HomeLoanEligibility #RisingHousePrices #RealEstateMarket
If Median House Prices Rise to 1 or 2 Million: Who Will Be Approved for Home Loans?
When median house prices soar to $1-2 million, many wonder who will be able to secure home loans. Let’s break it down to understand the impact on different groups and the joint effort to prevent a housing crash and a banking crash.
High-Income Earners 🎓💼
- Who? Professionals with high salaries such as doctors, lawyers, and tech executives.
- Why? They meet the stringent income criteria.
- Impact: They will likely continue to drive demand in luxury housing markets.
Dual-Income Households 💑💰
- Who? Families where both partners have well-paying jobs.
- Why? Combined incomes increase borrowing capacity.
- Impact: They’ll remain competitive in mid to high-end property segments.
High Net Worth Individuals 💸🏠
- Who? Investors, entrepreneurs, and wealthy retirees.
- Why? Large savings and high net worth make them ideal candidates.
- Impact: They might pay in cash or secure large mortgages with ease.
People with Excellent Credit Scores 🌟🏦
- Who? Individuals with impeccable credit histories.
- Why? Lenders favor low-risk borrowers.
- Impact: They are granted more favorable loan terms, providing easier access to expansive mortgage limits.
Financially Savvy Buyers 📊💡
- Who? Those with substantial down payments or who leverage financial strategies.
- Why? Significant down payments reduce lender risk.
- Impact: More likely to be approved despite high house prices.
Independent Business Owners 💼👔
- Who? Successful entrepreneurs and business owners.
- Why? Profitability and business cash flow.
- Impact: Can secure higher loan amounts based on business revenue.
Impact on the Banking Sector 🏦⚖️
When high house prices create fewer eligible borrowers, banks must adapt to new lending environments. Here’s how they might cope:
- Stricter Lending Criteria: Banks will maintain rigorous checks to minimize bad debt.
- Diversified Loan Products: Introduction of creative financing options to attract a broader spectrum of borrowers.
- Institutional Investments: Large investors, like pension funds, may become key players in mortgage markets.
Preventing a Housing Crash Vs. Banking Crash 🤔🛡️
In the tug-of-war between a housing crash and a banking crash, both sectors aim to stabilize the economy. However, the win often goes to:
-
The Financial System: To maintain global financial stability, ensuring banks don’t crash usually takes precedence.
- Why? Banks form the backbone of economies; a banking crash would have a more immediate and severe impact.
- Result: Governments and central banks may offer bailouts or support to financial institutions.
- Strategies to Balance Both:
- Monetary Policies: Adjusting interest rates to control borrowing and lending.
- Housing Policies: Initiatives to make housing affordable.
- Regulations: Enforcing stricter rules on housing markets to prevent bubbles.
Conclusion 📉💬
As median house prices climb to extraordinary levels, only high-income, dual-income, and financially savvy individuals are likely to secure home loans. Banks will continue enforcing stringent loan criteria while innovating loan products to attract borrowers. In the delicate balance between preventing housing and banking crashes, the financial system often takes precedence to safeguard overall economic stability.
Stay informed and plan wisely to navigate these evolving markets! 🌟📈🏠
they will make 50 year loans lmao
Finance broker here. Not too long ago, lenders came out with a product called ‘streamlined refinancing’ which allows existing property holders to refinance on a 1% buffer as opposed to a 3% buffer. This was put in place to help those stuck in mortgage prison.
For future purchases, we have seen a few things come into the market which allows people to purchase property. One is to include the 1% buffer when purchasing properties which currently very few lenders do given the risks involved. Another big one is an extended term of 40 years as opposed to the traditional 30 year home loan. The extra 10 years allows those to be able to borrow more. Whilst they have their negatives, it certainly helps families get out of the rental market. Dual income payg income will soon be challenged and we may see more families opting to purchase a home together as extended families in one household. Not to mention, increased government incentives.
However, the winners will always be existing property holders and business owners given they have endless options to be able to get ‘approved’. Not to mention the bank of mum/dad with an article that came out stating gifts are now more than $100k on average for property.
To add – I just don’t see a property crash happening here. The government is heavily invested in real estate themselves with their shared equity schemes. The recent rise from international investors just does not seem to be stopping (and is actually stronger than before) and the increased numbers in immigration will further add to rental stress ; thus enticing more to essentially force themselves in purchasing property / move.
People will still take on the same size mortgage that their wages allow. But the difference will be that they will pay a higher deposit from the sale of another property by themselves or their parents.
People with the money.
For those who don’t, buy apartment or rent. Just like the rest of the world.
If they rise to 1 million it means we’ve travelled back in time about a decade…
people who can afford too service the loans obviously
$1M is still within the realm of a couple each earning $100k and have a 20% deposit.
is this from that property puff piece in the AFR? Maybe this happens if interest rates go back to zero, they wont, last time the rates were at this level the average house price was around 550k
People will eventually get pissed off and hike their wages and service charges to match their capacity to be able to pay for a place to work and also have a roof over their heads for themselves and their families. There will be losers.
I have dual US/AUS citizenship and I’m seriously considering selling my home and moving to Florida or Texas with my family.
Basically, the value on my home here has doubled in the last 5 years, so after I pay off what remains of my mortgage, I have more than enough to outright buy a real nice home in an area that would be great for my career (and to add extra fuel to the fire, pay scales for people with my experience and skills are about 30% higher in both of the places I would like to move to)
It’s super wild to me that my financial situation can so dramatically improve if I was just willing to move to the US.
Median price is already far above $1M?
A couple both on median income of about $100k each can borrow $907,900 according to CBA’s online calculator. So a median house price of $1m is still serviceable for a dual income family.
The other thing to keep in mind is that most first home buyers are probably not buying a house at the median house price, they are likely to be buying something cheaper. More expensive houses are typically bought by existing home owners looking to upgrade, and they will have more equity and will require less loan.
Edit: read the wrong column, median full time salary should be $90k, and borrowing capacity should be $773k. Which means assuming 20% deposit, it will be just shy of $1m in terms of purchase price.
It might be a wild shot, but I mentioned this in the last few days. We might see kids being handed down the mortgage, rather than a profitable inheritance.
“The house and loan are yours, kids. If you keep up the minimum repayments, it should be paid off by your great grandkids. I know it’s not much. It’s just a 2 bedder fixer-upper in Blacktown. But it was $7m, and the cheapest in a 50km radius.”
Investors will cash out equity from their 20 other properties and buy them up to rent out to the perma-poors
People who sell their property and then use the ‘profits’ to buy the next place they live in.
Property investment funds. Look at what’s happening in the US and Canada. Multi billion dollar private equity funds have been popping up and acquiring residential properties en mass, targeting one city/suburb at a time to gain enough to control rental pricing, and then outsourcing pricing to third party data companies that also sell pricing services to other property portfolios, multiplying their price setting power and then bleeding everyone dry.
That will be people who have a $500k home that has risen to $800k, and then they go for the $1.2m mortgage.
polygamy. it’ll take at least three full time wage earners to afford a mortgage
Median price and median loan are two different things
People with existing property. Households with household income above $200,000. People with a large inheritance
First home buyers are pushed out further out away from the city and second or third home buyers are the ones who can afford it. If you purchased a home pre 2020. It would’ve gone up in value significantly. Equity from first house and loan of $1M for a couple that earns $250K together. Gets you to that $2M that you spoke about earlier.
I suppose your wages will inflate to keep up with the increase or prices will be unable to go that high.
Corporations will own all of the property eventually and they will own us too
Apartments and units will become more popular for families, and the expectation that a home MUST be a house with a backyard and shed will shift.
Prices go up because of demand and supply. You question implies the price will go up magically without the demand because only a few people can afford them. House prices are where they are because that is what people are will to pay.
Second question, the bank always wins.
Import more cashed up people looking to park cash.
People selling their already expensive properties, and down the line
As loan terms tend higher, property purchases effectively become an interest only rentals (with the bank becoming a landlord), but you’re on the hook for upkeep (unlike a landlord in traditional circumstances).