I’m a two-time MFAA Regional Mortgage Broker of the Year and a Senior Fellow At FINSIA. I own a mortgage broking office in Cairns and Brisbane and have 30 years’ experience in the industry.
APRA has completely disregarded Regional Australia in this last move and this could spell disaster for regional economies around Australia. The need to cool the housing bubble is simply a capital city issue yet APRA has applied these tougher lending standards to Regional Australia which in some areas has their economies on the brink. I note the following.
Regional Australia is doing it Tough
Lets look at Cairns for example, the town I know best. The Tourism sector is devastated by the covid crisis and the border closures. A town like Cairns has a much higher exposure to international and domestic tourism. They are experiencing record low tourism number with many business in severe distress and relying on the local populations support to survive. The building industry in Cairns is buoyant however nothing like the Capital city hyper inflated market. This construction housing economy in regional centres offset in a small way the greater economic suffering in these areas and now APRA wants to slow this sector.
Regional Australia is very different to the Capital cities
There is one important thing that differentiates Regional economies and this is that housing affordability is very good. In Cairns you can still buy a house for $400,000 which means that single income families can enter the housing market. Other lower income families also find it easier to enter the market. With all the concerns the Reserve Bank and APRA has about market velocity and housing affordability, this simply does not apply to most of regional Australia.
Single Parent Families and moderate income families are the ones who APRA has hurt
APRA has increased the lending assessed margin by 0.5%. In short this has increased the Banks home loan assessment rate to levels around 5.75%. What this means is that for thousands of aspirational moderate income borrowers in Regional Australia, your borrowing capacity (servicing capacity) will fall and they won’t be able to enter the housing market. High Income earners , as always, are left relatively untouched by this.
This could have been avoided as APRA has the Capacity to apply policy on a post code basis
There is existing lending infrastructure in place which allows banks to discriminate policy on a post code basis. APRA could have applied this new servicing rate to the areas that are of concern, namely the capital cities and surrounding areas. If Regional Australia was considered at all, they could have left existing lending standards in place to support these vulnerable economies.
APRA has form in neglecting Regional Australia
Macro Prudential reforms have been used before most famously in the previous investor boom in Sydney and Melbourne. In this Case higher deposit requirements and higher interest rates were used to curb the hyper stimulated investor market. This too was applied nationally, and suppressed investor activity throughout regional Australia which had nothing to do with the capital city investor boom. Places like Port Douglas, where almost 50% of housing stock is owned by investors, was such a place that suffered from this policy and the irony was that this area needed policy support, not oppression at the time.
Its not too late.
APRA can modify its policy to take its foot off the neck of Regional Australia. Utilising the postcode based lending policy in place, they can instruct the Banks not to apply this new tougher criteria to regional post codes and use the policy to assist regional recovery.
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