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According to Andrew Way, director at Semper Capital, the reset of $500bn in interest only residential loans to 2023 could cause a significant leap in the number of properties on the market, at a time when prices are already facing pressure.
“About 19% of all loans with the big four will have to convert from interest only to P&I between now and 2020.
“For those who are at or close to negative equity, their properties will most likely end up on the market,” he continues.
Combine this with recent profit and share price declines among the majors, and 2019 could be the start of a challenging time.
Way explains, “The bank share price has dropped about 30% over the last three years, profits are down and they have resets. So there may be an increase in institutional investment rates to those banks because of their current fertility by comparison to international banks. All this will add rate to borrowing.”
The silver lining is that the non-bank sector – by this time able to compete on rate – is set to thrive. However, as the banks look to reduce their exposure to high risk weighted average loans, owner occupied commercial premises and loans to SMEs will likely be hit.
“Our big prediction for 2019 is that the banks will all but exit the SME lending space and that will be a treasury decision, not a credit decision. It’s going to happen irrespective of the election,” he says.
“The banking sector itself is set for a very rough period,” he adds.
The worst case outcome could see Australia’s unbroken economic growth record come to an abrupt end.
“I think we might see Australia sailing closer to a recession in 2019 and that, of course, will not be a good thing,” he says. “It’s going to be an interesting time.”
