The Property Club has slammed APRA over what it describes as a “crazy loan buffer test” forcing first home buyers to the fringe city areas in growing numbers.
Kevin Young, president of the Property Club, has issued a warning to property investors over the corporate regulator issuing “unrealistic” loans serviceability tests.
“First home buyers are being pushed out to the fringe city areas in growing numbers because of an outdated loan serviceability buffer test imposed by APRA at 2.5 per cent – the same buffer interest rate which was being imposed when official interest rates where 17 per cent 30 years ago and is now totally unrealistic today when official interest rates are now just 0.25 per cent,” Mr Young said.
“That is why Property Club urges the [federal government] to pressure APRA to substantially reduce the 2.5 per cent buffer rate to 0.4 per cent to avoid a pending property crash in these outer fringe suburbs.
“A lower buffer serviceability rate would put first home buyers in a much stronger financial position to purchase homes in near city locations that are built to higher standards and will deliver higher levels of capital growth. This will benefit the overall property market by ensuring that these first home buyers can upgrade to larger homes at a later stage.
“Because of this crazy buffer interest rate, we are now seeing a surge in new home building in these fringe city areas.”
Mr Young added that the “fringe city building boom” is also being accentuated by state and federal government grants that are in place to boost housing construction amid the economic slowdown off the back of COVID-19.
“In Queensland, for example, first home buyers can obtain $15,000 from the [state government] to build a new home as well as $25,000 from the [federal government’s HomeBuilder] programme,” Mr Young said.
“In addition, these first home buyers can also more easily build a new home through the introduction of the [federal government’s] First Home Loan Deposit scheme of just 5 per cent.
“We are now heading for a train wreck in home values in fringe city suburbs caused by APRA’s outdated interest rate buffer policy.
“This dire outcome is based upon 26 years of accurate economic predictions made by Property Club since it was established in 1994.”