Powered by MOMENTUM MEDIA
subscribe to our newsletter

Investor lending caps a case of history repeating

APRA's crackdown on investor lending is a return to prudential policy of the past, according to AMP Capital.

AMP Capital chief economist Shane Oliver said pressuring lenders to tighten investor lending conditions is a macro-prudential tool used similarly in the past.

“The focus on varying prudential controls to achieve macro-economic outcomes was quite common up until the early 1980s, but went the way of the dodo when it was concluded that it was only leading to distortions in the financial system as people found a way around them,” Mr Oliver said.

“So while financial system regulators, like APRA, continued to ensure prudential standards were met, from the mid-1980s varying interest rates to control the housing and economic cycle became the norm and this worked reasonably well.”

Mr Oliver noted that the last major boom of Australian property prices in 2003 took the property price to household income ratio from around three times to around five to six times, resulting in increased concern about a property bubble and poor housing affordability.

Advertisement
Advertisement

“But while the prudential regulator made sure lending standards were being maintained, prudential controls were not varied to achieve macro-economic outcomes,” he said.

However, Mr Oliver noted that this time, the pressure surrounding investor lending is different for several reasons.

“First, property price gains are nowhere near as strong – over the past five years average capital city home prices have risen at just 3.5 per cent pa. For Sydney it’s just 6.5 per cent pa,” he said.

“Second, the gains are not broad-based – while Sydney home prices are up 14.5 per cent over the year to April, for the other capital cities the gain is just 1.7 per cent.

“Third, credit growth is running at a fraction of what was seen in 2003 with total housing-related credit up 7.2 per cent over the year to April and investor credit up 10.4 per cent.”

PROMOTED CONTENT


Mr Oliver said only time will tell if APRA’s crackdown will control the Australian property cycle.

Investor lending caps a case of history repeating
mortgagebusiness

Latest News

The managing director of AMP Bank, Rod Finch, is set to join BOQ in April as its first director of transformation, as the bank continues to...

Dwelling unit commencements have continued to fall but the bright spot has been new private sector houses, figures have shown. ...

Over 75,000 households have applied for a HomeBuilder grant, with the majority of applications relating to the construction of a new home, a...

FROM THE WEB

Join a group of highly informed brokers.

Broker Pulse, a community-driven knowledge base of lender performance Reveal exactly which lenders are making life easiest for brokers and their clients by taking this monthly survey and joining a group of highly informed brokers who leverage these insights every month.

JOIN NOW
podcast

LATEST PODCAST: A new record in mortgage approvals

Do you expect to see strong uptake of the HomeBuilder scheme?

Website Notifications

Get notifications in real-time for staying up to date with content that matters to you.