Surprisingly quietly, some things have happened that have implications for the entire Australian property market.
We’re all aware Sydney’s property prices have been surging for almost two years. Domain released data last week that showed the city’s median price now tops $1 million, with growth in even just the June quarter across the Sutherland Shire and the Lower North Shore as high as 12% and 11% respectively. The market’s a speeding bullet.
But of course, even the fastest bullet will eventually stop – either coming to a sudden halt as it hits something impermeable, or gradually losing pace over a long distance. As for the property market, there’s been no impetus for the market to change direction. No reason to suddenly stop, or even to slow down. That is, until recently.
Surprisingly quietly, some things have happened that have implications for the entire Australian property market. And while these developments have been widely discussed amongst economists, to the average real estate agent and even consumer, it all sounds too dry to possibly be of interest. It’s ironic really, because this latest news in simple terms means every residential home loan rate from a major bank is likely to increase by around 80 basis points over the next eleven months. For investors, the news is even worse. Not only will they be hit by further rate increases of at least 80 points, but in many cases, they’ll need to come up with 20% or even 30% as a minimum deposit – that’s if they can even meet the strict new lending criteria that’s been adopted by almost all lenders.
Imagine if the Reserve Bank suddenly announced they were going to increase rates by .8%! That’s more than three times the average movement, all in one go. The headlines would scream doom and gloom. And yet comparatively, we’ve heard barely a whisper. How can this be? And why has it happened?
Effectively, something had to be done to slow down property price activity. The official cash rate can’t go up because our economy is none too healthy and rate increases would hurt far more than just the property market. So the Government body that’s responsible for ensuring banks employ responsible lending practices, the Australian Prudential Regulation Authority (APRA), has stepped in. APRA has told the big banks they need to hold more cash against their loan books, which will cost an estimated $11 billion. And given the banks don’t like to compromise their healthy profits, those costs will likely be passed along to borrowers.
APRA’s also told the banks they have to pull back even harder on property lending to investors. Interestingly, AMP has just announced they’ve stopped taking applications from investors at all. And for those who’ve already got an AMP investor loan, the interest rate is going up by .47% - which is only about .20% more than the hike for investors three of the four major banks announced last week.
What will happen next? Will any change be fast or slow? Or will buyers, at least those who can still get their hands on funds, continue on without pause? While we don’t yet know the answers, the questions can’t be ignored.