David first provided commentary on this topic on Domain for Daniel Butkovich, article "Should you borrow more money just because you can?"
Many people have been asking me what I think the impact would be on the property market following the Australian Prudential Regulatory Authority (APRA) reducing the assessment rate that banks use to determine how much you can borrow.
From our analysis, if the reduced APRA assessment rate benchmark is adopted in full by all banks, the average borrowing capacity will increase by as much as 10 to 15 per cent!
When you couple that with –
- The positive economic sentiment following the LNP victory at the election.
- No changes to negative gearing and capital gain tax policy.
- The government’s planned first home buyer cash splash.
- The RBA rate reduction and the common consensus that the cash rate will be reduced once more.
- APRA removing caps on investment lending and interest only loans.
My view is that we are at or near the bottom of this property cycle!
To provide a historical perspective we have added a link to the article i wrote in July 2017 suggesting we might be at the top of the property market after APRA added another requirement onto the banks.
Oh, how quickly things change……
The likelihood of an end to the property market slide is further supported when you look at the following evidence.
- CBA reporting significantly increased loan applications after the election.
- Property data already suggesting property values have stabilized.
- Increased auction clearance rates.
If the APRA assessment rate change are fully introduced, it will have a material impact on the property market.
The bigger question is when will the changes occur, will they be staggered over time, and at what pace will the property market rebound?
It is likely that the banks will slowly reduce their assessment ratio gradually as they will want to be seen to be prudent. This means the pendulum will steadily shift back towards a lending friendly environment. This will occur as one bank reduces their assessment rate closer to the APRA minimum, for a competitive advantage, followed by another, and another until lending markets open right up.
At the same time the psychological scars of the Royal Commission will steadily fade away in the minds of credit assessors and the General Managers whose goals are profit focused.
In 2017 I thought the bull run for the property market would end, and we would begin an orderly correction, rather than see a bubble burst.
For perspective, I have attached the article I wrote in July 2017 posing the question ‘Is this the final straw for the property market?’
This was just after APRA added an additional regulatory requirement on top of many others.
This year they have been steadily removing them – what do you think will happen?
Maybe a conversation for another time is whether APRA is now the greatest influence on the Australian property market……hmmmm!
All the best with your Property Planning!