APRA takes it foot off the brake

For a while now, APRA has had its foot on the brake of the Australian property market.

(Not that you would have noticed in some markets! Melbourne, anyone?)

And this wasn’t because they wanted property prices to fall, or even grow slowly. It’s more they were worried that the market was growing too quickly.

Think of them like a little old woman in a car, the car is going down the hill. It’s a clear day and there’s not a car in sight, but the old lady still has her foot on the brake, just to keep things at a ‘comfortable’ level.

(That’s how I think about it anyway. APRA probably paint themselves in a more heroic light.)

Anyway, the first wave of brake tapping came back in late 2014, when APRA introduced a 10% speed limit on investor lending growth.

That is, banks could still lend more to property investors today than they did a year ago, but by no more than 10%.

That had a pretty clear impact on investor credit growth. The orange line in this chart tracks the annual growth rate, and you can see it fell from around 20% at the time the restrictions kicked in, down to around 2% today.

So we can definitely say it was effective. Our little old lady felt a lot more comfortable.

But now it seems we might be getting to the stage where APRA is feeling safe enough to let the foot off the brake. That’s the word from the AFR:

The chairman of the prudential regulator Wayne Byres said the 10 per cent cap on bank lending to housing investors is “probably reaching the end of its useful life”.

He indicated that the Australian Prudential Regulation Authority was ready to lift it because it considered mortgage lending standards have sufficiently improved.

Removal of the cap could put downward pressure on mortgage rates for investors, given its imposition prompted banks to raise rates to stay under the limit. The cap was first imposed on the banks in December 2014 and was last month criticized by the Productivity Commission for limiting competition in the sector.

…”We think the quality of lending the banking system is doing today is certainly higher and better than it was a few years ago,” he said. “We still have some work to do before we declare ourselves completely comfortable, but we believe the industry is writing better quality business than it was a few years ago.”

Good stuff.

The impact of this will be clear. Banks will be able to lend more to investors, and an increase in the supply of credit will decrease its price.

That is, interest rates should fall.

And that means that property markets, many of which are powering along already, will get a good kick in the pants.

About time Grandma.

Spiro Kladis
Managing Director, Cashflow Capital

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Leave A Reply (3 comments so far)

  1. Vladimir
    6 months ago


  2. Fabio Barone
    6 months ago

    Great. Can’t wait to tell my kids that they will only be able to afford to own Australian property when they are in their 50s.

  3. Rod
    6 months ago

    Fabio, with an attitude like that it wouldn’t be a surprise if your kids couldn’t
    Afford to own property until they are in their 50’s.