Rate hikes weigh on home and land package buyers

Khattab is not alone. Soaring interest rates have left many buyers — particularly those who bought house-and-lot packages or off-the-plan apartments when home prices were higher — fearing losing financing, a situation made worse by increased construction costs and compounded by the rising cost of living.

Nest Legal’s director and chief counsel, Laura Vickers, said many of those who signed unscheduled deals “freaked out” as their settlement date approached.

“Many come to us wanting to know how to get out of contracts,” Vickers said. “People are concerned, and many have the misconception that they can get out of the contract.”

She said there were just as many calls from people hoping to get out of contracts as from people trying to enter them.

The situation for some was dire, Vickers said. Some buyers wanted to outsource their properties through Facebook Marketplace or Gumtree because some land contracts stipulated they couldn’t re-advertise their blocks through an agent.

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Throughout Melbourne’s housing belt, which includes Cranbourne, Sunbury, Craigieburn and Rockbank, there are more than a dozen houses and lots for sale on Gumtree alone.

Lending restrictions are so handicapping those looking to build that the Housing Industry Association has forecast housing construction to fall to its lowest level in a decade.

HIA chief economist Tim Reardon expects detached housing starts to fall from 101,100 this fiscal year to 96,000 next year and detached housing permits in Victoria to fall from 35,700 to 30,000.

Off-the-plan housing faces similar problems, Reardon said, as buyers, particularly first-time home buyers, have struggled to get financing.

“It’s becoming increasingly expensive for banks to lend to first-time homebuyers,” he said. “They find it harder to get funding. And this despite the fact that mortgage defaults in Australia are just over 1 percent.”

Reardon said the cancellation rate — which is the number of projects that don’t get done because people can’t get funding — is typically below 10 percent nationwide.

However, it is now closer to 25 percent and is expected to remain at that level until interest rates stop rising.

“It means that market confidence is very low,” he said.

The HIA anticipates more pain for buyers like Khattab, noting it could take months for the impact of any rate hike to be felt on borrowing.

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“The February hike will continue to negatively impact the market through the end of this year,” Reardon said. “The inability for homebuyers to access financing will continue to worsen.”

Reardon noted that typically about 200,000 new homes are built nationwide each year, accounting for about 0.02 percent of the total housing stock.

Victoria Drew Glascott, Metricon’s general manager of sales, said there are a number of factors influencing those who buy home-and-lot packages, although he is more optimistic about the future.

He expects supply chain issues, including the shortage of artisans, to improve over the next year and recommends buyers keep talking to their lenders to find solutions to tough financial situations.

“Customers need to stay in touch with their lender while they await the transfer of ownership of their land … to let them know of potential problems,” he said.

“If home buyers … have withdrawn their financing, I would encourage them to shop around, don’t give up, and find the right lender that works best for you.”

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