Once again the Reserve Bank of Australia has chosen to maintain the same cash rate at 1.50%. This month marks the 20th meeting since the RBA last changed it's rate. Corelogic figures are showing that our recent standard variable mortgage rates for owner occupiers are at their lowest level since 1965.
This comes as no shock to us as we have been explaining to our clients that the rates will stay the same for the majority of 2018.
Even though the cash rate remains the same, the housing market has shown many signs of slowing as the availability of housing credit has tightened substantially. Many lenders have also, once again, added some pressure to the investment market. With the majority of the big banks only allowing investors to take out an interest only loan if they have an 80% LVR. Meaning, if you only have a 10% deposit, you will have to pay principle & interest loan repayments. This showing that they have nearly hit their 30% cap on investment only loans for the last financial year. See explanation below.
But don't stress.. The are some big changes coming!!!
The Australian Prudential Regulation Authority is the regulator of banks, credit unions and lending societies in Australia. These are basically the guys who set the rules to provide protection for our economy. They stopped most of the lending to overseas buyers. They set a limit on the amount of investment lending each bank could dish out each year (10%). Or you may have noticed in the last half of 2017, when the house prices in Sydney significantly dropped.. Well this was mostly due to APRA setting a 30% cap on interest only loans for investors.
So, these guys make the rules and it drastically affects our property market, got it? Great.
Well, APRA has recently announced that come July 1st this year, it will remove the 10% annual cap for investor housing credit growth for most lenders.
In order for the 10% annual cap to be removed, APRA said individual lenders had to show that lending has been below the investor loan growth benchmark for at least the past 6 months. It also said that lending policies need to meet APRA’s guidance on serviceability with lending practices “strengthened where necessary”.
Which basically means, if a lender has raised their lending standards and have "been a good boy" then APRA will release the cap on the amount of investment loans they can take on each year. Although each lender will need to set internal portfolio limits on the amount of new lending.
What does it all mean?
The winners will be investors!
Interest rates on investment loans are expected to decrease slightly as banks will be looking to add incentives to actively pursue the investor market again
The volume of Investment loans will increase across the board
More lending means more buyers and more buyers means a boost in prices again in the top investor markets; Sydney, Melbourne & Brisbane
Expect some rapid price growth in these strong investor markets the 2nd half of 2018
The bad news is for the first home buyers, as it will mean there will be even more competition in the market to drive up property prices and therefore making it even harder to get into a home. Hopefully state government's jump in and create more incentives to help first home buyers.
Either way, the property market will continue to be a stronghold of the Australian economy and will continue to move forward at sustainable levels.
If you want to know more about the changes in lending, then please feel free to contact us.
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