APRA opens up the government’s wallet

APRA just gave the government the cover it needs to throw a lot of money at the property market.

Some of the big news over the past couple of weeks has been the new “macro-prudential” measures from APRA.

The short of it is that on top of restricting investor mortgage growth to 10% pa or under, they’re also wanting to get interest-only loans down to 30% of new lending.

Right now, interest-only loans make up about 40% of new lending, and have for a while, so a speed-brake that brings it down to 30% could have a substantial effect on the market.

However, I’d expect there be a bit of a rebalancing from interest only to principal and interest. I don’t imagine that all that many people are only able to get a mortgage on interest only terms or not at all.

So we’ll see interest only lending slow, and principal and interest lending pick up, and where we come out in the wash is difficult to know, but it’s unlikely to result in a big fall in lending in my opinion.

And reading around, and going through the analysis from the big investment banks, this seems to be the common view. It’s not nothing, but it’s not a game changer either.

And in all likelihood, it’s probably the riskier end of the interest-only spectrum that will get squeezed out, and that will probably result in a more stable market overall.

So that’s probably a good thing.

But one thing I can tell you for sure is that it just got a lot easier to throw some money at the market, which is exactly what I reckon the federal government is planning right now.

They’ve been hinting for a while that there’s some sort of housing and affordability package coming in the May budget. There’s a bit of speculation still about what that might be. It might involve letting first home buyers dip into their super. It might involve more cash hand-outs.

But on past form, whatever the specifics are, you’d have to imagine the general thrust will be to throw money at the problem.

(Easy to do when it’s not your money!)

And that might have seemed a bit unwise, even reckless, in the middle of a property boom in Sydney and Melbourne.

But now APRA has given them the cover they need. Look, we’re doing something about risks in the market. Now here’s $15bn and shut up.

The government can still claim to be Captain Sensible, while buying all the votes it wants.

So expect a bit of money to be hitting the property market come May.

Spiro Kladis
Managing Director, Cashflow Capital

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