Cam McLellan is a property investment specialist, the co-founder of OpenCorp and the bestselling author of "My four-year-old the property investor".
What we saw in 2013 – 2017 wasn't unusual, given the market cycle. Sydney's median house price rose 75%, and in 2014 – 2018 Melbourne's median house price rose 59%. What happened next was a test of APRA's power over the market. It showed it could pull its levers to ensure our property markets maintained safe, consistent growth.
By February 2017: APRA was alarmed that 60% of Sydney property purchases were interest-only investment loans. This meant 60% of properties in Australia's most expensive market, at the end of a major growth phase, were being bought by speculators trying to get rich quick. The banks had to slow this down. APRA realised that too many investors were trying to buy at the end of a market growth period (and were potentially about to lose money when a correction occurred). So, they put measures in place to protect investors from buying in an overheated market.
APRA brought the sledgehammer down. It introduced major restrictions on lending to investors, which caused a massive reduction in borrowers who qualified for lending, which led to a slowdown in demand for housing. Sydney and Melbourne median house prices reduced accordingly. This was an expected market correction after the high growth.
By October 2017: APRA had instructed banks to reduce their proportion of interest-only loans to 30% by 31 October. The banks had to move fast to accommodate this, so they introduced massive incentives for borrowers to move from interest-only to principal-and-interest loans.
By December 2018: With the 30% cap achieved, APRA knew its levers had worked. It removed the cap and the market started to loosen. Prices started to rise due to genuine pent-up demand, rather than speculation. APRA had done its job.
From 2019 onwards
These days, there’s a significant gap between owner-occupier home loan rates and investor rates, but APRA has loosened lending restrictions, making it easier for investors to get finance approved. The government and APRA are confident that they have the levers to use when required, they are confident that our financial industry is "unquestionably strong".
