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APRA Removes Lending Constraints


The restrictions imposed by APRA on the supply of credit to the housing market has clearly had a big impact over the last year with house prices, dwelling approvals and construction all trending downwards.

Today, APRA announced that it has removed the 30 per cent limit on interest-only lending, along with the 10 per cent growth cap on lending to property investors, declaring both have "served their purpose".

The limits on interest only loans to 30 per cent of total loans was introduced in March 2017, four months after the 10 per cent growth cap on investor lending was introduced.

Growth in housing loans to investors has now fallen from a high of almost 11 per cent in the middle of 2015 to less than 1.5 per cent. Meanwhile, loans being written on interest-only terms have fallen from almost 40 per cent of all mortgage in 2015 to 17 per cent, according to the Reserve Bank's latest financial stability review.

The results appear to differ from the ABS Credit Growth series which shows the amount of new loans to investors down in excess of 10% (see chart below).

A return to high credit growth is unlikely to occur as greater scrutiny is now being placed on credit worthiness of the borrowers following the Banking Royal Commission. Domestic investors (which are the primary driver of the pre-sale market) will continue to have challenges supporting loan application underpinned by negative gearing, whilst offshore investors continue to overcome the challenges of moving money into Australia and to fund higher stamp duty costs.

The uncertainty over government policy on housing, population and negative gearing will also dampen demand and supply in the market for most of 2019.

The forecast for the residential apartment construction industry is therefore still relatively bleak as the pre-sales needed to support a development are still extremely difficult to obtain.