Lockdowns can’t slow house price growth

Extended lockdowns on the east coast are unlikely to put a dent in Australia’s red-hot housing market, says Commonwealth Bank retail boss Angus Sullivan.

Even as open homes and auctions take place under strict COVID-19 safety plans, Mr Sullivan is tipping strong demand for residential property to continue on the back of super low, fixed interest rates deals.

He said he expects house prices to rise by additional 4 per cent through the Spring sales season. This would bring the annual lift in the five capital cities to 20 per cent, and 25 per cent in Sydney where the Delta variant is running wild.

“We are still seeing pretty good supply into the marketplace, pretty good clearance rates, and expressions of interest for pre-approval of borrowing capacity,” Mr Sullivan told reporters on Friday afternoon. “Despite the current [lockdowns], we are seeing a relatively persistent level of interest in the housing market.”

Low fixed rate home loans issued on the back of the Reserve Bank’s cheap funding facility are continuing to lure buyers to the market and many customers are fixing portions of existing loans to reduce monthly repayments. Currently, 50 per cent of CBA’s home lending is being done on fixed rates, up from under 10 per cent a year ago.

“The fixed rates still available in market give people a sense of confidence the commitment they are making for one, two- or four years will underpin a good level of performance of the housing market,” Mr Sullivan said.

CBA, whose retail bank recorded 16 per cent profit growth in the past year, has a two year, 1.99 per cent mortgage rate in the market for owner occupiers who meet certain conditions. But amid vigorous competition, CBA has lifted the “floor” at which it assesses the customers who are taking advantage of the record low rates, to ensure borrowers will be able to repay when the fixed rates reset at higher levels in coming years.

Regulators insist banks assess customers on their ability to repay the higher of either the customer’s actual interest rate plus a ‘serviceability buffer’ of 2.5 per cent or the bank’s ‘minimum floor rate’. Banks are expected to reject borrowers who cannot meet the hurdle.

In the past half, CBA lifted its minimum floor rate by 0.15 per cent to 5.25 per cent. This is just below Macquarie, at 5.30 per cent, but higher than ANZ at 5.10 per cent, Westpac at 5.05 per cent and NAB at 4.95 per cent. CBA CEO Matt Comyn suggested on Wednesday this floor could be a lever that regulators could insist banks shift – a move known as a macroprudential intervention – to deal with emerging risks in the market.

House prices nationally would rise a further 7 to 8 per cent in 2022, Mr Sullivan said. The mortgage market has been “very competitive for a very long time, we are certainly not short of people who want to grow their business in the mortgage space, and we are not short on players and other banks all want a slice of it,” he said. “Competition is definitely intense and feels intense at the moment.”

The number of CBA customers who have deferred home loans during the latest COVID-19 outbreaks is just 7000, which Mr Sullivan described as “a very modest number and a good indicator of the relative strength of the economy as a whole”.

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