The number of “under offer” listings being readvertised is rising, according to data compiled by realestate.com.au. The trend is driving speculations that deals are failing due to stricter lending restrictions by the banks and hesitation by home buyers.
The number of boomerang homes across Australia, or those properties going back to the market after having an offer accepted, is increasing, as per the week-on-week data from realestate.com.au between January and July 2020.
While real estate agents are not required to inform realestate.com.au of confirmed sales, the existing data shows a trend in homes shifting from “under offer” back to “for sale” instead of the site’s “sold” listings.
Banks tighten up as buyers retreat
At the beginning of the first coronavirus lockdowns, there was a significant surge in the number of “under offer” homes nationally that returned to the market with an increase from 13.08% to 17.9% in the week starting 23 March 2020. The succeeding week the figure declined to 13.76% before falling even more but has moderately increased since mid-April.
It was a very terrible time for the economy and for real estate and for confidence at the end of March. The period was between when the country went into lockdown and the launch of the stimulus packages. There was plenty of uncertainty during that time and consequently home buyers hesitated and banks were being restrained about who they were giving a loan to. This wariness had continued with the country’s rising unemployment.
Though banks are well-capitalised and not under pressure, they are uneasy about the situation, especially the unemployment situation.
Banks being very careful about who they are lending to is not expected to change any time soon.
It was likely the situation is not quite as serious now, even more so with the news that the Federal Government’s JobSeeker and JobSeeker stimulus would be extended until March 2021, though diminished.
Buyers were aiming to take advantage of the low cash rate with eager first home buyers inundating the market. However, their enthusiasm was curbed a lot by banks less willing to lend than before COVID-19 happened.
Financial institutions were implementing stricter methods to make sure customers could fulfill the terms of the loan, and failed deals were the result of this strict process.
Homes being returned to the market is a function of purchase contracts falling through due to the buyer’s financial circumstances essentially changing – and not in a good way.
Though this is not new, it has been magnified during the pandemic as many employed Australians had been stood down and/or had their wage cut.
Tighter lending rules to continue
This trend is expected to continue until the impact of COVID-19 lessens and the economy starts to mend.
Lenders have launched steps and process checks to ensure new borrowers can continue their monthly repayments through to the loan settlement date. As a settlement condition, some are even requesting for updated pay slips from clients.
Lenders are doing this to protect themselves under their responsible lending policies, not extending credit to a client whose earning capacity has changed from the time they first applied for a loan.
Homebuyers should have no doubt that their employment was safe and their income was not likely to change before making a commitment to buy property.
It doesn’t make sense to move forward with a home purchase if you cannot afford the loan and most likely force to sell the property at much greater loss than they might otherwise incur.
Experts also recommend trying to negotiate with the selling agent to do away with the “forfeit deposit” clause in the contract of sale to safeguard the buyer’s funds.