We’re starting the year with the Oracle lending team unveiling the Mortgage Lending forecast for 2022.

We’ve examined topics such as the housing boom, Banks hiking up there rates, impacts of Omicron, lending rules and many more.

Will the housing boom be over in 2022?

Across Australia, first home buyers are wondering if house prices will ever drop. Nationally, property values have grown 22% last year, although growth has slowed in recent months.

Hobart was 2021’s hottest capital city property market where prices have gone up 27%. In Sydney, values have risen 25%, Brisbane by 25%, Canberra 24%, Adelaide 21%, Darwin 16%, Melbourne 16% and Perth 14%. These are the highest annual growth rates since 1989.

It’s not great news for first home buyers with prices expected to keep rising in 2022 before falling in 2023. These predicted falls are not expected to be enough to wipe out the gains of the current boom. Many commentators believe that house prices will fall, but all but baked in as interest rates are expected to start rising over the next couple of years.

The ‘Big-4” forecasts for property prices in the short term:

  • NAB has forecast a 4.9% lift in property values in 2022 and a 4% fall in 2023
  • ANZ’s outlook is a 6% price hike next year and a 4% drop in 2023
  • CBA expects house prices to rise 7% next year and a drop in 2023 of 10%.
  • Westpac expects an 8% rise in 2022 and a 5% correction in 2023

Banks hiking rates

Record low mortgage rates below 2% have fuelled the current property price surge. We don’t expect house prices to go down until interest rates go up. Rates are linked to money markets and the cash rate.

The Reserve Bank of Australia (RBA) says it won’t lift the cash rate until inflation reaches 2 to 3% target range. Some analysts are predicting the cash rate will rise in 2023 rather than 2024.

In late 2021, we saw the banks increasing their fixed rates, with most reducing their variable rates to attract new customers.

This seems to indicate that borrowers may need to be prepared for rates to increase in 2022. Borrowers may need to prepare to pay more for money they borrow.

What about the regions?

Covid-19 lockdowns has seen a trend of city-dwellers relocating to the regions. As a result, property values in the regions have increased 30%, compared to 24% in the capital cities.

“If you look at the regional market, it’s those well connected, it’s commutable regions that are that have good infrastructure and service provisioning, that are going to continue to see heightened demand,” says REA Group’s Eleanor Creagh.

South-East Queensland is also expected to do well in 2022 as people escape states that have been harder hit by COVID-19.


Impacts of Omicron

Some analysts have warned that if the new COVID variants, such as Omicron, will continue to impact Australia, house prices could rise in the double digits again this year. 

This could result in the RBA delaying any planned interest rate rises. In addition, the financial regulator APRA may also hold off on additional intervention to restrict credit in the housing market.

The emergence of Omicron reminds us that even the best predictions can never be sure exactly what lies ahead. If borders keep opening and shutting, confidence is likely to take a hit.

Will lending rules tighten?

In October 2021, the regulator APRA lifted the interest rate serviceability buffer for mortgages – from 2.5% to 3.0%.

Some analysts expect APRA to intervene again in 2022 by setting a limit on loan-to-income (LTI) ratios, further tightening lending caps. The regulator could also impose a limit on borrowers with loan-to-valuation-ratios (LVR) of 80 to 90%.

These changes have already affected borrowers. We’re seeing clients, on average been able to borrow approximately 5% less than they would have only 3 or 4 months ago. Clients have also expressed concern about rising interest rates.

Were you planning to borrow the maximum amount possible to purchase a home? You’ll be forced to borrow less under new rules.

first home buyer

First home buyers set to decline in 2022

In 2021, first home buyers started with a record number of first home buyer loans. However, that has been slipping away in recent months. We expect that to continue.

The number of new loans being taken out by first home buyers has fallen by 11% in a year, according to ABS lending indicators. Although the amount borrowed by them is up 1% due to house price rises.

In contrast, the value of investor mortgages rose 83% in the last year.

High density living more affordable

As the gap between housing and unit values grows to nearly 38%, 2022 is set to see high-density living become more appealing.

As affordability constraints impact on demand, we could see more of that demand diverted to the unit sector in 2022. For many first home buyers, this strategy can be a three to five year stepping-stone before the next step, buying a house.

It’s important to understand what you’re willing to compromise on… and to stick to your budget.

Over the next year we will all continue to adapt to life with Covid-19.

Need some advice on lending, contact our Lending Team to review your loan.

Written by Oracle Lending team

Important information – Oracle Advisory Group makes no representation or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. The information in this document is general information only and is not based on the objectives, financial situation or needs of any particular investor. An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and seek their own professional advice. Past performance is not a reliable indicator of future performance. The information provided in the document is current as the time of publication.
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