RBA confirms focus on lending standards as prices soar
The RBA has restated its intention to monitor trends in housing borrowing and the maintenance of lending standards “ca...
Proposed changes by the prudential regulator would have a great impact for Western Australia’s property market and investors in the market, according to experts.
The proposed changes by APRA that would allow investors to borrow more has been welcomed by both the Real Estate Institute of Western Australia (REIWA) and property investment consultancy firm Momentum Wealth, which is based in .
REIWA president Damian Collins labelled the proposals as a huge win for the “struggling” market in WA, if implemented, as he predicted there would be both more people entering the property market and those already in the market would be able to purchase higher-quality properties.
“Our local property market has been struggling for quite some time. When APRA introduced tighter lending restrictions across the country during the rise of the Sydney and Melbourne property markets, this had huge implications for local property, with fewer buyers able to enter our already subdued market,” Mr Collins said.
“If these changes go ahead, this will make home loans more accessible for more people in a realistic way. A 7 per cent buffer was acceptable when mortgage rates were at a similar level, but now that interest rates are much lower, and expected to drop further with two rate cuts expected by the end of the year, the serviceability calculations should reflect this.
“If APRA introduces these changes and the banks pass the expected rate cuts on to borrowers, the assessment rate will drop from approximately 7.25 per cent to around 6 per cent. This will open the door to many more buyers, who will now be able to take out a loan had it not been for the high serviceability calculations.”
Momentum Wealth’s team leader of finance, Caylum Merrick, said the current guidance is not reflective of the market today, while the proposed changes will allow for serviceability assessments to move more in line with future rate changes.
Team leader of buyer’s agents at Momentum Wealth, Emma Everett, said APRA’s announcement could not have come at a better time, as it coincided with the confirmation of the Liberal win at the 2019 federal election.
“Combined with uncertainty surrounding changes to negative gearing, tight lending restrictions have presented a significant hindrance for investors in WA, so the recent announcements will certainly go a long way in restoring confidence and injecting more certainty into the market,” Ms Everett said.
“We have already seen significant improvements across the state’s rental market, with vacancy rates dropping to their lowest level in almost six years and rental prices beginning to show signs of improvement, and with uncertainties surrounding potential taxation changes now gone, APRA’s proposal is a further stimulus in bringing buyers back into the WA market.”
Mr Merrick said the changes would also be quite beneficial for property investors.
“In some cases, we’ve seen investors who were once able to pass servicing by over $1,000 per month fail servicing by $700 per month due to the elevated floor assessment rate, and this is despite no change to their personal circumstances,” he said.
“In one particular scenario, we’ve calculated that a drop in the servicing rate could see an investor’s maximum borrowing capacity rise from $378,000 to $448,000, which is an increase of roughly 19 per cent, and this is without taking into account the possibility of further rate cuts.
“Whilst the revisions will impact borrowers differently depending on their individual situation, the proposed changes could provide a much-needed break for investors who have been unable to refinance or proceed with their investment plans due to high serviceability calculations, and furthermore could see investors access higher-quality properties.”