The property markets in Australia and New Zealand are soaring beyond comprehension. It’s become harder than ever for first home buyers to get into the market, and the cost of upsizing or downsizing is expensive enough with exorbitant stamp duty costs, let alone booming property process.
Something's gotta give.
This has been recognised by the NZ central bank and the Australian regulator APRA, who both made interesting moves in the last week.
New Zealand’s central bank increased their official cash interest rate from 0.25% to 0.5%, which should help to cool their property market a bit.
In Australia, APRA, which supervises and manages the financial services system, changed the rules to make it harder for investors to borrow large sums.
APRA is concerned that in a very low interest rate environment, rising house prices are getting out of control. In the June quarter, 20% of loans approved were for more than six times the borrower’s annual income.
The result of high household debt means more people are flying closer to the financial sun than is comfortable. As a result, APRA has increased the buffer levels on how much banks are allowed to lend relative to household income. If your home loan is already pre-approved, that amount stands, but those applying for new loans will not be able to borrow as much.
APRA is hoping this will cool the scorching property market, but more importantly, ensure households aren’t borrowing beyond their means.
I think this is a step in the right direction in the context of our recovery from the pandemic, given lots of incomes aren’t as certain as they were previously, so being told you can borrow less could be a win.
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