Australian interest rates are at record lows and for the foreseeable future, the Australian Reserve Bank has no plans to increase them. Australians can expect regulators to step in and slow the property market down.
At their last meeting, the ARB decided to keep key policy rates at 0.1%, a record low. Buyers have responded to low interest rates and the property market is booming. This has led to a significant increase in property prices in most areas.
Housing credit is also growing with many people buying homes for the first time. Investor credit, on the other hand, is restrained. Given the current set of circumstances, the bank will watch the housing market carefully. It will ensure that lenders maintain credit extension standards.
RBA governor, Philip Lowe, has said that interest rates are unlikely to rise until at least 2024. The inflation rate will likely stay in the targeted 2%-3% range over the period.
Neither the bank nor the Australian Prudential Regulation Authority target property prices. With growing demand, low housing stocks and prices sky-rocketing regulators will, however, keep an eye on lending standards.
Property prices may rise by as much as 20% over the period 2021 and 2022. If lending standards decline the APRA is likely introduce regulations to slow things down.
The current conditions in the property market may require a throttle to slow prices down. Regulators, in the past, have used macroprudential policies to slow the property market down. It is likely that they will use them again sometime soon. This move may be necessary to keep household debt levels in check.
Macroprudential policies typically lead to a slowdown in the amount that banks will lend consumers. This, in turn, slows property inflation and may even see a reversal of some of the price increases.
Wayne Byres, APRA chair, has said that the current situation shouldn’t cause immediate alarm but that regulators were not complacent.
In 2017 APRA placed limits on interest-only loans, and in 2015 they limited investor loans. All limits were lifted in 2018.
Shane Oliver, the chief economist at AMP Capital, has suggested that banks may soon raise the interest buffer used to assess loan affordability. Limits on debt-to-income ratios and loan-to-valuation ratios are also possible.