Rory’s Rambles: Outlook remains positive

Back in July, my Rambles column talked about a potential credit squeeze.

Well, it’s certainly happening. Banks are now scrutinising finance applications with a fine-toothed comb and even ringing people up to query: “What’s this expenditure on your credit card that you didn’t list in your budget?”

The banks have changed from simply believing what’s put on application forms by mortgage brokers to now scrutinising, much more closely, applicants’ expenditure – particularly on credit cards – versus their stated budget plan.

Previous practices that might have been too loose have been very much tightened.

The effect of this has dampened the previous home-buyer demand somewhat so that prices, particularly in Melbourne, are now diminishing.

The benefit of this to the average buyer is that speculators will now exit the market since they can’t rely on rising prices for profit-taking.

This will create some stability, even savings, for the budding home-buyer.

With this in mind, it was a surprise that Westpac recently put up its interest rates. The Reserve Bank, by contrast, has just again maintained interest rates at a record low of 1.5 per cent – for the 25th month in a row.

It seems reckless that the big banks are increasing rates, and increasing mortgage stress, knowing that the property market had peaked with signs of slowing down. Maybe it is in advance of any pending grilling at the banking royal commission.

As I say, most of this slowing of activity is in metropolitan Melbourne, where prices have reached dizzy heights compared to Geelong and the Surf Coast.

But the price gap between Melbourne and Geelong remains significant and will maintain a competitive edge for Geelong and the coast.

So the upshot locally is positive – and you can anticipate that the Geelong market will remain reasonably strong for the medium term.