It has been reported by major newspapers that house prices are on the way up. RP Data’s monthly report reveals that property prices have risen for the fourth consecutive month. Capital city dwelling values rose 1.4 per cent in September, according to a Sydney Morning Herald story last week. RP Data’s research director, Tim Lawless attributed the improvement to low interest rates.
But barely before the housing market has even gotten off the ground, there have been warnings about the over inflation of house prices and over commitment. Credit Rating Agency Moody’s Investors has warned the Reserve Bank and regulators that low interest rates could fuel a housing bubble in Australia which they say will inevitably burst – leaving the market more vulnerable to a crash. Moody’s say despite low credit growth – banks need to maintain high credit standards in order avoid a U.S. style lending surge.
As reported by Mike King (Motley Fool) in Ninemsn:
“Lower interest rates could encourage borrowers to load up on more debt, at a time when household debts are still fairly high. A housing crash could see many homeowners over-leveraged and owing more than their house is worth – similar to what happened in the U.S. However, unlike the US, where banks in many states don’t have recourse to people’s other assets, Australian banks can pursue borrowers to recover any shortfalls between a home loan and the sale value of the house,” King says in the story Are we heading for a house price crash?.
This may be good advice for many borrowers to heed in the back of their minds. It may be better to borrow conservatively, in order to cover the potential loss of a market turning backwards, and to avoid redrawing on the original amount during the early years of the loan.
Will we really experience a housing bubble?
If banks heed warnings from the likes of Moody’s, lending criteria will still remain pretty tight through the foreseen house price increases – at least in the short term. Also, the new information which will be available on credit reports may cause lenders to refuse credit to more people in the coming months as well.
We are yet to see what the addition of ‘late payment’ notations on Australian credit reports (information about when accounts are paid late) will do for lending figures. Under new credit laws, the Privacy Amendment (Enhancing Privacy Protection) Bill 2012, payments can be as little as one day late and be noted on consumer credit files.
It is uncertain the impact these notations will have on someone’s ability to obtain credit.
I would imagine many lenders, in the interest of ‘responsible lending’ would not want to have on record that they have loaned major credit to a serial late payer. Could lending to someone who had a few late payments on their record be classed as ‘irresponsible lending” should they default? What will be determined as too many late payments on a credit file is not yet defined and is quite a subjective aspect of these new laws which will be up to each lender/insurer to decide.
I predict that this aspect will lead to fewer approvals as banks err on the side of caution, at least in the short term.
For more information on repairing your credit file and removing inconsistent credit listings for good, to give you the best chance at being approved for credit at the best interest rates contact a Credit Repair Advisor on 1300 667 218 or visit our website www.mycra.com.au.
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