Affordability and serviceability will continue to bite in 2024: Brighten

Speaking to The Adviser, Mr Meaker flagged that the mortgage market had been through a period of “change and uncertainty” in 2023, with Australian brokers, lenders, and advisers all having done well to remain resilient.

While he said that resilience had been made easier by high property prices and borrowers “remaining surprisingly steadfast in their ability to make repayments despite the interest rate environment”, he suggested that brokers will need to continue to monitor housing market trends to ensure they’re delivering “best-in-class advice to clients” in 2024.

He said that one main theme arising this year will be the buoyancy of the property market, but noted that while economists from the big four banks predict a rise in house prices of between 3 and 5 per cent – the pace of this may vary across the country.

“While some capital city markets look likely to reach record-high prices – some predict that Sydney will see growth of between 6 and 9 per cent for houses – there may be declines in other areas,” he said.

“Factors continuing to drive up housing prices include the ongoing housing supply shortage, which has no clear path to resolution in the short term. Our population continues to grow, putting extra pressure on demand. Federal and state incentives like the Help to Buy scheme starting in 2024 and Queensland’s doubling of the first home buyer’s grant will further boost demand.”

However, Mr Meaker added that CoreLogic’s 2024 outlook, showed that there may be a slowdown in the high-end capital city markets and lower overall transaction volumes. The high-end slowdown may even cascade down to more affordable market segments if households continue to experience financial pressures.

“Given this uncertainty, all of us in the mortgage industry must remain on top of – and responsive to – news about what’s happening in the economy. Lenders may have to adjust policies to reduce risks and brokers must keep up to date with these adjustments,” he said.

“Maintaining an up-to-date understanding of housing market trends will also allow brokers to offer best-in-class advice to clients, even those who may need help with negative equity or repayment difficulties.”

A second hot-button topic for 2024 will continue to be serviceability and housing affordability, the head of sales said.

“Prospective home buyers are now required to allocate 46.2 per cent of their income to service a new loan on an average home – 6 per cent more than last year and 17 per cent more than in March 2020 during the early stages of the pandemic when interest rates were at 0.1 per cent,” he said.

Noting that while some economists believe we may have already hit the cash rate peak, others said there may be one more to come.

Either way, the market expects there will be a pause in rate movements in 2024, which means most existing home owners will likely face the peak cash rate for most of 2024.

“In that case, reduced borrowing capacity will remain an ongoing concern, potentially exacerbating unequal access to home ownership,” he said.

“From a lender’s perspective, we need to maintain responsible lending practices and mitigate risks to borrowers and the economy. On the other hand, it is more crucial than ever to enable home ownership opportunities for ordinary people.

“Industry stakeholders have been advocating for broader and more meaningful discussions regarding changes that may combat serviceability issues. For example, there have been suggestions that flexible serviceability buffers, adaptable to changing economic conditions, could be a solution to the ‘mortgage prison’ phenomenon, enabling trapped borrowers to explore more affordable options.

“The mortgage industry will have a crucial conversation in 2024 about shifting serviceability dynamics and what they mean for housing affordability.”

A third and final theme he expects to dominate in 2024 will be the role of brokers.

He said: “The only thing I’m certain about in 2024 is the high degree of uncertainty for both borrowers and lenders.

“Tough markets – like the one we faced this year – mean tight borrowing capacity and a greater need for good advice. These are both perfect reasons to use a broker. Instead of walking into a bank and being presented with one solution, a client using a broker will have access to 50+ products and policies and the full range of choices that presents. This is not to mention the invaluable advice they could receive on how a property fits into their financial future.”

Citing the recent Consumer Access to Mortgages Report, partnered by the FBAA, Mr Meaker emphasised that over 83 per cent of broker clients would use a broker again for assistance with a future mortgage.

“Broker market share is increasing and is currently at 71.5 per cent of all new residential home loans. I expect this to increase to over 80 per cent in the next few years. Most businesses could only dream of those NPS scores,” he said.

Mr Meaker thanked brokers for helping borrowers “navigate the challenging lending environment in 2023” and for offering invaluable advice on what property ownership means for clients’ financial futures. He said he looked forward to working closely with the broker channel moving forward.

[Related: Brighten launches bridging loan product]