Clients know more about lending thanks to brokers
Borrowers are more reactive than ever to cash rate commentary and have a greater knowledge about interest rates, buying power and assessment buffers, says leading broker Theo Chambers.
The CEO of award-winning Sydney brokerage Shore Financial said this had a lot to do with the fact mortgage brokers enjoyed 74.1% market share and were doing a better job of educating their clients.
Chambers (pictured above) co-founded Shore Financial with managing director Alex Nochar. Both have featured in MPA’s Top 100 Brokers and the business has also made the Top Brokerages list multiple times, including in 2019 and every year from 2021 to 2024.
Shore Financial has 32 brokers and a total onshore and offshore staff of 110.
MPA caught up with Chambers to get his thoughts on the property market and residential lending trends, interest rate movements, and rentvesting.
Chambers described the property and loan market as “hot and cold” .
“I've been doing lending for 16 years now – 13 years in broking and I was at CBA for three years – and in that period, I can't believe how much the behaviour of a consumer has changed to be so reactive to speculation, for example on interest rates,” Chambers said.
“It's amazing how one article will come out saying the US Fed [Federal Reserve] is talking about rate rises and all of a sudden people stop looking at houses and stop making offers, which is what happened in the last quarter of last year.”
Chambers said in October the US Federal Reserve stated there would be no rate cuts any time soon and instead they planned to increase interest rates.
Australia’s cash rate was then lifted in November and the combined effect was a major decrease in property and lending activity here.
Chambers said at the start of 2024, there was the opposite forecast, that rates were going to come down by mid-2024.
Subsequently, in the first quarter of this year there were increased stock levels, “double to triple the amount of stock in Sydney going to auction” and surprisingly clearance rates were up.
“It was a really hot market and all those people sitting on the sidelines started to transact,” he said.
Chambers said in March and April came the realisation that inflation was a “bit stickier than we expected”, with three consecutive months of inflation increasing.
“The media and the RBA itself became quite vocal that rate cuts aren’t on the cards any time soon – it looks like it could be 2025 – and straight away confidence and sentiment is smashed.”
Lending activity has been patchy, said Chambers, but it wasn’t about affordability.
“People have proved they can afford the loans at current interest rates and are passing assessment guidelines. It’s a confidence thing where they think they will get a better deal if they wait a bit longer.
“They’re trying to outsmart the market and hang on for a better price.”
Chambers said since COVID borrowers had been far more reactive to speculation on interest rates when making decisions.
This was because of the volatile interest rate period, with a cash rate that fell to 0.1% and then the highest increases in the cash rate on record.
Consumers are more educated about loans
Chambers said it was also due to the fact that people had much information about interest rates at their fingertips.
“Mortgage brokers are putting an abundance of information on social media for consumers to be educated on and help them make a decision.”
Chambers said it was amazing how consumers now understood that interest rates affected their buying power. They also understood the assessment buffers and “all the moving parts that affect their borrowing capacity”.
“I remember 10 years ago we were still explaining what an offset account is. People didn’t understand that credit cards and car leases affected their borrowing capacity.”
Broker market share had grown tremendously and this made a big difference too.
“Brokers definitely do a better job of educating consumers on the hurdles of borrowing money and in that education process the consumers over the years have become far more confident and clued up about how it all works.”
Interest rates
Asked what was likely to happen with interest rates, Chambers said the June quarter CPI inflation data (to be released on July 31, would provide a more comprehensive picture than the monthly figures.
“If that’s looking still quite sticky and strong, there could be an expectation of a rate rise in August. I’m thinking we probably won’t see a rate cut till early next year, maybe February.”
Chambers said this was because while many retail businesses and households were struggling, and spending was low, the economy had been surprisingly resilient in a high-interest rate environment.
The rise of rentvesting
Property investment was increasing and Chambers said he believed there were more investors because first home buyers had decided to become “rentvesters”.
People were buying properties in areas they could afford, including outer suburban areas of Brisbane, Perth and Adelaide and regional areas.
“For the same price as a one or two-bedroom apartment in Sydney, you can buy a three or four-bedroom house in Perth or Brisbane,” said Chambers.
Chambers said people were being enticed by buyer’s agents who advertised that for as little as $30,000 to $50,000 they could start climbing the property ladder.
“So, I think that's encouraging a lot of first home buyers to buy an investment property as their first property, to then hopefully in four or five years, exit that property and afford a home.”
In Sydney, homeownership and affordability had become a problem since COVID.
“There’s a real disparity between median house prices and median borrowing capacities that has become apparent in the last two years with increasing interest rates,” Chambers said.
First-home buyers had dropped off in the last few years but there had been a subsequent increase in investors rentvesting.
Chambers said rentvesters who bought in areas 20km to 30km out from city centres were getting good rental yields and were positively geared.
“But for Sydney clients who are rentvesting, it’s not purely about buying properties with more attractive yields or growth forecasts.
“It’s also about buying investment properties in cheaper areas like Brisbane, Perth and Adelaide, meaning the required deposit is much less and these individuals can purchase properties sooner rather than later.”
Chambers said the ability of more people to be able to work from anywhere and lifestyle factors was also a big influence for rentvesters.
Buyer beware
There was a plethora of buyer’s agents advertising right now, focused on finding consumers investment properties, said Chambers.
He said people should be careful.
“Some of them are just flogging property and there’s no sophistication or smarts about buying, they’re just trying to get their paycheck and move on, and some are doing some great work with consumers and finding great investments.”
Shore Financial worked with a number of buyer’s agencies and preferred the flat-fee approach, rather than commissions which encouraged the agent to find properties at higher prices.
Chamber’s advice to brokers partnering with buyer’s agencies was that after the first few client referrals they should ask customers for feedback on their experience and check with them after a year or two whether the investment had been a good purchase.
“See how the property is tracking, whether there’s been growth, was the yield they were told upfront accurate or was it exaggerated?” he said.
This was how brokers could gain confidence when it came to partnering with buyer’s agents.
Chambers said the other problem brokers should look out for was customers leveraging up to 97% to buy an investment property.
He was not a fan of borrowing 95% of the value of the property with LMI on top of that.
“I think it should be a conservative LVR – ideally 80% but a lot of people can’t afford a 20% deposit plus stamp duty. I would like to keep it under 90% – 90% inclusive of LMI,” he said.
