Winners and losers of APRA home loan crash with Aussie founder John Symond ruling

First home buyers will be the big losers in the recent downturn in lending, fears Australia’s most famous mortgage broker.

As property prices across the country rise by a staggering 20 per cent a year, the Australian Prudential Regulation Authority is urging banks to assess whether borrowers can cope with rising interest rates.

Banks now offer mortgage rates of 2 percent, but according to the bank regulator’s new rules, lenders must decide whether a potential borrower could manage the mortgage rates by 3 percentage points to 5 percent.

Someone who borrows $ 540,000 with a 20 per cent deposit to buy a typical Australian home, priced at $ 675,000, owes the bank an extra $ 900 a month if interest rates rise to 5 per cent.

Scroll down for video

Aussie Home Loans founder John Symond (pictured with wife Amber) said the tougher rules would make it harder for first-home buyers to get a mortgage clearance

Aussie Home Loans founder John Symond (pictured with wife Amber) said the tougher rules would make it harder for first-home buyers to get a mortgage clearance

Winners and losers from loan satisfaction

TABERE

FIRST HOUSE BUYERS: They will have a harder time getting loan approval from a bank as prices keep rising

INVESTING: They will have more barriers to getting a loan to make money on rising property values

WINNERS

EXISTING HOMEOWNERS: Banks that already have to stress test a rise in mortgage rates of 2.5 percentage points and new rules will see it rise to 3 percentage points

This is unlikely to cause house prices to fall if the owner’s residents continue to move to lifestyle

Aussie Home Loans founder John Symond said the stricter rules will make it harder for first-home buyers to get mortgage clearance.

‘It will be those I think are affected – it will be buyers from first home, but it will also be others because people are borrowing a hell of a lot more money than before,’ he told the Daily Mail Australia.

National property prices rose 20.3 percent in September – the fastest annual growth rate since June 1989 – as wages rose just 1.7 percent, CoreLogic data showed.

Last time Australian house prices rose at such a dramatic level, interest rates were at 17 per cent and within two years the economy was in recession.

More than three decades later, official interest rates are at a record low of 0.1 per cent, and property values ​​are rising unbelievably despite immigration being extinguished, which before the pandemic had caused the people of Sydney and Melbourne to boom by 100,000 people a year.

Unlike previous barriers, house price increases are not limited to Australia’s largest cities with the opportunity to work from home thanks to WiFi – increasing property values ​​in coastal areas from Coffs Harbor to the Gold Coast.

Australia’s average house and unit price is now at $ 674,848, meaning someone earning an average full-time salary of $ 90,329 would have a debt-to-income ratio of six.

With real estate prices across the country at 20 per cent a year, the fastest pace in 32 years, the Australian Prudential Regulation Authority will have banks assess whether borrowers could manage interest rates by 3 percentage points (the picture is a stock picture)

With real estate prices across the country at 20 per cent a year, the fastest pace in 32 years, the Australian Prudential Regulation Authority will have banks assess whether borrowers could manage interest rates by 3 percentage points (the picture is a stock picture)

Australian annual house price increases

SYDNEY: Up 28.9 percent to $ 1,311,641

MELBOURNE: Up 18 percent to $ 962,250

BRISBANE: Up 22.2 percent to $ 709,136

ADELAIDE: Up 21.4 percent to $ 575,949

PERTH: Up 18.5 percent to $ 548,351

HOBART: Up 25.8 percent to $ 704,321

DARWIN: Up 18.5 percent to $ 563,357

CANBERRA: Up 28 percent to $ 956,119

Source: CoreLogic Home Value Index median house price data annual increases in September 2021

APRA considers six to be a dangerous level at which a borrower would struggle to meet their monthly mortgage obligations after paying their other bills and living expenses.

Symond, who withdrew from running Aussie Home Loans last year, said the Banking Authority’s changes would have little effect on property prices because banks already have to assess a borrower’s ability to cope with a 2.5 percentage point increase in mortgage rates. .

The new rules take this mortgage stress test to 3 percentage points.

Instead of making homes more affordable, younger potential buyers will miss out as older property owners benefit from rising property values.

‘It will knock out a lot of people who are close to getting through service tests,’ Mr Symond said.

‘Banks are currently adding two and a half percent to the product they give you, so if you get a 2.5 percent home loan, the banks rate your credit as if the interest rate was 5 percent to Make sure you qualify, and you can pay with 5 per cent.

‘APRA came up and said,’ Push it to 3 percent above the rate so it’s marginal. ‘

An Australian earning $ 90,329 – paying a home of $ 674,874 with a 20 percent deposit included – would now owe the bank $ 2,048 a month in mortgage repayments.

It is based on the fact that this borrower has a Commonwealth Bank loan with a 2.19 percent three-year fixed mortgage rate.

Over the past year, Sydney's median house price rose 28.9 percent to $ 1.312 million.  It is beyond the reach of an average wage earner who would have a debt income ratio of 11.6 by paying a $ 1,049 million mortgage with a 20 percent deposit (the picture is a house on the market in Toongabbie in the western suburbs)

Over the past year, Sydney’s median house price rose 28.9 percent to $ 1.312 million. It is beyond the reach of an average wage earner who would have a debt income ratio of 11.6 by paying a $ 1,049 million mortgage with a 20 percent deposit (the picture is a house on the market in Toongabbie in the western suburbs)

Under the APRA changes, banks had to model how this borrower, who repaid $ 539,878 in debt, would manage the mortgage rate up to 5.19 percent, which would increase their monthly repayments to $ 2,962 or $ 914 extra per month.

The Reserve Bank of Australia predicted that the APRA rule changes would take several months to have an effect on debt levels.

‘The maximum impact of this policy change could take several months to be realized,’ it read in a report on financial stability on Friday.

‘It may take some lenders several weeks to adjust to the new options, and some households will already have planned or committed to buying based on previous lending policies.’

Reserve Bank Governor Philip Lowe has promised to keep interest rates on hold until 2024 to keep unemployment low, but the RBA has admitted that a debt bubble was a risk.

‘Low interest rates have contributed to high prices for financial assets and housing.

‘There has been some increased risk-taking and higher borrowing,’ it said.

KPMG’s chief economist Brendan Rynne said this was ironic given that Dr. Lowe last month stated that raising cash rates to cool an overheated housing market ‘was not on our agenda’.

‘It seems ironic that the RBA warns against excessive borrowing, as it is the very accommodating monetary policy framework that drives it,’ said Dr. Rynne.

‘Both the ultra-low cash rate and the extraordinary monetary stimulus from the RBA have created inflation in asset prices, tempting people to the market who are eager not to miss out.’

The Reserve Bank of Australia predicted that the APRA rule changes would take several months to have an effect on debt levels (pictured is a house on the market at Strathfield in the inner west of Sydney)

The Reserve Bank of Australia predicted that the APRA rule changes would take several months to have an effect on debt levels (pictured is a house on the market at Strathfield in the inner west of Sydney)

Over the past year, Sydney’s median house price rose 28.9 percent to $ 1.312 million.

That is beyond the reach of an average wage earner who would have a debt-to-income ratio of 11.6 by paying a $ 1.049 million mortgage with a 20 percent deposit.

Symond said house prices are likely to continue to rise, albeit at a slower pace, until mortgage rates rise from 2 percent now to 4 percent in the coming years.

He predicted that house prices in Sydney and Melbourne could then fall by 5 to 7 per cent when this eventually happened.

During the last crash in APRA in 2017, property prices in Sydney fell by 15.3 per cent over two years, back to $ 880,000 as interest and investor loans were targeted at a 68 per cent appreciation over five years.

The real estate market’s recovery was halted during Covid lockdowns in 2020, only for prices to rise again after the Reserve Bank of Australia lowered cash rates to a record low of 0.1 per cent, giving $ 188 billion to banks to provide cheap loans.

In 2021, owner-occupied housing instead of investors will dominate the market, as new homework rules encourage professionals to buy houses in more attractive suburbs in big cities or move to regional areas.

CoreLogic Research Director Eliza Owen said the APRA changes would be far from the last with growth in housing debt far exceeding wage increases.

‘While APRA’s announcement may seem like it will not have a major impact on the demand for credit, it is worth noting that this may not be the end of macro-prudential changes,’ she said.

Owen said the APRA changes were more likely to affect the demand for investor loans instead of owner loans.

‘Investors tend to be more geared in their lending behavior and may have additional mortgage debt, which would also be subject to an increased service appraisal,’ she said.

.

Leave a Comment