If you had been resting in your corner waiting for the right time to invest in property in Australia, the new rules by APRA may hit you real hard. Gone are the days when you could work into any financial institution and work out with a smile on your face and thousands if not millions of Australian dollars in mortgage. The rush for real estate in Australia caused house prices to rise to alarming levels and the policy makers thought it was time to put a check on what happens in this market. These new rules have serious implications for banks and real estate investors.
APRA Implications for banks
As part of the new rules set by Apra, banks are expected to hold more money in their capital reserves to protect against bad mortgage loans. What this means is that banks may end up hiking interests rates to be able to meet up. Nevertheless, there are industry experts who claim that a raise in interest rates is unlikely since there is a lot of competition in the Australian banking sector. Whatever the case, the cost of banks holding more in their capital reserves will have to be borne by customers and shareholders. Since banks would want to do everything to keep their shareholders happy, customers are the most likely victims.
Implication for real estate investors
As the new rules force banks to become more stringent with their lending, this ultimately means gloomier days for borrowers. Most of the changes that are anticipated by banks mean that real estate investors may have to face higher costs of mortgages. While banks may not increase interests rates automatically, they may take off certain incentives that used to be available to those looking to take out a mortgage.
Also the requirement to get a loan test done could mean that less people will be able to qualify for mortgage loans. Already Bloomberg reported on their site that banks are already changing the way they assess those who are applying for mortgages. Some are increasing the interest rates that they use to assess a customer’s ability to repay the mortgage. Others are limiting the sources of income that will be considered acceptable for mortgage applications to a few. This is not good news for first time buyers who may have to face very stringent rules to get accepted for a mortgage. While there is still some exciting among investors about the Australian property markets, there are doubts that many will be able to meet the new rules.
The Australian property has created a buzz for most of the year with investors rushing in to get a share of the market. International governing bodies warned of the unsustainable nature of the growth in this market. Economist saw in the market a catastrophe waiting to happen. The government quickly took the heed and came in with measure to help downplay the house prices that were rising to ridiculously high values. Hopefully these measures taken by APRA with the backing of RBA should help maintain growth at a sustainable rate.
For those who got property before this new regulation was published, they may count themselves lucky. Those who are new to real estate may have bigger fish to fry.