There is reason to believe there is a home loan crackdown coming with the federal treasurer stating that “carefully targeted and timely adjustments” may be necessary to avoid troubled waters. You may be wondering what could a potential lending crackdown look like? Our home loan brokers have the answers.

Latest market trends have shown fast-rising property prices and lending standards have been the popular discussion topic lately.

Currently, interest rates are at record-low levels, and the typical Australian home has seen its value increase more than 18% over the past year – the fastest annual pace of growth since the late 1980s.

This combination of interest rates and value increases have made financial regulators a bit worried that many home buyers are biting off more than they can chew in order to afford a home, taking on more debt than they can reasonably afford.

In response to this, federal treasurer Josh Frydenberg recently met with the Council of Financial Regulators – which includes APRA, ASIC, the Australian Treasury and the RBA – to discuss the state of the housing market.

“We must be mindful of the balance between credit and income growth to prevent the build-up of future risks in the financial system,” Mr Frydenberg said in a statement.

“Carefully targeted and timely adjustments are sometimes necessary. There are a range of tools available to APRA to deliver this outcome.”

What could this look like?

Close to 22% of Australians have a mortgage debt that’s more than six times higher than their annual income, according to the latest data from APRA.

That’s an increase from the 16% of Australians just one year ago.

The fact APRA mentions that particular statistic gives insight into what one possible lending crackdown measure could be.

“Most analysts expect that this time, APRA will target debt-to-income ratios, probably by limiting the proportion of loans that can be made above six times an applicant’s household income,” explains the ABC.

Interestingly, Mr Frydenberg and APRA are not the only ones to publicly indicate that change could be on the horizon – the RBA expressed similar concerns about the increase in housing prices and housing debt just days ago, too.

“Even though the banks have strong balance sheets and lending standards are being maintained, there is a risk that in this environment, households will become increasingly indebted,” RBA assistant governor Michele Bullock wrote.

“A high level of debt could pose risks to the economy in the event of a shock to household incomes or a sharp decline in housing prices. Whether or not there is need to consider macro-prudential tools to address these risks is something we are continually assessing.”

How will this affect you?

As we said, there is currently little information available about what financial regulators have in mind for any potential lending crackdowns.

However, we can help assess your current situation and how it fends in the current lending landscape. We will walk you through an assessment of your potential debt-to-income ratio on any property purchase you currently have in mind. And we can also help you determine your borrowing capacity in the current lending landscape.

If you need more information or further assistance, get in touch today. The potential crackdown could influence your future borrowing capacity, so we recommend reaching out. We’d be more than happy to run you through it all in more detail according to your personal circumstances.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Emmanuel Guignard (MBA)
Director & Principal Mortgage Broker
With over 15 years’ experience in the finance industry and a recently completed MBA in Financial Planning, Emmanuel leads the broking team at Loanscope. His experience includes working with a wide range of property investors, from first time buyers to investors with large property portfolios. This includes handling complex applications involving trusts, company structures and self-managed super funds. He also operates as a qualified mentor to other mortgage brokers via the FBBA mentor program.
Emmanuel Guignard