Economists say APRA’s new lift to the borrowing interest rate buffer will slow house price growth and is effectively an interest rate hike.
Thanks to APRA’s crackdown this week, banks now must assess the ability of potential borrowers to make repayments if interest rates rose 3 percentage points instead of the 2.5 percentage points previously.
The move reduces borrowing capacity for most people by around 5 per cent.
While APRA says the impact will be modest, economists are saying they expect it to be effective in slowing price growth which has been booming thanks to low interest rates and cashed up buyers who have been saving under lockdowns.
Westpac economist Matthew Hassan spoke to Domain about the move.
“It’s a de facto rate hike for the housing market,” he said.
“It’s about as close as you get to an actual interest rate increase without having a cash rate move.”
Mr Hassan said the move will help to slow house price growth, which also will be held back by constrained affordability after the current boom around the country.
“We’ll see a moderation, most likely to single-digit price growth over the course of the next six to 12 months,” he said.
“We expect the aim of the regulator is to generate a soft landing in the market rather than a crunch.”
APRA could be looking at bringing in more restrictions, but for now, ANZ senior economist Felicity Emmett says they’ll be aiming for modest interference to begin with.
“And wait and see how the market responds to this and perhaps introduce further measures in a few months’ time,” she told Domain.
“This will have quite a small impact although it will have an impact at the margin, particularly for anyone who is borrowing at the maximum level.”
AMP Capital chief economist Shane Oliver tips house price growth will slow to around 7 per cent next year and doubts house prices will end up falling.
“It all comes down to what else they do. If they do more later in the year you could end up with a more severe tightening, which could then see prices come down next year,” he said.
“The fact they’ve already done this is a possible pointer to more tightening than has been assumed.”