BREAKING: The Australian Prudential Regulation Authority (APRA) has just announced urgent new restrictions on home lending that could significantly impact borrowers starting February 1, 2024. These changes come as the authority responds to a concerning rise in high-debt-to-income lending, which poses serious risks to the housing market.
In a statement released today, APRA revealed it will limit new mortgages where borrowing exceeds six times a borrower’s income. Starting next month, banks will be restricted to approving only 20 percent of new loans at this high debt-to-income (DTI) ratio. This proactive measure aims to curb the increasing risk associated with such lending practices, particularly for investors and first-time homebuyers.
APRA Chair John Lonsdale emphasized the urgency of this decision, stating, “Rising indebtedness has in the past often been associated with an increase in riskier lending and rapid growth in property prices.” He noted that the authority has observed a troubling uptick in risky lending behaviors in recent months, prompting this immediate intervention.
The impact of these new restrictions is profound, especially for younger Australians seeking to enter the housing market. According to Tim Reardon, Chief Economist at the Housing Industry Association (HIA), the changes could disproportionately affect younger buyers who are in the wealth accumulation phase. “Older households are well capitalized and unlikely to face any restriction in access to capital,” he explained. “However, younger people who are looking to invest may find their options severely limited.”
Current data reveals a dire situation in the housing market. The latest Cotality Housing Affordability report indicates that households are now spending 45 percent of their median income on mortgage repayments, nearly double what it was five years ago. Meanwhile, the median house value has surged to 8.9 times the median income, up from 6.6 just five years prior.
With the mortgage serviceability buffer of three percent remaining unchanged, further restrictions could be on the horizon. Lonsdale did not rule out additional measures specifically targeting investors if macro-financial risks continue to escalate. He stated, “We will consider additional limits, including investor-specific limits, if we see macro-financial risks significantly rising or a deterioration in lending standards.”
This move by APRA could exacerbate the intergenerational inequity already present in the market. Reardon warns that limiting investor participation could hinder the availability of rental properties and further strain the housing crisis in Australia. “Investors play a critical role in solving Australia’s housing crisis, and we need more investors building new homes, not fewer,” he said.
As these changes loom, potential homebuyers and investors should prepare for tougher lending conditions, which could reshape the landscape of property acquisition in Australia. The urgency of this development cannot be overstated, as it signals a pivotal shift in the lending environment that will affect countless Australians seeking homes in an increasingly challenging market.
Stay tuned for more updates as this situation develops, and consider the implications of these new lending restrictions on your future housing plans.
