property lending

Tighter lending restrictions on the way

Tighter lending restrictions will be introduced within two months, as announced recently by Federal Treasurer Josh Fyrdenberg. Australia’s financial regulators are expected to restrict the size of new loans, with expectations that borrowing capacity could soon be capped at below six times the borrower’s income.

The changes raise concerns after many borrowers have taken out loans larger than six times the size of their income as property purchasers attempt to keep up with sky-rocketing prices.

It has never been a better time for buyers and investors to take out a loan with interest rates at record lows, however, the focus is on whether borrowers will be able to service this debt once interest rates begin to rise and we move into ‘COVID normal’.

According to the Australian Purdential Regulation Authroity (APRA), high debt-to-income (DTI) ratios are those over six times the applications gross taxable income. Currently, 22% of all new lending applications in the June 2021 quarter were more than six DTI, which is a 50% increase from June 2020, where only 11% of total applications were greater than six DTI.

Statistics show that Australians on average are earning a yearly salary of $83,000 meaning if borrowers were limited to six times their income, they could only borrow just over $500,000.

When looking at the average price of residential properties in Australia, the Domain median national house price is $955,927. The new borrowing cap will mean the average Australian would be priced out of all major capital cities.

It’s expected these DTI limits will impact investors with existing property portfolios and first home buyers trying to maximise their borrowing capacity the most. Although we may see some leniency for first home buyers as the intention behind introducing these DTI limits is to curb speculative investment rather than hamper affordability for first home buyers.

APRA has tightened lending standards twice in the past and on both occasions the property market proceeded to fall 2-8% in the following 12 months, indicating a similar fall in growth may come in 2022.

As a result of the new lending restrictions, it is expected that the local and national housing price growth will slow from 20% in 2021 to 7% in 2022.

 

If you have any questions regarding the new lending restrictions, or would like assistance securing finance, please give us a call on 03 5434 7690 or email endeavor@endeavorbendigo.com.au