Debt-to-income limits would primarily affect investors, but new buyers could be caught in the crosshairs
Tightening debt-to-income mortgage limits would primarily affect investors, but some first-home buyers in the expensive Sydney and Melbourne markets could feel the pinch unless concessions are made, analysts said.
The Australian Financial Review reported Tuesday that Treasurer Josh Frydenberg has given the nod to regulators to potentially use macroprudential measures to curb rising debt-to-income ratios in an effort to cool the red-hot housing market. New home loans where debt is at least six times greater than income spiked to a record-high 22% in the June quarter, from just 16% a year earlier, according to data from the Australian Prudential Regulation Authority.
“It’s a very steep jump because of the acceleration in house prices,” Will Peterson, executive director at Rhizome Advisory and former head of credit at APRA, told AFR. “A debt-to-income limit would take some of the heat out and have a more durable impact. Such a measure would impact more leveraged investors than owner-occupiers without an investment property.”
A debt-to-income limit could stop investors from buying several properties by preventing them from using rising asset valuations to reduce their loan-to-valuation ratios in order to borrow more, AFR reported.
Read more: Frydenberg gives nod for regulators to curb housing boom
While such curbs would primarily impact investors, some first-home buyers and other owner-occupiers in expensive markets could be caught in the crossfire. APRA could avoid this by carving out concessions for first-time buyers and lower-value properties, or making geography-based rules for more expensive markets, analysts said.
However, APRA typically avoids complex rule-making to dodge opening up loopholes that can be exploited, AFR reported.
“APRA typically wants to make it as simple as possible and use data the banks already collect,” Peterson told AFR.
