Declining New Home and Property Investing Loans

Property investing in Australia is getting tougher!

There has been a fall in both investor and new buyer lending on a decline. After peaking in mid-2015, investor lending has slid by nearly 28%, receding by 15% in 2017. Investor loan value dropped from $12.6 billion in April last year to $10.7 billion this April.

The fall can be attributed to two factors: an increase in stamp duty and interventions to curb financial risk in the housing market.

In 2015, the Australian Prudential Regulation Authority (APRA) and Reserve Bank of Australia expressed concern over what they deemed very low standards of the mortgage lending sector and consequent risk to financial stability. APRA is committed to a principles-based approach to regulation, which emphasises the achievement of sound prudential outcomes in establishing regulatory requirements.

Interventions through the APRA have come in the form of an increase in interest rates for investor and high-risk loans, while leaving owner-occupied mortgages rates untouched. The regulator’s interventions are linked to soaring home prices and tightening bank lending is an effort to lower financial risk.

Property investing was also hit by an increase in stamp duty. New South Wales, for instance, doubled stamp duty for foreign buyers on residential property from 4% to 8%, and land tax from 0.75% to 2%.

New buyer lending decreased 1.9% in May, while the value of mortgages issued also dwindled 4.4%. One cause can be traced to falling house prices, notably in Melbourne and Sydney. While home prices are still expensive and outpricing many buyers, falling values are also deterring buyers eying a short-term capital growth.

Shrinking investor involvement has contributed to a slowdown in new home construction, a trend that is expected to persist for the immediate future in the high density market.

The Australian property market is fluid and ever evolving, changes to lending and market conditions creates both challenge and opportunity.  The key to successful property investing is to be well prepared and well researched.

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