It’s About To Get Harder To Borrow. This Is How It’ll Affect The Sydney Property Market

At the start of October, the banking regulator tightened restrictions on mortgage lenders in Australia. This will make it harder for some potential borrowers to get a mortgage and may impact the housing market. This article will examine what has changed, and why. We’ll discuss the likely impacts on stakeholders within the Sydney property market. Finally, we’ll outline steps you should take now to make the best of the forecast changes to the housing market.

    banking regulator tightened restrictions on mortgage lenders in Australia.

    What has changed?

    On 6th October, the Australian Prudential Regulation Authority (APRA) wrote to Australian banks advising them the minimum interest rate buffer has increased from 2.5.

    What does this mean for the banks?

    Banks and mortgage lenders test the ability of borrowers to afford the repayments on their mortgages. From November, Australian banks will need to ensure potential borrowers could continue to repay a mortgage if the mortgage interest rates increased by 3 per cent above the current rate.

    For potential borrowers, if the current mortgage interest rate is 1 per cent, the lending institution will be making sure they could still make repayments if the rate increased to 4 per cent.

    If the lending institutions don’t do this they will be required to hold more funds in reserve in case of losses. These ‘dead’ funds would reduce their profitability.

    It is most likely all lenders will use the new 3 per cent minimum buffer. This means the maximum available mortgage loan will be lower than it was.

    Banks and mortgage lenders test the ability of borrowers to afford the repayments on their mortgages

    Why have APRA made this change?

    Despite the COVID-19 pandemic and numerous lockdowns, Sydney property prices are forecast to have increased by more than 20 per cent by the end of 2021. Incomes have barely increased at all during the same period and some buyers, desperate to buy property may be tempted to borrow more than they can realistically afford to repay. This increases the likelihood household debt (mostly made up of housing/mortgage costs) will also be at record highs by the end of the year.

    APRA is concerned the continuing rise in property values and consequent very large mortgages combined with growing household debt are incompatible, leading to a risk of financial instability.

    No doubt, they are still wary following the Global Financial Crisis of just over ten years ago, when many borrowers had large mortgages and were unable to repay them. This lead to many banks, across the world, suffering financial difficulties, and a number of major banking institutions went into liquidation, with unpaid debts.

    How will this impact the price of houses?

    In the short term, at least for the rest of 2021, there is not expected to be a major knock-on effect on the housing market. According to Reuters’ news agency:

    “… given that less than one in 10 borrowers ask for the maximum loan, the vast majority of borrowers will be unaffected by the change …”

    Will there be more changes?

    Many financial analysts see this as a modest change and expect further changes from APRA in a bid to reduce the current rampant house price inflation.

    • Banks

    Su-Lin Ong, of the Royal Bank of Canada, is among the experts who believe Australians will face more efforts to reduce the growth in house prices:

    “ …further measures are likely should the lift in the buffer rate fail to temper credit growth”.

    • Government

    The government would like to encourage the construction industry and welcomes growth in the property market. First-time homebuyers help to fuel this growth.

    However, the current unexpected increase in outgoings (through housing costs) and stagnant incomes mean the financial sector needs some protection against the risk of unpaid debts.

    • RBA

    The Reserve Bank of Australia (RBA) which sets the official interest rate has held the rate at the record-low value of 0.1 per cent at the most recent board meeting in October 2021.

    The RBA expects the jobs market to improve by the end of the year, with employees hiring as the major cities come out of lockdown. However, they believe wages will remain ‘subdued’. No big leap in inflation is expected and they suggest interest rates are not likely to increase until 2024.

    • APRA

    It seems likely APRA will continue to make changes to mortgage borrowing restrictions. Eventually, the measures taken by APRA and the lenders will have the effect they desire and property values will start to fall.


    House buyers

    Likely impact on House buyers

    If property prices fall evenly across the board, the biggest impact is often on ‘downsizers’, moving from a large family home to a more compact property. Excess funds from the property transactions are used to top up superannuation and the decreased value of the larger property may hit retirement plans.

    The biggest winners will be first time buyers. The massive jump in house prices during 2021 has led to this group taking out large mortgages to get that first step on the property ladder. First time home buyers will benefit directly from any reduction in housing values with smaller loans on more affordable properties giving them more disposable income during the term of the mortgage.

    What about sellers?

    If APRA achieves their aim of slowing the property market or even deflating house prices then sellers will receive less for their properties. Those relocating, moving from one area to another in a similar value house, will be the least hit.

    Property investors are directly affected by changes to the housing market. They are likely to see a drop in the value of their portfolio over the next few years.

    To recap, what is likely to happen to the Sydney property market?

    The best financial and property experts can only make their predictions based on experience and previous trends. Of course, at the moment we are living through something that has never happened in living memory. The great unknown is COVID-19.

    None of us has experienced a global pandemic, let alone the aftermath. Three years ago, working from home, grounded airlines and lockdowns, all to keep us safe, would have been scenes in a movie. More recently, however, we have begun to sense a return to a ‘new normal’ for our lives and work.

    Most experts think the property market will return to more normal price valuations, too. As New South Wales emerges from lockdown to ‘new normal’, top economists continue to forecast property prices to grow by over 21 per cent in 2021. Most are forecasting a slowdown in growth in 2022 with housing values predicted to increase by less than half the rate of 2021.

    By 2023/2024, many believe APRA’s restrictions on lending coupled with likely interest rate rises may subdue house prices even more.

    So, what does that all mean?

    Amidst the uncertainty and some conflicting opinions, your author observes the following general consensus between the majority of economic experts for the next few years:


    • The unprecedented growth in housing prices will continue. Projected growth by the year-end is expected to be greater than 21 per cent.


    • The most common forecast is for continued growth but at less than half of the rate achieved during 2021.

    2023 and beyond

    • Probably too far ahead for any sort of near-accurate forecast. The RBA doesn’t expect to raise the interest rate until 2024, which may signal the end of the big market price increases.

    What should I do to get the best price for my property?

    Act now!

    If you have a property to sell, then why not sell it now? All forecasts suggest property prices are going to continue to grow but there is the risk APRA may increase restrictions on borrowing to slow the growth. Currently, growth is continuing. Have a chat with a good Real Estate Agent today.

    If you are looking to buy a home, especially your first home, buy now to get the best property for your money. As always, calculate the worst-case mortgage rate and be sure you will be able to meet the repayments.

    Where to get the best possible help and advice?

    You need local knowledge: MGM Martin Real Estate Agency

    – a leading real estate agency with local professionals. Based in Mascot and Zetland, our team have been helping investors find their perfect commercial investment for over thirty years. We understand the local market and we have local knowledge. We know what the best areas are and the optimum property prices for a suburb.

    According to the Corelogic Agency Benchmark Report (Aug–Sep 2021):

    “MGM Martin is the Number One agency in the area by New Sales Listings Volume and one of the absolute leaders by such criteria as Agency Sales Volume, Sales Value and New Rental Listings”.

    We can help you navigate the Sydney market to ensure your investments are as profitable and successful as possible.

    In these difficult times, you should work with local professionals, contact MGM Martin today for a discussion.

    Get in touch today: 02 9662 3954
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