers, at current low interest rates, is not in doubt, their employment and income earning ability is now possibly the biggest factors for lenders, prompting some to reduce lending ratios.

Until next week,

Jock Bing