21st June 2015
First posted on Propertychat.com.au
As I’ve said repeatedly on SS, 2015 is a year where policymakers are making significant interventions in the lending market (in particular to investors). To date, these have been regulator-induced changes that try to protect against ‘asset bubbles’ forming and the associated pain (I may post separately on this to contextualise the problem).
Regulators (APRA in particular) have made changes to change the incentive structure of the investor segment of the market to try and slow lending growth and promote more prudent lending in Australian housing. Hopefully everyone was adequately prepared/advised and made plans as necessary!
As mentioned, the latest changes were INCENTIVE driven and targeting obvious areas of concern (serviceability). Changes in pricing for investors and ‘fixing’ weak spots in our prudential system (clever maneuvering around ‘assessment buffers’ by investors/banks). These have all been regulatory changes that could be considered relatively reasonable
Now this begs the question – what’s next if this round of changes doesn’t cool lending growth? Right now the regulators (APRA) will be playing a ‘wait and see game’ with lending market conditions (RBA are also doing much of the same while waiting on economic data).
Back in January I made a few calls based very much on ‘what I’d do if I were the regulator’ – promise I don’t work for/advise APRA as some have suggested .
That said, if the investor lending data comes in above expectations, this is what I think may happen.
The next round of changes I suspect will be much more direct. APRA have already TOLD us very clearly that they CAN and WILL go down this route if necessary (in their December letter, reading between the lines a little). Now what does this mean?
So what to do?
Right now I wouldn’t be advising people to do too much – data will need to come out. If it does come out too strong, then ‘bring forward’ high LVR purchases. Lock in I/O terms as far as possible.