Market confidence ‘the big challenge’ for home finance

The main challenge facing the home finance sector is developer confidence in the property market, a Yellow Brick Road executive says.

Executive chairman of Yellow Brick Road Mark Bouris told Mortgage Business that it’s important that lending changes don’t “knock the confidence of buyers out of the market”.

The Australian Prudential Regulation Authority (APRA) in May announced speed limits on interest-only and investor lending in an attempt to ease the “heightened risks” in the Australian housing environment and reinforce “sound residential mortgage lending practices”.

“I'm not suggesting that I want the market to grow at 20 per cent — I definitely don't,” Mr Bouris said. “I'd like to see it grow in single figures, but you don't want to knock it around so much that it starts to not grow at all. I think that's important.”

He warned that lessened developer activity due to lending restrictions could result in a mismatch between rising prices and lender reticence.

“I don’t want it [lending changes] to go so far where the developers start pulling out of the market and we get lack of supply and then borrowers can't afford to borrow the money they need to breach the gap for the vendor.

“We've got to keep enough confidence in the property market or the real estate market so that we continue to get developers to add to supply.”

He warned that a mismatch could result in a six-month lag as the market re-establishes itself.

“That happens a lot in markets,” he warned. “Especially for loans, it can happen, so we need that to be gently managed.

“If we don’t, we're going to get prices that are going to go too high and they're going to be hard to fund because we won't want to borrow that sort of money under the new rules, so we get a mismatch.”

The CoreLogic August home value index reported a flagging Sydney market and flat national dwelling values. Tim Lawless, CoreLogic's head of research, said: “We’re seeing capital gains in markets like Sydney, which were previously very strong, now being weighed down by affordability constraints and tighter lending conditions.

“The knock-on effect is a curb in investment credit growth and higher mortgage rates for investment and interest-only mortgages.”

Financial results

Yellow Brick Road announced a maiden profit last week of $2 million for the 2017 financial year. The result denotes a recovery worth $11.5 million following the business’ $9.5 million loss in FY16.

“There's no magic [to the numbers], just logic and the logic is … we acquired a number of businesses in 2014 and 2015 and it took me two years to integrate them,” Mr Bouris explained.

“It wasn't until the end of last year that I was in the position to actually make the changes or build the efficiency in the business.

“We'll get a full year of that benefit this year, and I don't really need any more people and … business is growing at a really good rate, above system with less people. That's the whole idea of [business efficiency] roll-ups, that's what it was all about.”

[Related: Lending changes 'will continue', warns Bouris]

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Lucy Dean

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