As house prices continue to increase, there are whisperings of home loan crackdowns looming within the next 12 months.
There have been discussions held between the Federal Treasurer, Josh Frydenberg and the banking regulator APRA (Australian Prudential Regulation Authority) to determine how to take control of the situation before it gets out of hand. APRA is an independent statutory authority that supervises institutions across banking, insurance and superannuation and promotes financial system stability in Australia.
Currently, households throughout a number of Australian States are still in some form of lockdown and therefore, household debt is not terribly high. This has allowed lending standards to remain mostly sound and stable with the repayment of mortgages and loans continuing relatively well. However, when we do begin to get back to some kind of “normal”, this will most likely change and we will see a credit growth.
This may not necessarily be a good thing because at present, debt to income ratio is six times that of a borrower’s income. APRA won’t want this debt to ratio to increase any more than that. For instance, if APRA did want to maintain the current debt to income ratio, a person who earns $65,000 and their partner who earns $35,000 would find it more difficult to obtain a home loan for more than $600,000.
History has shown us that APRA will set regulations around how much money financial institutions can lend and who they can lend it to. This will ensure serviceability of the loan or credit being obtained by an individual.
These actions which might come into effect are not necessarily all about decreasing the surge in house prices or protecting banks from defaults, but also about decreasing the risk of household debts and safeguarding Australia’s economy.
Another alternative is increasing interest rates. However, the Reserve Bank has ruled this out while the country continues to deal with COVID-19 outbreaks and lockdowns.
Looking to buy in Melbourne and sick of missing out at auction? Talk to me about how I can help you buy your new home faster, for less.
Ask about our Home Buyer Search and Acquisition Service, where we do all of the legwork on your behalf to MAKE IT EASY to secure your new home.
To book a free 30-minute consultation, simply click here and choose a time convenient to you. Alternatively, give me a call on 03 9686 2288 to discuss how I can help.
