Mr White was one of the first to predict the impact of APRA’s lending curbs on the mortgage market. The head of major brokerage Loan Market told Mortgage Business in October 2015 that pricing and policy changes would characterise the home loan market as banks looked to sail as close as possible to APRA’s 10 per cent investor cap without exceeding it.
“No one is going to get any awards for being at 9 per cent,” Mr White said at the time. “You’re going to want to be at 9.9 per cent but not 10.2 per cent. I think there will be a lot of changes as banks try and work out how to nudge the Queen Mary into dock, so to speak. You have to be so delicate at getting in at 9.99 per cent and not 10.01 per cent that there will be a lot of minute changes.”
This continues to be the case two years on as ADIs now have to balance interest-only hurdles as well.
“I don’t see that changing until the property market in Sydney starts to settle down a bit. I think APRA’s concerns about credit quality are linked a lot to the quality of the underlying asset,” Mr White told Mortgage Business this week.
“If the market continues to rise in Sydney, there will be that continued pressure. That relative adjustment where one bank moves and then another has to move, that is compounding the confusion in the marketplace,” he added.
No ticking time bomb
Australia’s record levels of household debt have driven some forecasters to predict that the property bubble will burst, sending Australia into an economic disaster akin to those experienced in Europe and the United States.
However, Mr White points to the performance of the WA real estate market as evidence that this is unlikely to happen.
“Since the WA market has really come off and we have seen asset prices fall and you have seen mining come off, to my knowledge there has been no fundamental problems with bank modelling around arrears and mortgage stress,” the chairman said.
“I think what Perth has shown is that we are not on a ticking time bomb. The bank models hold up. But I don’t think that will change APRA’s view until Sydney starts to cool.”
Sydney has been a real estate darling for the last four years. On average, prices have increased by more than 75 per cent over that time. But recent transaction volumes and price growth show that a cooling is already underway.
In its Month in Review paper for August, property valuer Herron Todd White identified Sydney as a market beginning to decline, falling from its peak last month for both units and apartments.