Not so cheap and easy

TL;DR

Low interest rates and easy credit availability have driven Australian property markets, but the fallout from the banking Royal Commission is impacting the availability and cost of credit, leading to concerns for property investors.

Transcript

g'day and welcome for this week's video my name's robert goudie and this week we're gonna have a look at some of the debt issues around Australia and some of the concerns I have for property investors currently and also property investors or would-be property investors that are looking to get into the market now if you've had some value out of our ... Read More

Key Insights

• 💳 The fallout from the banking Royal Commission will decrease the availability of credit and make it more expensive, affecting property investors.
• ☠️ Higher interest rates, driven by increased overseas funding costs for banks, are leading to higher borrowing rates for consumers.
• ✋ Australia's household debt levels are among the highest globally, and the prevalence of interest-only loans creates cash flow challenges when these loans need to be renewed.
• 👶 Refinancing difficulties indicate potential cash flow problems or struggles in the new credit environment.
• 🧑‍🏭 The property market is expected to be significantly impacted by these factors, affecting cash flow and transaction ability for property investors.
• 😀 The banking Royal Commission has played a role in the difficulties faced by individuals trying to refinance their loans.
• 📈 The trend of difficulty in refinancing aligns with the fallout of the banking Royal Commission.

Questions & Answers

Q: How will the banking Royal Commission affect the availability of credit?

The banking Royal Commission fallout will lead to higher expense ratios imposed by banks, reducing the amount of money people can borrow, and making credit less available.

Q: Why are interest rates increasing even though the Reserve Bank has not raised the official rate?

Interest rates are increasing because banks are facing higher costs for overseas funding, which they pass on to consumers in the form of higher borrowing rates.

Q: Why are Australia's household debt levels a concern?

Australia has the second-highest household debt levels in the world, indicating that households are not in good financial shape. This poses risks, especially for the approximately 40% of homes with interest-only loans.

Q: Why are people having trouble refinancing their loans?

The shift from the previous era of cheap and easy credit to the current regime of tighter and more expensive credit has made it difficult for people to refinance their loans. This suggests cash flow problems or difficulties in meeting stricter lending criteria.

Summary & Key Takeaways

• The banking Royal Commission fallout is expected to greatly impact the availability of credit, as banks impose higher expense ratios, decreasing the amount of money people can borrow.

• Interest rates are increasing out of cycle, resulting in higher borrowing rates for consumers.

• Australia has record household debt levels, with approximately 40% of homes having interest-only loans, creating cash flow challenges when these loans need to be renewed.