On the fence about whether to sell your property now or after Christmas? New regulations may make it more difficult for investors and homebuyers to purchase in the coming year.
Why is this changing?
- The Council of Financial Regulators (including the banking regulator APRA) have noticed increased risk-taking in mortgage lending.
- Data from RBA reveals that housing debt-to-income ratios have reached record highs, and that an increasing amount of new loans are being taken out on these ratios.
- This is likely due to the effects of lockdown. Increased work-from-home flexibility has caused many people to desire more space and larger houses. People are also spending less money on coffees, eating out, public transport and parking, resulting in more money put towards housing.
- For reasonable lending standards to be maintained, new lending restrictions (also known as Macroprudential curbs) are set to be implemented.
What are the new restrictions?
- APRA announced changes to the way lenders assess new borrowers’ ability to service a mortgage.
- Borrowers may need to demonstrate the ability to repay a mortgage with an interest rate of about 5.36%.
- Essentially, debt-to-income mortgage limits are being tightened, making it harder to borrow.
Who does it affect?
- Because owner-occupier mortgage rates are lower than investor rates, these changes may affect the investment portion of the market more.
- A debt-to-income limit could prevent investors from using rising asset valuations to reduce their loan-to-valuation ratios. This makes it harder for them to borrow more and buy multiple properties.
- However, this tightening of mortgage limits may also affect first home buyers in the expensive Sydney and Melbourne markets.
- Also, keep in mind that further macroprudential changes could be implemented in the future. Wayne Byres (Chair of Apra) warned that if new mortgage lending on high debt-to-income ratios remained at high levels, it “would consider the need for further macro-prudential measures”.
- So while the recent changes to lending conditions may not seem significant, they may be followed by tighter lending conditions in the future.
What this means for you:
The market is likely to change soon. Now is a great time to sell your home. Waiting until after Christmas could force you to lower your asking price and miss out on many potential buyers.