Top markets where APRA's lending curbs are likely to bite the most

Many experts believe that the Australian Prudential Regulation Authority (APRA)'s decision to raise the servicing rates would likely have little impact on owner-occupiers for now, but homebuyers might still find it more difficult to break into some markets, particularly the higher-priced ones.

A study by BuyersBuyers identified 20 SA4 regions where buyers might struggle the most given the new servicing rules.

The list highlights locations where the median house price to household income ratios are at around nine times or above

RiskWise Property Research Doron Peleg said locations in Greater Sydney and Greater Melbourne where house price to income ratios are already well above six times would likely to be impacted the most, especially if debt-to-income caps are introduced next year.

"In these locations, a reduction in borrowing capacity of potentially up to 15% would have a noticeable impact of market dynamics," he said.

"These changes would not be as dramatic as those experienced through the macroprudential measures of 2017 but would have a temporary cooling effect on highly leveraged sectors of the housing market in Sydney and Melbourne."

The majority of regions in the list were from Sydney and Melbourne. Queensland's Sunshine Coast and Perth's inner areas were also listed.

Mr Peleg said of all cities, Canberra might be the most unaffected by the recent change in APRA's rules, given its high level of income.

Meanwhile, he said the money driving Queensland's market are coming from the southern capital cities.

"We believe property investors will remain active overall, simply because rental prices have been rising, and the cost of borrowing has moved considerably lower, making for an attractive cashflow outcome," he said.

"But the top end of the market, dominated by owner-occupiers, will likely see some cooling."

Regions where APRA's lending curbs will hit the most.

Further restrictions likely

BuyersBuyers co-founder Pete Wargent said an introduction of debt-to-income caps is likely in the works and could be scheduled for next year.

"The most impacted property types will be family homes in areas where price to income ratios have already become stretched, especially beyond the $1m to $1.2m plus price range, where many dual income households will cap out,”  he said.

Mr Wargent said price brackets under $1m would likely bear less impact. However, buyers would still need to adjust their budgets and expectations.

"Further cooling measures could include restrictions to borrowers at more than six times income, in addition to floor assessment rate changes," he said.

Given these possible scenarios, Mr Wargent believes borrowers might make a shift towards non-bank lenders, which are not covered by the jurisdictions of the APRA.

"I'd expect to see far fewer first homebuyers active in 2022, with the stimulus measures wearing off and borrowing power for single income earners being reduced,” he  said.

“But investors will be active, especially up the $1 million price range.”

Photo by Jordan Whitt on Unsplash.