APRA’s
recent increases to banks’ loan serviceability expectations are intended to
cool rapidly rising prices, but industry experts warn that there could be
unintended consequences, including hindering investors’ ability to refinance at
a lower rate.
Speaking
on a recent episode of The Smart Property Investment Show,
Peter White AM, the managing director of Finance Brokers Association of
Australia (FBAA), shared some insight into how the industry expects APRA’s
mortgage crackdown to play out in Australia’s housing market, warning, "there
is going to be a collateral impact somewhere”.
For his part, Mr. White said that he hopes the
50 point raise on the floor rate is enough to have an effect on rapidly rising
prices, and APRA will not feel there’s a need for further intervention.
In his estimation, it will likely take six to
12 months of feedback from property prices before the regulator indicates if
further regulatory levers are likely to be pulled.
But he voiced his concern that even the current
changes could have some negative flow-on effects for owners and investors
across the country.
"The thing we’ve got to watch with APRA is that
this is a broad-brush approach to servicing a loan,” Mr. White said. "There are
impacts, and they will affect investors who are doing developments more so,
which could be small development projects for the first home buyer market, who
all of a sudden may not meet the new serviceability regime,” he said by way of
example.
Purchasers who have set their sights on buying
into these new buildings could also get stung.
"People
buying off the plan, when the reassessment’s done prior to settlement, all of a
sudden may not be able to afford [the home],” he explained.
Mr. White is urging politicians and regulators
to keep a close eye on how the changes, which came into effect this month, are
playing out in real-life situations.
"We understand and don’t necessarily disagree
with a part of this move,” Mr. White said, but added that in this instance,
history holds an important lesson. "We don’t want to see what happened when
APRA moved floor rates back in the day, which had quite a disastrous effect.”
One of those effects, he said, amounted to
borrowers essentially becoming "mortgage prisoners” in their home loans.
This occurs when rates move around, and
property owners seek to refinance in order to get a better deal, only to
discover, "you can’t move your loan because you don’t meet the new servicing
floor rates,” Mr. White explained. "And financially, you’re probably paying more
than what you were before.”
It’s a catch-22 that leaves people paying more
for a financial product than they might need to, but with no exit.
"We’ve got to watch this mortgage prisoner
game. We’ve got to watch what happens with the first home buyer market and also
the refinance market,” Mr. White said, urging industry leaders and regulators alike
to monitor the situation closely.
"It’s one of those things that it’s a delicate
step, and one that can have unintended consequences and landmines pop up that
wasn’t the intent of what was trying to be done.”
Article Source: https://www.smartpropertyinvestment.com.au
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