Macroprudential measures aimed at cooling the property market are expected to affect single income earners the most.
High debt-to-income lending has become a major focus of regulators, with restrictions expected to be introduced in the coming months.
BuyersBuyers co-founder Pete Wargent suggested that new lending restrictions would be detrimental to singles who are planning on buying a home, particularly for first home buyers.
“Single income earners might find that they can’t borrow as much next year, which will make life tricky for those struggling to get into the housing market,” Mr Wargent said.
Regulators are expected to target loans with a debt-to-income ratio of six times or more, which made up 22 per cent of total loans in the June quarter of this year compared to 16 per cent in the June quarter of 2020, according to data from the Australian Prudential Regulatory Authority (APRA).
Measures similar to those being considered by local regulators that have been introduced overseas produced mixed results, according to Mr Wargent.
“For example, there was a sharp increase in joint income borrowers and a marked decline in first home buyers on a single income,” he said.
“Debt-to-income caps would be likely to change the shape of the mortgage market, but while some lenders might reduce their volume of lending at higher multiples of income, others might step into the fold or increase mortgage sizes to compensate.”
Mr Wargent said he expected that the more affordable suburbs of Australia’s capital cities will increase in popularity in response to the looming restrictions.
“The benefits to financial stability are up for debate, but it’s very likely that such a move would knock more first home buyers and single income earners out of the market, at the expense of higher-income upgraders and joint income loan applicants,” Mr Wargent said.
Following a meeting of the Council of Financial Regulators, APRA confirmed it plans to release an information paper on its framework for implementing macroprudential policy “over the next couple of months”.
The regulator also said it would continue to consult with the council — which also includes the Reserve Bank of Australia, the Treasury and the Australian Securities and Investments Commission — on the potential implementation of any measures in the future.
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Article courtesy of Nestegg