Invest
When can we expect mortgage tightening?
While interest rates are said to remain low for an extended period of time, changes in the lending landscape are expected shortly, with the RBA itself announcing it is watching investors very closely.
When can we expect mortgage tightening?
While interest rates are said to remain low for an extended period of time, changes in the lending landscape are expected shortly, with the RBA itself announcing it is watching investors very closely.
Expectedly, the Reserve Bank of Australia confirmed on Tuesday that it will maintain its record-low interest rate of 0.1 per cent, and likely for an extended period of time.
But this announcement was set apart from the rest by the RBA’s out of character warning to investors. Namely, the bank said that as investor borrowing increases, “the bank will be monitoring trends in housing borrowing carefully, and it is important that lending standards are maintained”.
This plays in with the expectation that as early as next year, the bank could move to enact macro-prudential measures to slow price growth and act on the creation of inequality.
Just last week, Westpac predicted that APRA will step in to change prudential policy in the first half of 2022, reducing price growth to 5 per cent, down from the expected 15 per cent rise this year, before it plateaus at 0 per cent in 2023.
Similarly, noting a sharp increase in investor dwelling since the December quarter, CoreLogic acknowledged that there is a “strong chance” tighter credit controls by APRA will be implemented shortly.
“We know from previous rounds of macro-prudential policy, tighter credit conditions would likely have an immediate dampening effect on housing market conditions,” CoreLogic’s research director, Tim Lawless, said in a statement this week.
So, is investor lending reaching a danger zone?
In March, the value of investor home lending increased at the fastest rate since July 2003.
And while this may sound as a real cause for concern, it’s important to remember that investors remain under-represented in the market, comprising approximately 26 per cent of mortgage demand.
However, if investor activity continues to grow at this pace and first home buyer activity continues to wind down, this segment of the market could quickly rise to above average levels.
Additionally, through the December quarter, the proportion of mortgages issued with high loan-to-income ratios and high debt-to-income ratios increased, as did interest-only loans and loans to borrowers with high loan-to-valuation ratios.
“Considering the sharper rise in investment lending since the December quarter, it is possible the proportion of these types of loans generally deemed ‘riskier’ has already lifted,” Mr Lawless said.
As investor lending has increased, so has the pace of house price appreciation, with the latest data from CoreLogic revealing a rise of 2.2 per cent in May compared with 1.8 per cent in April. And while May’s rate of growth remains below the 32-year record high of 2.8 per cent recorded in March, the pace of capital gains remains unsustainably high.
Banks to act on their own
The banks have already started shifting their longer-term fixed rates higher, reflecting an expectation for a rise in the cost of funding.
Moving forward, CoreLogic expects fixed mortgage rates to edge higher. This, it said, could also be accelerated by the expiry of the RBA’s $200 billion term funding facility at the end of June.
As for the likelihood of the RBA lifting interest rates sooner than expected, Mr Lawless is fairly confident this won’t occur until inflation hits the 2-3 per cent target.
“Even with COVID well contained and higher levels of vaccinations, any unwinding of the current monetary policy settings is likely to be extremely gradual and carefully communicated, so as not to create a shock to demand,” he concluded.
RELATED ARTICLES
About the author
About the author
Property
Young buyers poised for a comeback as 5% First Home Guarantee takes effect
In a move set to reshape the Australian property landscape, the government’s revamped First Home Guarantee is poised to open the doors of homeownership to a new generation of young AustraliansRead more
Property
AFG Securities waives settlement fees for first-home buyers, signalling strategic shift
In a strategic move aimed at easing the financial burden on first-home buyers, AFG Securities has announced the elimination of settlement fees on select loans, potentially saving customers up to $699Read more
Property
From trust woes to wealth: Australian agencies' secret to boosting prices
In Australia’s residential market, trust is no longer a nice-to-have—it’s a pricing variable. Persistent distrust of real estate agents is depressing vendor outcomes and inviting regulatory heat, but ...Read more
Property
Reality check for first home buyers: Affordable suburbs with 5% deposit
In a significant development for Australian first home buyers, a new property search tool from Aussie Home Loans is set to transform the way prospective homeowners approach the market. As the Federal ...Read more
Property
Trust as a performance multiplier in Australia's real estate market
In Australia’s A$10–11 trillion housing market, trust is emerging as a crucial factor that sellers and agencies can no longer afford to overlook. Traditionally viewed as a soft metric, trust is now ...Read more
Property
LJ Hooker Lake Macquarie makes a splash with Belmont buy as real estate consolidation looms
LJ Hooker Lake Macquarie’s acquisition of the Belmont office, including its rent roll, is less about shopfronts and more about balance‑sheet resilience. In a market where listings ebb and flow with ...Read more
Property
Twice the demand: the case study behind Melbourne’s first‑home buyer surge
Melbourne has quietly engineered one of Australia’s most consequential housing turnarounds, with first‑home buyer demand running at roughly double the national pace and four of the top five buyer ...Read more
Property
First‑home buyers now anchor Australia’s mortgage growth — but the risk maths is changing
Great Southern Bank’s revelation that nearly one in three of its new mortgages went to first‑home buyers is not an outlier. It is the leading edge of a broader market realignment powered by government ...Read more
Property
Young buyers poised for a comeback as 5% First Home Guarantee takes effect
In a move set to reshape the Australian property landscape, the government’s revamped First Home Guarantee is poised to open the doors of homeownership to a new generation of young AustraliansRead more
Property
AFG Securities waives settlement fees for first-home buyers, signalling strategic shift
In a strategic move aimed at easing the financial burden on first-home buyers, AFG Securities has announced the elimination of settlement fees on select loans, potentially saving customers up to $699Read more
Property
From trust woes to wealth: Australian agencies' secret to boosting prices
In Australia’s residential market, trust is no longer a nice-to-have—it’s a pricing variable. Persistent distrust of real estate agents is depressing vendor outcomes and inviting regulatory heat, but ...Read more
Property
Reality check for first home buyers: Affordable suburbs with 5% deposit
In a significant development for Australian first home buyers, a new property search tool from Aussie Home Loans is set to transform the way prospective homeowners approach the market. As the Federal ...Read more
Property
Trust as a performance multiplier in Australia's real estate market
In Australia’s A$10–11 trillion housing market, trust is emerging as a crucial factor that sellers and agencies can no longer afford to overlook. Traditionally viewed as a soft metric, trust is now ...Read more
Property
LJ Hooker Lake Macquarie makes a splash with Belmont buy as real estate consolidation looms
LJ Hooker Lake Macquarie’s acquisition of the Belmont office, including its rent roll, is less about shopfronts and more about balance‑sheet resilience. In a market where listings ebb and flow with ...Read more
Property
Twice the demand: the case study behind Melbourne’s first‑home buyer surge
Melbourne has quietly engineered one of Australia’s most consequential housing turnarounds, with first‑home buyer demand running at roughly double the national pace and four of the top five buyer ...Read more
Property
First‑home buyers now anchor Australia’s mortgage growth — but the risk maths is changing
Great Southern Bank’s revelation that nearly one in three of its new mortgages went to first‑home buyers is not an outlier. It is the leading edge of a broader market realignment powered by government ...Read more
