An item in the Federal Budget that hasn’t received much coverage is the plan to allow the Australian Prudential Regulation Authority (APRA) to target property lending in specific geographical regions.

This means APRA will get the power to restrict lending in property hotspots if Parliament passes the Budget. At present, the blanket restrictions APRA can impose don’t distinguish between the widely divergent housing conditions across the country.

“Empowering APRA to apply different macro-prudential policies to different regions will allow the regulator to introduce measures that specifically target areas where risks are greatest and not affect areas where property market conditions are not deemed a threat,” credit rating agency Moody’s says in a report.

Alternative supplies

Property investors have been hunting around for alternative funding sources since late 2014, when APRA imposed lending curbs on investment loans. The winners have been non-bank lenders, which have “significantly increased” their investment and interest-only loans, Moody’s says.

Value of finance approvals by segment

value of finance
Source: Westpac

Investment loans now account for 36% of loans included in mortgage pools that are bundled up by non-banks and sold to institutional investors. That is up from 16% in 2015. Meanwhile, interest-only loans account for 46% of non-bank residential mortgage-backed securities pools, up from 21% in 2015.

APRA’s ability to target markets may also help the Reserve Bank of Australia (RBA) get more comfortable with the idea of cutting interest rates again, which potentially would benefit the wider economy. The RBA has been wary of making another cut fearing this may add fuel to already flaming property markets in Sydney and Melbourne.

Cooling-off period

Nevertheless, the national housing market is already showing signs of cooling. Tim Lawless, Head of Research at financial analysis and advisory firm CoreLogic, says this is “particularly in Sydney and Melbourne where affordability constraints are more evident and investors have comprised a larger proportion of housing demand”. The CoreLogic hedonic home value index showed a 1.1% fall in dwelling values across the combined capitals over the seasonally weak month of May.

Index results as at 31 May, 2017

Source: CoreLogic RP Data

Over the three months to the end of May, capital city dwelling values rose by a modest 0.4%, while four of the eight capitals recorded falls. Sydney dwelling values were unchanged, while Melbourne values rose 0.7%.

Lawless says a dent in consumer confidence may also be contributing to slower growth conditions. “Consumer sentiment towards housing, as measured by Westpac and the Melbourne Institute, showed a marked downturn in May,” he says.

“In particular, the Westpac ‘time to buy a dwelling index’ fell 6.5% over the month. According to Westpac, ‘consumer sentiment towards housing shows an increasingly negative view’.”

Meanwhile, the first-quarter gross domestic product (GDP) figures show households are saving less, as prices for utilities, insurance and fuel rise but wages don’t.
Low consumption growth poses big risks to the economy, and GDP slowing to just 1.7% year on year – the weakest expansion since the September quarter of 2009 – should be ringing bells.

Back to Insights and News

Related articles

All insights

1.5 million borrowers face mortgage stress

After a year of aggressive interest rate hikes, many mortgage holders are feeling the pressure. New research from Roy Morgan shows that in the three months to July 2023, 1.5 million Australians – or 29.2% of all mortgage holders – were at risk of mortgage stress. The latest figure breaks the previous record of 1.46 million
Read More

Housing market springs back to life

Australia’s housing market has long been a significant barometer of the country’s economic health. It has faced numerous challenges in recent years, including the effects of the global COVID-19 pandemic and a price downturn in 2022. However, the most recent data collected by Domain suggests the market is quickly regaining its footing. During the three
Read More

Markets brace for uncertainty as interest rates bite

Markets brace for uncertainty as interest rates bite The June cash rate decision has dashed hopes of rate hikes coming to an end. While the increase in interest rates has affected mortgage holders across Australia, certain regions will be hit harder due to high numbers of indebted households. According to CoreLogic’s analysis of the 2021
Read More