Are new bank watchdog rules going to affect house prices? Investors are hopeful as lending restrictions are scrapped


Every January brings hopeful enthusiasm for the year to come.

Thanks to the recent announcement from Australian Prudential Regulation Authority (APRA), the year will see no further bank restrictions on the amount of interest-only residential loans they can write.

This signals positive things for investors in 2019.

Here’s a snapshot of what experts are saying about how this may affect investors here in the Illawarra.

The changes explained

From 1 January this year, the bank watchdog APRA lifted its restrictions on banks’ ability to issue interest-only loans.

These restrictions previously only allowed banks to hold 30% of their total new residential mortgages as interest-only loans.

When this benchmark was originally introduced in 2017, the intention was to improve the quality of mortgage portfolios. Since then though the proportion of new interest-only loans halved.

This opens the doors for banks to write more residential interest-only loans.

How these changes may impact individual investors

Taking from a December 2018 article in The Guardian by Gareth Hutchens, JP Morgan economist Sally Auld said APRA’s decision will likely result in “some reduction in rates for interest-only loans”.

Chief Executive of the Australian Banking Association, Anna Bligh, was also quoted to say, “the decision would allow all banks to offer more choice for customers, leading to an increase in competition across the industry.”

Head of research at property analytics company CoreLogic, Cameron Kusher, was quoted in an ABC article on the topic to say it “might make it easier for people who are coming to the end of their interest-only mortgages – or getting into financial hardship – to refinance with a normal lender, without going to the non-bank sector.”

What this may mean for housing prices

It is hoped this move will support house prices.

Speaking to Domain.com.au, Market Economics chief economist Stephen Koukoulas said APRA’s ruling could usher in a “new ball game for house prices”.

The economist predicted the announcement would lead to a “strong lift in investor lending in the second half of this year”.

This last comment from Mr Koukoulas supports other predictions saying this will likely give cheaper lending options.

JP Morgan’s Sally Auld told ABC News that “interest-only loans were repriced quite significantly [higher] in the wake of this regulation, so there will likely be some reduction in rates for these loans.”

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Are new bank watchdog rules going to affect house prices? Investors are hopeful as lending restrictions are scrapped