Propertyology Head of Research Simon Pressley said that the extent of recent intervention by APRA was completely unnecessary and that Australians should be concerned about its effect on the national economy.
“The grip that APRA have on national credit supply is so tight that we now have a significant blockage in a major artery of the economy. If the Federal Government don’t quickly intervene, much of the good work of the past few years will be quickly undone, and 25 million Australians will pay the price,” Mr Pressley said.
The last 12 months have seen median house values in Sydney and Melbourne fall by $80,000 and $40,000 respectively, which Mr Pressley says is partly due to the ongoing regulatory plans from the Authority. Although the restrictions were initially aimed at investors, Mr Pressley says they have continued to affect all potential buyers, from downsizers to owner-occupiers.
“This will soon become a drag on retail spending and job creation. It will stymie any chances of the wage growth that everyone has been waiting patiently for. And it will create a big red hole in state government finances due to the signification reduction in property taxes and GST receipts,” Mr Pressley said.
The rising tide of regulations
“The property boom barely got outside of Sydney and Melbourne, yet the entire nation was subjected to the changes. Other states would actually benefit from stimulus, not tightening,” he said.
The second round of APRA intervention in the sector has raised the effect on everyday Australians, resulting in a five to seven per cent drag on property prices over the last 12 months, says Mr Pressley. From here the only answer is Federal Government intervention, he says, before the economy is negatively affected.
Even more concerning, according to Mr Pressley, is that with improvements to technology and data management, loan applications should be speeding up. Unfortunately recent ABS data has shown quite the opposite, with new loans at four-year lows, proving the industry is under severe pressure.
“If we were aspiring for a world-leading banking system we’d be aiming to approve something as simple as a home loan within 24 hours. Instead, the loan assessment process has blown out to three or four weeks. We’ve replaced the Apple Mac with an abacus,” he said.
Mr Pressley says that Australia never had poor loaning policies in the first place. He argues that the Banking Royal Commission revealed a caustic sales culture, which doesn’t reflect on the national loan book, or mean the public should be punished.
How the public is affected
“Whether buying your first home, expanding for a bigger family or investing for future financial independence, most of life’s biggest financial decisions require credit, which makes APRA’s actions completely baffling.
“For decades, a borrower’s ability to service loans has always been stress-tested with an interest rate loading of about 1.5 percentage points higher than the rate on offer,” Mr Pressley said.
“Today, a borrower might apply for a loan with a four per cent interest rate but the bank will be assessing affordability using between 7.25 and eight per cent. To put into context just how ridiculous that is, there hasn’t been a single increase to the RBA cash rate for more than two years – borrowers may be dead before we see 16 rises of 0.25 per cent a pop.”
According to Mr Pressley, the biggest challenge that today’s borrower faces is APRA-enforced changes to assessing a borrower’s living expenses.
For generations, banks had applied a benchmark annual living cost that was determined by how many adults and children were in a household, but APRA now require borrowers to itemise 30 separate living expense categories, he said.
Credit officers are now declining loan applications based on arbitrary assessments of spending on things like Netflix, Uber Eats, pet food, a new dress and “expensive” haircuts.
Mr Pressley says credit assessors appear to be blatantly disregarding a borrower’s ability to maturely adjust their discretionary expenditure and honour financial obligations.
“This isn’t America. Australian borrowers have their own skin in the game when they buy a property. They are required to stump up a genuine deposit and can’t simply hand the keys back if they don’t want to pay the loan back,” Mr Pressley said.
“If they fail to honour obligations, their poor credit history becomes public knowledge and their entire financial future is grossly in jeopardy.
“That’s always been the way. An overwhelming majority of Australian borrowers will do whatever is required to stop their home loan or investment loan falling into arrears. Our nation’s track record of low home loan arrears and low bankruptcies proves that. If it ain’t broken, why fix it?
“Australia already had responsible lending policies. Clearly, we needed better policing of those existing policies. Instead, what we’ve seen from APRA is radical and unreasonable reform that, unless stopped, poses a real risk of a road to recession.”