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The CEO of a national broking franchise has stressed that the regulator’s measures to rein in investor lending are “counterproductive to mortgage stress” and have had “a zero impact in deterring investors”.
MoneyQuest managing director Michael Russell has opined that APRA’s 10 per cent investment loan growth cap was introduced without consideration of the measure’s unintended consequences.
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Mr Russell’s comments come after APRA unveiled additional supervisory measures on mortgage lending last week and ASIC followed suit yesterday announcing “targeted industry surveillance” on interest-only loans.
He argued that APRA’s response has been “short-sighted” and led to banks increasing investment loan rates, which has not resulted in the regulator’s intended outcome.
“While APRA and the banks might think this seems like a good idea, those of us who have worked at the coalface know full-well that a 25-50 basis point increase has, and will continue to have, a zero impact in deterring investors,” he stressed.
“Let’s not even contemplate for a minute the irony that raising mortgage interest rates is actually counterproductive to mortgage stress – which is what APRA is trying to negate.”
Further, Mr Russell explained that the consequences being seen at the coalface are “quite disturbing” and has negatively impacted property purchasers.
“Towards the end of each month, some banks are becoming so fearful of breaching the cap they are electing to cancel purchase settlements and rebook next month,” he elaborated.
“When this happens, the consequences can be particularly dire, not only for the purchasing investor but particularly for the unfortunate vendor who is often dependent upon the sale of their property to fund a simultaneous purchase. The vendor of that second purchase is then an unwilling participant in the collateral damage that is impacting far too many hardworking everyday Australians.”
According to Mr Russell, the regulator’s measures have meant that “everyday Australians” investing in real estate to grow their personal wealth are being “harassed” by the banks.
“In recent weeks, I have witnessed first-hand the personal toll being inflicted on far too many of our unsuspecting clients,” he said.
“My question to APRA and the federal government is ‘Do you really want everyday Australians to stop saving and investing in property in favour of doing nothing and praying the government can fund their massive pension liabilities in the years to come?’”
“I am against prudential intervention of any kind – however if APRA is intent on interfering to cool the housing market, then it must, at the very least, consult with ALL stakeholders to at least minimise the short and long-term distress of everyday Australians,” he concluded.
Tighter lending standards leaving borrowers ‘in the lurch’
Steve Jovcevski, a property expert from comparison site Mozo.com.au, has said that tighter lending standards instigated by APRA have meant that many owner occupiers and investors who have previously taken out an interest-only loan are now being “left in the lurch” as they find out they no longer qualify.
“These borrowers will be stung by significantly higher loan repayments, the equivalent of several Reserve Bank rate hikes, as they make the transition over to a principal and interest loan,” he said. “This could see many not being able to afford their home loans and having to sell up or try to refinance at a higher rate.”
The comparison site analysed APRA data from the past five years and found that while the number of interest-only loans has increased from 25 to 30 per cent over the past five years, there has been even more growth in the value of interest-only loans from 33 to 39 per cent.
“The regulator has moved in large part due to concerns that interest-only loans are fuelling the surge in housing prices across Australia’s capital cities especially in Sydney and Melbourne,” Mr Jovcevski explained.
“With the new APRA rules requiring that interest-only loans make up no more than 30 per cent of new lending, lenders are going to have to cut back with our analysis of APRA data showing that interest-only loans currently make up 39 per cent of the value of all home loans.”
[Related: Banks move on interest rates out of cycle]
