The good news: it’s now cheaper to own a property. The bad news: it’s going to be harder to get a loan.
The Reserve Bank of Australia’s decision to slash the interest rate to an all-time low of 2% is expected to add fuel to the already smouldering Sydney market, at a time when the authorities are trying to cool it down.
As such, credit rating company Fitch Australia noted that the RBA’s move could result in regulatory controls that would lead to tighter lending criteria for property investors.
“Today's rate cut is likely to further fuel the Australian property market, particularly in Sydney, at a time when the authorities are trying to take the steam out of the market,” it said in a report.
“Falling interest rates may also result in further growth in potentially higher-risk loan types, such as interest-only and investor loans. These loan types already represent a high proportion of new approvals for Australian banks.”
Fitch added that APRA has targeted certain higher risk areas such as investor mortgages; indicating growth in excess of 10% per annum would trigger closer regulatory monitoring and may lead to tougher capital requirements.
Investor lending has been growing by more than 10% during the past year. The National Australia Bank investor loan book rose 13%, Westpac 10.4%, ANZ 10.3% and Suncorp 12.5%, according to an ABC report.
The recent interest rate cut may lead to further house price appreciation, especially in cities such as Sydney and Melbourne, where there has been greater investor activity over the past 12 to 18 months, according to Fitch.
“The first rate cut in February 2015 was followed by increased activity in these housing markets. At the same time, it makes borrowers vulnerable to a potential increase in interest rates in the medium term. Australia has one of the highest household debt levels globally, and if low interest rates contribute to higher credit growth, it could drive up household indebtedness from already historically high levels.”
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