The RBA rate cut might make life a little easier for home owners. But it will mean little to first-home buyers struggling to get a loan.
The Australian Prudential Regulation Agency (APRA) has been imposing lending restrictions on banks since 2014; the Australian Securities and Investments Commission (ASIC) is now pushing banks to dig deeper into borrowers’ expenses; and on Monday the federal government expanded its comprehensive credit reporting regime to include all eligible bank accounts.
That means that, while house prices have dropped significantly since their 2017 peak, many first-home buyers are now missing out on loans they would likely be able to repay. And that’s hurting the economy.
University of New South Wales real estate research fellow Nigel Stapledon told The New Daily that APRA had gone too far in its restrictions on bank lending, which he said had hit low-income households the hardest.
“They are a blunt instrument and they’re not necessarily equitable, because the most at-risk households are low-income ones,” Dr Stapledon said.
“It’s caused banks to tighten up too much … and that’s having adverse impacts on the housing market.”
APRA’s quantitative controls and the fallout from the banking royal commission had led to such tight lending standards that borrowers who could comfortably afford a loan were now being denied, Dr Stapledon said.
The prudential regulator eased restrictions on interest-only loans in December and announced in May it would soon ease its mortgage serviceability requirements. But Dr Stapledon said it was still a lot harder to get a loan now than it has ever been.
Asked if APRA’s restrictions had improved affordability, Dr Stapledon said high levels of supply meant the housing boom would likely have ended without APRA’s intervention.
“I think it’s been a mistake,” the former Westpac chief economist and Treasury official said of the controls. “Who did they help?”
Dr Stapledon’s comments come just a few weeks after APRA revealed the value of new housing loans approved in the March 2019 quarter was down 16.5 per cent year on year.
However, former ANZ chief economist Warren Hogan told The New Daily it was unclear what impact credit supply would have in the future. But he cautioned against the regulator exerting too much control over bank lending.
“You don’t want a banking system that is only going to lend loans to people who are definitely going to pay it back. Because if you do, you’re not taking any risk and you’re not putting any risk capital into the economy,” he said.
“Now with that said, you don’t want banks lending willy nilly, either.”
Regardless of whether the banks loosen their lending in the coming months, though, Mr Hogan said prices wouldn’t move much for the foreseeable future.
“The reality of past substantial downturns in property is you rarely get a big bounce – the market does sort of cool its heels for a few years,” he said.
“After a period of euphoria, then bust, then panic, people tend to be very cautious for a while.”
CoreLogic senior research analyst Cameron Kusher agreed the market’s recovery would be gradual.
He said greater scrutiny of home loan applications would temper the positive effect of Tuesday’s rate cut and APRA’s recent easing of serviceability requirements.
“Given this, the expectation is that a recovery in housing market conditions is likely to be slow and gradual despite lower interest rates,” he said in a statement.
“No doubt attention will now turn to mortgage rates and how much of the cash rate cut will be passed through to mortgages.”
How to boost your chances of securing a loan
Here are the eight things financial comparison site Canstar says you should do to improve your chances of getting a mortgage.
- Show your ability to repay
- Check and improve your credit rating
- Remove unnecessary financial commitments
- Have a strong savings history
- Show you have a ‘safety net’
- Don’t apply with too many lenders at once
- Maintain stable employment
- Disclose all information to the lender