First-home buyers wade back in as property investors shut out – The Australian Financial Review

Getting more of a look in than last year: Loans to first home buyers have jumped almost 30 per cent from 12 months ago.

First-home buyers are set for their best spring buying season in years as new figures reveal investors are pulling back and prices are steadying as a result. 

Housing finance figures released Friday confirmed that tougher rules on lending to investors have led to a sharp fall in such loans, particularly in Sydney. At the same time, loans to first-home buyers surged. 

But any hope that the slowing market would prompt the regulator to soften its stance were dashed when Australian Prudential Regulation Authority chairman Wayne Byres said he would double down on macroprudential measures next year.

The change in lending practices, driven by APRA which strengthened its limits in March, has already been felt in Sydney, where listings are up on a year ago and prices are level-pegging. It is changing the nature of a residential market dominated by the two largest cities. 

“It’s an entirely different spring market,” said Louis Christopher, the managing director of consultancy SQM Research. “This time last year, listings were abnormally low and demand was abnormally strong. As the season moved on, you have the situation where listings were even less because vendors were so fearful of not being able to buy back into the market.

“This time round we’re not having that. We’re having more listings, a lot less buyers in the market. Days on market are increasing, particularly in Sydney . Listings have picked up – not at the oversupply levels – but they’ve picked up.”

It’s not bad news – a slowdown was needed in the overheated Sydney and Melbourne markets – but the environment that is now so hostile towards investment borrowing is sowing the seeds for soaring rental prices in two years’ time as lack of new housing stock to accommodate a rising population creates a fresh round of affordability problems in the rental market. 

Right now, however, in the two biggest cities the momentum is gathering in the first-home buyer segment of the market. Even as new loan commitments to investors fell, lending to first home buyers jumped 6.5 per cent in July to $2.9 billion from the previous month – putting them 29 per cent above the same month a year earlier, before adjustment for seasonal fluctuations. 

Driven by stamp duty exemptions and discounts in Victoria and NSW for first home buyers, that is giving a boost to lower-priced suburbs. The northern Melbourne suburb of Reservoir is for a sixth straight weekend the suburb with the highest number of auctions nationally, CoreLogic figures show. 

“Finally we’re on the map and people are realising there’s good value,” said Ross Kontossis, an agent with  Barry Plant realty. While Reservoir’s median house price of $846,000 is beyond most first-time buyers, demand for townhouses and apartments has surged since the tax changes started in July, Mr Kontossis said.

“There’s no doubt that that has impacted the off-the-plan sales,” he said. “We’ve seen two-bedroom units literally jump $50,000 overnight because of the stamp duty cuts.”

But not even surging first home buyer sales can take up the space left by retreating investors. Demand won’t disappear, but it will mean a weaker market as was seen in figures last week showing Sydney home values were unchanged in August and Melbourne prices rose just 0.5 per cent

“The upper end of the market will not be supported by first home buyers at all,” Mr Christopher said. “The upper end will only be supported by upgraders, which potentially are still there – they’re still getting lower interest rates and are still able to borrow with few restrictions.”

A further factor hitting the top end of the market could be the rising dollar. The Australian dollar soared to a two-year high against the US dollar on Friday and if sustained, could dent demand for residential property from an overseas Chinese market of buyers that investment bank UBS says is highly responsive to currency changes.  

In his speech to a Finsia lunch on Friday, Mr Byres suggested APRA is not yet willing to taper these policies.

“Given the environment that we are in – high house prices, high household debt, low interest rates and subdued income growth – that scrutiny won’t lessen any time soon,” he told the packed Ivy Ballroom in Sydney. 

APRA has insisted banks adopt more stringent assessments of whether borrowers can repay loans and to build in interest rate buffers in serviceability assessments, in order to prevent rapid house price gains from destabilising the housing markets. But his comments on Friday indicate APRA is not convinced that banks are actually adopting these policies comprehensively in practice. 

“We’ve therefore looked harder at actual lending practices, seeking additional assurance that tighter loan policies are actually translating into more prudent lending decisions.” 

Mr Byres also called on the banks to adopt the government’s ‘comprehensive credit reporting’ reforms, which will require banks to report ‘positive’ credit history to the bureaus in addition to histories of defaults, which he said could help ensure all pre-existing debts of borrowers are known, and can then be factored into loan assessments. The banks have been dragging their heels on CCR for several years