06 May Investor lending policies treat all markets the same
There was some important news for property investors recently with the Australian Prudential Regulation Authority (APRA) announcing that its 2014 requirement for banks to limit growth in lending to residential property investors to 10% would be eased.
If a bank has kept the growth in their investor loan book below the benchmark for at least the past six months, and can show it has met other guidelines, it can have the cap removed. This won’t create complete freedom for the banks however, as the cap will be replaced with measures to keep lending standards up to APRA’s expectations.
In making the announcement, the Chair of APRA said the 10% cap had”served its purpose” and big banks had improved lending standards.It seems the banking regulator was not happy with the number of investor borrowers with very high debt-to-income ratios. The 10% cap has address this. Importantly for many property investors, there has also been a decline in interest-only loans and this is set to continue with further tightening in this regard.
There is no denying that a robust economy must have a resilient and prudent banking sector. No good can come of reckless lending to speculative investors. However, one must question the effectiveness of a macro measure such as these APRA policies.
Not all markets are the same
The problem with a nationwide measure that seeks to restrict lending to property investors is that it treats all property markets the same. The dramatic increase in property values seen in Sydney and Melbourne has not necessarily been experienced elsewhere in Australia. Indeed, some sectors have achieved moderate growth at best. So,while it is understandable that authorities want to cool the heated markets, the downside is that the slower markets may slow even further.
In recent years, property investors have been tarred as a privileged bunch pushing up property prices with easy access to interest only capital and shutting first home buyers out of the market. This isn’t even an accurate description of the situation in Sydney and Melbourne, let alone for all parts of the Australian property market. Great care must be taken to ensure that when the brakes are applied to ease this perception in the hot spots, that the whole investor sector does not come to a grinding halt.
After-all,who will pickup the slack if private investors leave the residential home market because capital is expensive and hard to get? Who will fill the demand for accommodation from a growing population?