Phil's Property Corner - How the recent RBA & APRA changes will impact borrowers

June 12, 2019 by Rebecca Crommelin

Phil Bertram, the owner of Candour Property Group, delivers another great edition of Phil's Property Corner on our blog this month. Phil takes a close look at the Perth property figures, and how the recent RBA & APRA changes will impact borrowers.

May saw a reduction of 1% in Perth’s median sale price, down to $495,000 with sales and rental activity both seeing increases from April. Perth’s median rental price remained steady with the rental vacancy rate further tightening to 2.3%. You can find REIWA’s May Perth market update video here.

It’s been quite a busy month in terms of economic levers being pulled, we have seen the Reserve Bank of Australia (RBA) reduce the cash rate to the lowest level in history and seen the Australian Prudential Regulation Authority (APRA) remove the mandatory 7 per cent serviceability buffer. Both measures are designed in part to stimulate activity in the property industry.

Firstly, the RBA’s reduction of the cash rate to 1.25% has been anticipated by experts for some time. National inflation has been hovering towards the lower end of the target range of 2-3% for some time, wages have not been increasing as much as has been hoped and unemployment is rising. The cutting of the cash rate has been the main lever that the RBA has pulled to reduce the cost of lending for most Australians, in the hope that it encourages more spending. The ABC have written a very informative article on it you can find here.

APRA reducing the mandatory 7 per cent servicing is a lesser known policy. In December 2014, with home loan interest rates starting to move lower, APRA effectively told the banks that they had to continue assessing new loans for their customers at 7% or 2 per cent above the rate being paid by the borrower. As we’re all aware there are interest rates readily available in the 3% to 4% range, this meant lenders were able to lend significantly less money to borrowers.

The recent Royal Commission then recommended changes to the figures banks were using to calculate living expenses, effectively further reducing borrowing capacities for the average borrower by an estimated 20 – 30%. The danger in so severely slowing down borrowing is that in some cases (especially in Sydney and Melbourne) people had borrowed money on an Interest Only term for 2 years, only to attempt a refinance two years later and to be told that they can no longer afford the loan they already have. In recognition that the handbrake had potentially been pulled too hard, APRA is attempting to gradually loosen the restrictions on the ability for the average Australian to borrow. The Financial Review has a great article on the APRA changes here and there is an informative column by the WA President of the UDIA discussing the potential impact of both changes to the WA market you can find here.

If all that wasn’t enough, we’re fast approaching the end of the Financial Year. Why’s this significant? With all these changes taking place we’re all about to be reminded once again with our annual PAYG Payment Summary of the tax we paid over the course of the year. One of the most effective ways to reduce income tax and replace it with a positive cash flow is through property. If done effectively it can put tax dollars back in your pocket whilst helping you pay off your home loan faster than you would be able to do on your own.

If you’d like to have a chat about how can work for you the next step is to chat with Phil Bertram. There is no obligation to proceed any further than you’re comfortable with and he doesn’t charge for his time. All strategies are implemented in tandem with your Mortgage Choice Mortgage Broker.

To arrange for him to call you please email him with your name and contact number on phil@candourproperty.com.au and he’ll be in touch.