Ed McKnight: Opes Partners Resident Economist on rules being relaxed for home owners and their mortgages

Rules are being relaxed around borrowers using flatmates to pay their mortgage.

Previously, borrowers would need signed documentation from a flatmate contributing to the cost, but now a declaration of intent is all that’s needed.

Opes Partners Resident Economist Ed McKnight talks to Mike Hosking about what this means.

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Episode Transcript

Speaker 1 (00:00):
Some banks are coming to the first home buyers party.
Rules are being relaxed around borrowers using flatmates to pay
the mortgage. Right, So it used to be that you
needed sign documentation from the flatmate, but now a declaration
of intent is all that's needed now. Resident economists at
Opus Partners ed mcnighters, well us D morning to you.

Speaker 2 (00:17):
Good morning.

Speaker 1 (00:18):
Make I'm assuming based on the idea that really you're
not going along to try and rip off the banks
and lie to them, and that if you want a mortgage,
you'll get a mortgage, and you're desperate to pay it
and you're not going to be a fool about it.

Speaker 2 (00:30):
That's genuously the case, and I think it was a
bit tough previously had to sign up a flatmate before
you even bought the flat because it's kind of a
heart before the horse kind of thing. So now just
saying hey, look, I'm planning on getting a flat mat,
I'll do it once I buy the house, I think
that makes it much easier. I did that myself when
I've bought my first home, rather than having to find
the flatmate before you actually bought the house.

Speaker 1 (00:51):
Is the fragility of the arrangement A problem. I mean,
you've got the flatmate, then the flatmate moves out, and
then you've got to cover the difference between when the
old fund leaves and the new one arrives, et cetera.

Speaker 2 (01:01):
Well, there's a lot of stress tests in the bank's
applications already, So if you go and get a mortgage today,
you'll probably pay about five percent intrast rate, but the
banks are going to be stress testing you on about
seven percent already. There's quite a bit of fat and
the bank's mortgage application. So just trading a few of
the rules around flatmates, I don't think it's going to
make any of the banks fall over.

Speaker 1 (01:22):
Does it make a big difference when you juxtapose it
with deposits, lvrs, debt to income ratios and all of that.

Speaker 2 (01:29):
It makes a difference, but perhaps not as much as
you might think. So, rather than a silver bullet to
help first home buyers get into the market, I'm calling
this more of a maybe a brass bullet or a
tin bullet. But from an income perspective, if you've got
a flat mat in for two hundred bucks a week,
it's about an extra one hundred and thirty thousand dollars
worth of lending. Now, that's only from an income perspective.

(01:52):
And the reason I call it a brass bullet is
because usually it's deposit that holds first home buyers back.
When we look at first home buyers debt to income
ratios compared to owner occupiers, like other second home third
home buyers who are upgrading to bigger and bigger houses,
those people actually take on more debt compared to their incomes.
The first home buyers, it's the deposit holding them back.

Speaker 1 (02:14):
Okay, how much of this driver is driving business for
the banks? In other words, they're saying, right, this is
an avenue for us in time that we can get
a bit of business through the door.

Speaker 2 (02:22):
Well, this is a part of a general trend where
banks are competing on policy, and I think it's a
very good thing. Which is basically, if an z has
such tight criteria that you can't get a mortgage through them,
but asb have loosened some things and you can actually
get a mortgage through them, well it doesn't matter who's
got the higher interest rate. If you're a first home buyer,
you're going to the bank that's actually going to give

(02:43):
you the mortgage. So I think this is a good thing.
We've also seen a little change in terms of interest
only mortgages out of am Z as well, so that's
going to be very good for investors. But this is
a trend we're seeing where banks are saying, other than
just dropping interest rates, what else can we do to
become the third bank for borrowers?

Speaker 1 (03:01):
What you read on the economic the moment are be
next week? On the cash rights are twenty five points?
What have you got neutral?

Speaker 2 (03:07):
At neutral? Two point seventy five percent? Is I think
where we're going to end up if I had to
take a guest for your mic.

Speaker 1 (03:14):
And is it bullish? Out there? Are people wanting money.

Speaker 2 (03:19):
We're seeing a slow recovery. About seventy four thousand houses
sold over the last year. We're talking about the housing market.
We bottomed outed about fifty six thousand houses, so you
know there's an extra eighteen thousand houses selling compared to
the bottom of the market in twenty twenty three. But
it's a slow recovery. I think that's the same for
the whole of the economy. You're probably hearing it from
people yourself where people are nervous, and I think it's

(03:41):
the uncertainty that kills people. I was giving an economics
presentation to a board of a large industry organization and
they said to me, Ed, it has never felt so
uncertain at the moment. How do we decide whether to
invest and grow our organization or not when we don't
know what's going to happen next week? When the Reserve
think makes the announcements not.

Speaker 1 (04:02):
A bad question. It appreciated of Ed McKnight, who's resident
economists and Opus Partners.

Speaker 2 (04:07):
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