APRA has only taken the first step in cooling home loan borrowing: Warren Hogan

Low-interest rates combined with Australia’s favourable taxation treatment of property investment could drive a new wave of demand for residential property well into 2022, according to Warren Hogan, managing director of EQ Economics and economic advisor to Judo Bank. "Not only are low-interest rates denying people a decent return on traditional low-risk investments such as term deposits, they make funding low-yielding investment property extremely attractive," he suggests. He signalled last week's decision by the Australian Prudential Regulation Authority was just the start of the process of "reining in a runaway housing market." "This is just the first step in what could be a concerted effort by the prudential regulator to combat a full-blown speculative bubble in Australian housing in 2022 driven by a surge of investor activity." APRA will release a paper on what macro prudential tools it has available in coming months. Hogan wrote on The Conversation that the new rules limiting what banks can lend were aimed at real estate investors and that APRA believes they’ll have little impact on first home buyers. Hogan noted the RBA, with its focus on getting inflation back into its 30-year-old target zone of 2 per cent to 3 per cent, had "washed its hands of all financial stability and affordability concerns, effectively leaving APRA to deal with the mounting risks to the economy and financial system of persistently low-interest rates." From November 1, all new borrowers must be able to service their mortgage at an interest rate 3 per cent above the current rate rather than the previously mandated 2.5 per cent after the APRA decision with estimates this will reduce the maximum borrowing capacity of a typical borrower by about 5 per cent. Hogan noted most people who take out a mortgage are nowhere near their borrowing capacity.