POSITIVE DEVELOPMENTS FOR AUSTRALIAN HOUSE PRICES
By Rebecca Lowe
After a decline in Australian housing prices during 2018 as a result of credit lending, auction clearance rates, foreign demand and house price expectations, many property analysts believed house prices could decline a further 5% – 15% in major capital cities during 2019.
However, the last few weeks have seen some positive developments that could alter the trajectory for house prices, with the fall no longer as low and house prices reaching the bottom sooner than predicted. Some of these positive developments are outlined below.
First Home Loan Deposit Scheme
One of the promises to come from the recent Federal election was the government’s pledge to assist first home buyers under a ‘First Home Loan Deposit Scheme’. The scheme aims to help first home buyers purchase a home with a deposit as low as 5%, with the government guaranteeing the remaining 15% of a typical 20% deposit required by lenders. The initiative is designed to help first home buyers save their deposit faster, and eliminate the need to pay lenders mortgage insurance.
Proposed removal of minimum interest rate guidance by APRA
Currently when assessing whether borrowers can afford their repayment obligations, Authorised Deposit Institutions (ADIs) use a minimum interest rate of at least 7%, including a 2% interest rate buffer, as per the guidance provided by The Australian Prudential Regulation Authority (APRA).
APRA have now written to ADIs proposing to remove this minimum guidance, instead allowing ADIs to set their own minimum interest rates provided there is a 2.5% interest rate buffer used in their assessments.
APRAs minimum guidance was first implemented in December 2014 in an attempt to restrain soaring house prices and increasing investor loan growth. With interest rates at record lows and likely to remain at these levels for some time, the proposed changes are a recognition of the current interest rate environment, although APRAs expectation of ADIs to maintain sound lending standards remains unchanged.
Removal of the threat to negative gearing and capital gains tax
The re-election of the Coalition government also removes the threat of changes to negative gearing and capital gains tax proposed by the Labor government. Labor’s proposals included restrictions to future negative gearing arrangements and halving the capital gains tax discount and whilst there is no guarantee that these changes may not be put forward again in the future, the immediate threat is removed.
Whilst the election result and proposed lower lending criteria offers support for home buyers, we are unlikely to see a rapid turnaround in house prices. Low interest rates, high levels of household debt and subdued wage growth are still weighing on the property market with nationwide house values down an average 8% since their 2017 peak.
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