A boost for the property market and bank revenues: Analysts react to APRA's proposed home loan changes

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  • APRA, Australia’s banking regulator, has signalled that it may relax serviceability assessments for new residential mortgage loan applications, potentially allowing home buyers to borrow more to fund their purchase property.
  • CoreLogic describes the proposal as “sensible” given the outlook for official interest rates. It doesn’t believe the move will reignite property prices.
  • Riskwise Property Research says the APRA move, in conjunction with two 25 basis point rate cuts from the RBA, will see the borrowing capacity of households boosted by as much as 14%.

APRA, Australia’s banking regulator, has signalled that it may relax serviceability assessments for new residential mortgage loan applications, potentially allowing home buyers to borrow more to fund their purchase property.

With mortgage rates already sitting at multi-decade lows, and likely to fall further given widespread expectations that the RBA will reduce official interest rates in the months ahead, Cameron Kusher, Analyst at CoreLogic, says the proposed changes are “sensible”, although he doesn’t expect that it will reignite property prices.

“The proposed APRA changes seem sensible given the interest rate environment with the expectation that rates will fall from here and remain lower for longer,” Kusher wrote following the APRA announcement.

“While these changes are welcome and will help some borrowers that can’t quite access a mortgage currently to get one, it is unlikely to result in a rebound in the housing market.

“It will remain more difficult to obtain a mortgage than it has done in the past and we would expect that if or when the market bottoms a rapid re-inflation of dwelling values is unlikely.”

Rather than leading to a rebound in property prices, Kusher says the proposed changes will likely help to stabilise market conditions in the months ahead.

“These proposed changes in conjunction with the uncertainty of the election now behind will potentially provide additional positives for the housing market,” Kusher wrote.

“Should these changes be implemented it would potentially slow the declines further and may result in an earlier bottoming of the housing market.”

Prior to Tuesday’s announcement from APRA, CoreLogic was forecasting that home prices would bottom in the middle of next year.

According to analysis from RiskWise Property Research, APRA’s proposal will provide a meaningful boost to the amount owner-occupier buyers can borrow.

“APRA’s scrapping of the 7% ‘stress test’ buffer on home loans will effectively see a 9% increase in borrowing capacity for owner-occupiers,” said Doron Peleg, CEO at RiskWise.

And if the RBA cuts Australia’s cash rate to 1% by the end of this year, something financial markets deem to be a certainty, Peleg says that boost in borrowing capacity could be even larger.

“If the RBA cut rates twice, we will see an increase of around 9% for investors and potentially 13-14% for owner-occupiers,” he said.

“This will be a major boost to the market, especially as now the number one risk has been removed thanks to a Coalition win and the elimination of the threat of taxation changes to negative gearing and capital gains tax.”

ANZ Bank estimates the borrowing capacity of households has fallen by around 30% because of various measures introduced by APRA since late 2014, with around a third of that reduction a direct result of the minimum 7% serviceability ratio.

“This is an effective easing in policy settings,” said David Plank, head of Australia economics at ANZ.

Scott Rundell, head of credit strategy at Commonwealth Bank, said lenders would likely welcome APRA’s proposed changes.

“We’d be very surprised if banks said ‘no thank you sir, we’re happy the way things are’. Rather, this frees up lending capacity and as such should provide revenues with a needed boost,” Rundell said in a note following APRA’s announcement.

“Banks will be lining up to kiss the collective hand of the APRA policy development team and offering to buy them a beer, although they’d politely abstain, of course.”

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