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My new book Property Finance Made Simple has taken off, and one of the parts of the earlier chapters is on affordability and tightening of lending in Australia.

I wanted to take the opportunity to share with you an article that came across my desk this week on a unique perspective into the impact of the Australian Prudential Regulatory Authority (APRA) changes on the property market. Written by John Moore

APRA: Who are they?  The prudential (care and forethought) regulator of banks, insurance companies, superannuation funds, credit unions, building societies and friendly societies.

APRA: What did they do? They essentially required banks to lend more capital to home owners than investors.  This change reduced access to money for some potential investors.

APRA: Why did they do it?  In 2015 the numbers of investor loans became greater than owner occupiers.  This rang alarm bells.

This has had some expected effects in the marketplace:

1. The number of investor loans have decreased.
2. Home owner loans have increased to be greater than the investor loans.
3. It has cooled the market, even though it might not seem like it because of the continuing high auction clearance rates in Sydney and Melbourne.

However, this has had some quite interesting effects in the marketplace:

1. It has made it harder for the ‘spruikers’. Why?
   1. They sell property, not advice.  They go after the investors who are just starting off on their investment career.
   2. Many of these investors are on low incomes and no longer qualify for loans. This is especially true if they need to borrow more than 80% of the value.
   3. The banks responded to this change by APRA by restricting serviceability to 80% of rental income further restricting low income investor borrowing.

The impact is that:

• Investors are seeking better quality advice that supports the tailored selection of property that meets lending criteria and their goals.  Those that aren’t getting quality advice are not getting funding.
• Because lending criteria have tightened, and apartments are oversupplied in Brisbane and Melbourne, capital growth on apartments will be very subdued until the supply of apartments is taken up.
• The banks really have a conflict of interest, on the one hand they want to restrict lending for on apartments in inner Melbourne and Brisbane, and on the other hand they want to ensure that the equity owned by existing borrowers in apartments in the same suburbs is not eroded.  Hence the recent change in requirements for higher deposits in many suburbs.