Looming loan restrictions could mean a shift in property prices

With demand greatly outweighing supply, houses are selling well over reserve at auction and recent COVID-19 restrictions have affected property sellers’ willingness to go to market. 

While this property boom strengthens some sectors of the economy, there are numerous economic implications. With houses skyrocketing in price, Australians yet to enter the market are seeing their chances of buying a property grow slimmer.  

However, there is still high activity in the market for those with the capital to spare. But with higher prices comes higher property loans, as Australians are borrowing more in order to secure a property. Around 22% of all borrowers are now taking out loans that are six times larger than their annual income. 

Government bodies are starting to intervene. The RBA has warned that this increase of housing debt poses a risk to financial stability in the Australian economy. Treasurer Josh Frydenberg has met with financial regulators APRA and RBA to discuss measures against housing debt increasing further, to ensure the economy remains stable. 

Even the IMF has weighed in on the current housing situation in Australia.

“Structural reforms to boost housing supply and targeted support for low-income households are needed to improve housing affordability … Macroprudential policy should be tightened and lending standards closely monitored.”

- statement from IMF

What does this mean for you?  

These measures are predicted to impact investors more than home buyers, as the former are more likely to own multiple properties and therefore have a higher housing debt.  

Property prices may begin to stabilise as financial regulators intervene to reduce Australia’s housing debt, putting an end to the intensity of the market as seen over the past year. 

References

Derwin, J. (2021) Australia is set to restrict home loans to new borrowers in a bid to lower risks in the hot property market. Business Insider Australia.

Simpkins, S. (2021) Australia needs housing reforms: IMF. Mortgage Business.

9 News. (2021) Treasurer planning to ease financial burden of home loans. 9 News Australia.