First-home buyers emerge winners as banks put investors offside

The big four have created a perfect landscape for first-home buyers, pushing property investors aside.

Property investors must now contend with a string of negatives which have rarely combined so perfectly.

Just occasionally our supersized banks can change the terms of ­finance in Australia.

At a stroke this week the big four banks created the perfect landscape for first-home buyers and pushed property investors to the side.

Seeking to justify an official rate cut while the housing sector is still showing signs of real strength, outgoing RBA governor Glenn Stevens said he believed house prices are stabilising thanks tighter lending standards.

The jury is out on whether Stevens has called it right or not, but the remarkable move by the banks — acting together once more — to hold back on passing on the rate cuts in full and instead lifting deposit rates — instantly pushes investors back to cash and away from property.

Property investors must now contend with a string of negatives which have rarely combined so perfectly in the local market:

1. The rate reduction cycle is being cut off early by banks expressly favouring depositors over investors.

2. Rental yields are falling, worse still rental growth is fading.

3. Foreign buyers, invariably from China, now face new ­difficulties getting money out of the mainland and then an absence of finance provision within Australia.

4. The prospect of acceptable price growth is slim in most cities with the exception of pockets in Sydney and Brisbane.

But the remarkable aspect of these major changes to the property market is that first-home ­buyers actually benefit from ­almost every one of these recent developments. Vincent Turner, chief executive of the recently launched online mortgage broker and comparison site, Unohomeloans.com.au, says lending to first-home buyers is likely to rise.

“We’ve watched as the first-home buyers shrunk back and investors got the upper hand in recent years. The level of first-home buyers in the wider lending market fell well below 20 per cent — more traditionally it had ranged 30-40 per cent — and I think we will see it lift again from here.”

Investors squeezed on two fronts

For the millions of investors who depend on the fully franked yields in bank stocks, there are fears that a battle for depositors among the banks can only bring trouble.

Leading bank analyst Brian Johnson of CLSA has already pointed out the business of offering higher headline deposit rates at banks such as CBA and NAB while the RBA is dropping official rates is going to be expensive.

Johnson indicated the trade-off between holding back on rate cuts and lifting rates is a losing game suggesting all-important bank net interest margins will be “negatively impacted”.

In other words bank stocks, which are already struggling with capital demands and maxed out dividend payout ratios, can ill-afford the break out of a battle for cash deposits.

Meanwhile, two groups in the residential property may be heading for a fall. First, “off the plan” purchasers where the termination rates are ­already rising. A recent BIS Shrapnel report warned almost all the major markets are moving towards an oversupply.

Second, the interest-only brigade — with one in 10 primary home loans now classified as interest-only — a significant portion of the market is going to be very exposed if prices soften in any fashion.

And with a vacuum left by exiting investors, the path is clear for first-home buyers — and perhaps the “downsizers” — to cherry-pick a market where the banks have moved the goalposts.