Real estate players flag FHB impact of APRA rule change

Speaking on the Real Estate Exposed podcast for our sister brand Real Estate Business, coach and auctioneer Tom Panos and Momentum Media director and director of real estate, Phillip Tarrant, discussed the potential ramifications of new serviceability changes announced by the Australian Prudential Regulatory Authority (APRA).

As outlined in a letter to authorised deposit-taking institutions (ADIs) earlier this month, APRA told banks it expects them to assess new borrowers’ ability to meet their loan repayments at an interest rate that is at least 3.0 percentage points above the loan product rate from the end of October 2021. 

It is estimated that the move to increase the serviceability buffer by 50 basis points would reduce the maximum borrowing capacity for the typical borrower by around 5 per cent. 

Speaking of the change, Mr Tarrant suggested that APRA was making the move to “slow credit growth because if credit growth increases, that means people have more capacity to borrow money. Which means they pay more money for houses, and then house [prices] go up”.

“So this is one of the ways in which they’re going to try and take a little bit of heat out of the market,” he said.

“If people have less money to borrow, that means they’re not going to be able to buy as expensive houses. So they’re trying to limit credit growth.”

While Mr Tarrant said that the moves could help slow the rampant escalation of house prices by reducing borrowing capacity and therefore competition for property, Mr Panos warned that there was one particular group of buyers who “are definitely going to be impacted” by these changes.

“There’s so many buyers out there in the marketplace, that I don’t think you’re going to see a 10, 20 per cent drop [in prices]. I think what you’re going to see is the heat and the energy not go at the rate that it is going. And I do think that it’s got a lot to do with the first home buyers,” Mr Panos said.

Mr Tarrant agreed, adding: “If you’re cashed up, ready to go, you have serviceability, and you’re not buying at the top-end of your means, happy days...

“For those people, first-time buyers for example, who have their eye on a dream home of a million dollars, guess what? It’s out of reach now, Tom.

“I feel for a lot of first-time buyers.

“It’s absolutely going to impact first-time buyers…. it’s going to change (maybe) how they go about buying a property, where they buy a property, and when they buy a property. It might mean they need to save for a bigger deposit.”

However, the duo suggested that the move was prudent as it would help reduce the instances of home buyers “borrowing up to the last cent that’s available to [them]”.

Mr Tarrant said: “Maybe first-time buyers are buying beyond their means. If [they’re] buying [their] first home at [their] maximum level and at the lowest interest rate [they’re] probably ever going to get…

“If you’re a first-time buyer... you’re probably new to your career. So yes, you should get some wage increase. But if you’re a couple, guess what? You’re probably going to have kids at some point. So you might halve your earning capacity.

“So borrowing the most you can at the lowest rate so early on, is largely fraught with danger. And a lot of people will blow that out. A lot of people find themselves in problems.

“So people are spending large… potentially beyond their means at a point in time when interest rates are low. So, I think it’s good intervention. I don’t really have a concern with it.

“I think it’s an opportunity to potentially recalibrate your attitude towards debt, and what you should be buying. And, largely, that’s going to be first-time buyers, or maybe first-time investors.

“…It might just mean you need to move one suburb further over. Maybe you need to get a three-bedroom house, instead of a four-bedroom house. Maybe you need to wait another six months to save a bigger deposit, to get that same dream home. This is the dialogue that people need to be having. 

“And – obviously APRA intervened in this because Australians aren’t making the decisions themselves. So, let’s all grow up a little bit and make those decisions… increase your own buffer.

“I’ve got a huge buffer in my mortgages, Tom. I’m sure you do as well.”

[Related: Regulators should intervene sooner rather than later: Connective]