New lending rules to put ‘downward pressure’ on market

Last week, APRA announced that it was removing its 10 per cent benchmark on investor loan growth. The speed limit had been in place since 2014, requiring all Australian ADIs to grow their investor loan books no greater than 10 per cent per annum.

AMP Capital’s Shane Oliver told Mortgage Business that removing the macro-prudential measure “makes sense”, noting that investor credit growth is now running well below 10 per cent and the property market in Sydney and Melbourne has cooled.

“The speed limit is also being replaced by a more fundamental tightening in lending standards including around interest-only lending (last year) and tougher requirements around borrowers’ income and expenses and going forward around total debt to income,” Mr Oliver said.

“Given this and more realistic investor expectations regarding future capital growth, it’s hard to see a resurgence in investor lending, particularly in relation to Sydney and Melbourne.”

“I expect the new policies to be developed by banks, and which will presumably have to be approved by APRA, will contain maximum total debt-to-income ratios and requirements that only a certain proportion of loans (say, 30 per cent) can be made at relatively high debt-to-come ratios.

“This will likely maintain downwards pressure on lending and home prices in Sydney and Melbourne, where my views haven’t changed.”

Mr Oliver expects prices to fall by 5 per cent this year, another 5 per cent next year, and sees prices to still be falling slightly in 2020.