Financial advisors in Perth and across Australia are working even harder lately, thanks to the Australian Prudential Regulation Authority (APRA). In December 2014, the APRA announced that measures would be implemented to decrease the ratio of investment property home loans to owner-occupier home loans. *
The response for many lenders has been to make the standards for investment property home loans tougher, using tougher income tests and lower loan to valuation ratios. In addition, even though the Reserve Bank of Australia (RBA) cash interest rate is at an all time record low, most major banks are raising the interest rate for home loans on investment properties.*
Dr Shane Oliver, Chief Economist and Head of Investment Strategy for our parent company, AMP Capital, recently gave his opinion on what this means for the property markets and for small property investors. Here are some of the highlights.*
What the Recent Changes Mean to You
Dr Oliver expects the recent changes to do exactly what they are designed to do: make it tougher for investors to obtain capital and slow the rental property investment market. Dr Oliver goes on to speculate that if the current measures don’t slow the investment market, APRA will more likely than not “come down even harder on banks.”*
According to Dr Oliver, this could cause prices for homes in the Perth market to fall slightly, while slowing gains overall to around 5%. While property investors will suffer, the owner-occupier will benefit from both a slowing market and what Dr Oliver calls apparently being “favoured by the banks.”*
However, Dr Oliver stops short of predicting a fall in housing prices nationally. He advises those who want to invest in properties to “be a lot more cautious as capital growth is slow.” *
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*AMP Capital, “The going gets tough for residential property investors,” 30 July 2015.