Near record low rates have spurred an upswing in activity in the lower end of the property market but despite industry concerns tighter lending policy will safeguard against a housing price bubble.
Since September 2008 the Australian cash rate tumbled by 400 basis points, as the Reserve Bank moved to ward off the global economic crisis.
Within the same time period, the average standard variable home loan rate has fallen by a similarly large 375 basis points making housing more affordable than it’s been in years.
There are concerns across the industry that increased activity at the lower end of the market could trigger a blowout in housing prices – which are already amongst the highest in the world relative to incomes.
Mortgage Business’ latest straw poll revealed that almost half of the 417 respondents – 47 per cent – are concerned about such a property bubble.
But according to ABS data the total value of monthly home loan commitments in January was up by just under 10 per cent, compared to September last year, a reasonable pick-up but by no means a surge.
Any increase in February activity will be revealed in data released on April 8.
John Edwards, CEO of property analyst Residex, said the limited availability of credit had decreased the likelihood of any property bubble.
“Yes low interest rates will bring buyers back into the market,” he told Mortgage Business, “but there is a new limitation out there – credit. Banks are definitely tightening up on lending and this should help to subdue any property bubble.”
A look at changes to lending policies announced by lenders in just the past few weeks highlights the increasing limitations on home lending; CBA and ANZ will now only lend up to a maximum of 90 per cent LVR while most major lenders have recently introduced genuine savings requirements around the 3 to 5 per cent mark.
While Mr Edwards was not concerned about the market in general he did express some disquiet about the lower end of the market, where most first home buyer activity is taking place.
“The government’s incentives are creating an emotional drive for these buyers to enter the market – buyers not traditionally hardnosed or knowledgeable about property.
“There is not enough research available to indicate first home buyers are paying the correct prices for these houses, they could be overbidding.”
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