The emerging lending trends of 2022

WLTH CEO Brodie Haupt outlines the emerging lending trends of 2022 and what to look out for.

If you are in the housing market or contemplating entering, it is crucial to pay close attention to the Australian Prudential Regulation Authority (APRA) lenders’ moves, and their impact on your mortgage.

With the economy taking a brutal beating this year, many Australians have been waiting cautiously to see what impact this will have on the property market before making any big moves. Trends in the housing market will flow on from the twists and turns this space has experienced in 2021.

As the high restrictions that COVID enforced slowly fizzle out around the country, and announcements from APRA to monitor borrowing levels hit headlines, many Aussies are starting to wonder what the new year will look like.

Here are seven emerging lending trends predicted for 2022 and what they might mean for you.

Mortgage repayments will increase

First home owners who secured large loans during the boom could see their mortgage payments increase.

APRA’s announcement to reduce the borrowing power of property buyers will see our first trend hit the housing market next year.

In October 2021, APRA recommended that banks increase their rates from 2.5 per cent to 3 per cent. In turn, this means that borrowers who could once afford property for $1 million in 2021 will only have the option to borrow up to $950,000 in the new year.

Top tips for mortgage borrowers amid tougher lending restrictions

The best way to improve your chances of securing a spot on the property ladder is to improve your credit score. Then research down payment options, be nimble and make sure you don’t overpay.

Home loan refinancing will increase

Home loan refinancing will hit new highs as the APRA holds steady on cash rate.

The latest figures from the Australian Bureau of Statistics (ABS) reveal that mortgage refinancing has skyrocketed to an all-time high. The total hit $16.24 billion in June 2021.

The upward trend in 2021 was caused predominantly by banks and lenders offering cashback schemes and considerably lower rates after the APRA cut their interest rates.

Now Australians are starting to think more about benefiting from the massive surge in property prices compared to pre-COVID times by considering their options for refinancing their mortgage payments and possibly fixing their home loans.

Lenders will continue to tighten

Lenders and banks are tightening their reins in response to the APRA announcement this year, and there looks to be more in 2022.

This year the APRA recommended that banks not target house prices, but maintain a close watch on household borrowing levels. This is in response to data revealing that many Australian households carry large debt.

If home lending continues to be perceived by the APRA as risky, there will be more enforced serviceability expectations to counter these risks to come.

Interest rates will get a shake up

Another emerging lending trends of 2022 is that borrowers will shake up their interest rates in what could be a sign of unpredictable times ahead.

In an attempt to combat the economic fallout from the global pandemic, the cash rate is currently as low as it has ever been.

With lockdown coming to an end, the APRA believes that the economy is recovering and has suggested the cash rate could go up as soon as late 2023.

When preparing and trying to predict what lies ahead, it is important to consider the factors banks and lenders use to determine their interest rates, including funding costs, competition from other banks, and risk of default.

Virtual buying will rise

We’ll see the rise of virtual buying as overseas investors scramble to enter the booming market.

The pandemic saw many buyers turn to virtual means to sell and purchase the property. In 2021, we saw a sharp decline in auction results as people struggled to indulge in digital means to buy.

While nothing can replace the need for in-person auctions and inspections, we are getting used to the new digital norm spurred on from its necessity during the pandemic. Virtual buying has become a popular method for overseas investors.

The APRA has revealed that investors have flocked back to the market with higher loan-to-value ratios. While measures have been introduced to reduce mortgage exposure to investors purchasing high-end properties, this has not reduced the influx of overseas buyers.

Cash reserves are key

Buyers with more extensive cash reserves will continue to benefit from this market.

Unfortunately, the same social and economic issues that exist in the property market in 2021 will continue to ring true in the new year. In 2022, entering the market will likely continue to feel out of reach for many young Australians, with the winners (aka those with more cash in their pockets) having more borrowing power.

Australia’s ninth-largest mortgage lender, the ‘Bank of Mum and Dad’, will continue to gain traction. Many already see this as an all-important step for young people to aquire property in a competitive marketplace.

Banking innovation will accelerate growth

The new year will see digital banking technology continue to grow as consumers explore other options in the finance market. The global pandemic significantly accelerated the adoption of digital banking technology. This trend is not anticipated to stall.

Digital banking has taken root, changing consumers’ attitudes about mixing money and technology. The modern consumer wants a revolution in their choice channel and wants to manage their financial life all in one place.

In the second quarter of 2021, there was an increase of 10 per cent year-over-year of consumers using digital means for their finances. This trend is already seen in the housing market, with more than half of customers applying digitally for mortgages.