couple money concerned
Many dual income households in the ten areas have already stretched their borrowing capacity. Image – Canva.
  • APRA announced tightening serviceability tests for new mortgagees a few weeks ago
  • Homebuyers in Sydney and Melbourne have already stretched their borrowing capacity
  • Many buyers are bringing purchasing plans forward to avoid the new tests

With the Australian Prudential Regulatory Authority (APRA) recently announcing the tightening of serviceability tests for new mortgages, national property buyers agency network BuyersBuyers has found the top 10 locations that will be impacted the most by the changes.

Pete Wargent said the changes on debt-to-income ratios are likely to reduce the borrowing capacity of homebuyers, especially in areas where price to income ratios are already stretched in the $1 million to $1.2 million price range.

“In the price brackets under $1 million, we should expect to see less impact on the market,” he said.

“Buyers are likely to remain active but may need to adjust their budget and expectations slightly if these changes are pushed through.

“Further cooling measures could include restrictions to borrowers at more than six times income, in addition to floor assessment rate changes.”

Pete Wargent, BuyersBuyers

“Some borrowers might still move to non-bank lenders, offsetting the restrictions to some degree, but we still think the higher end of the market will be impacted most in 2022, while units look like good value in Sydney and Melbourne now, relatively speaking.”

Sydney and Melbourne to be impacted most?

RiskWise Property Research’s Doron Peleg said locations in Greater Sydney and Greater Melbourne will be impacted the most, given house price to income ratios are already above six times.

“Our analysis highlights twenty locations where the median house price to household income ratios are at around nine times or above. In these locations, a reduction in borrowing capacity of potentially up to 15 per cent would have a noticeable impact of market dynamics,” he said.

“These changes would not be as dramatic as those experienced through the macroprudential measures of 2017 but would have a temporary cooling effect on highly leveraged sectors of the housing market in Sydney and Melbourne”.

10 areas most impacted by lending curbs 

State GCCCSA SA4 region Median house price Loan amount – 65% LVR Household Income House price/median household income
NSW Sydney Eastern Suburbs $3,850,759 $2,502,993 $112,476 22.3
NSW Sydney North Sydney & Hornsby $2,871,751 $1,866,703 $121,316 15.4
NSW Sydney Northern Beaches $2,676,173 $1,739,512 $113,256 15.4
NSW Sydney Inner West $2,293,545 $1,490,804 $102,128 14.6
NSW Sydney Ryde $2,236,606 $1,453,794 $99,312 14.6
VIC Melbourne Inner East $1,948,445 $1,266,489 $91,312 13.9
VIC Melbourne Inner South $1,878,414 $1,220,969 $93,236 13.1
VIC Melbourne Inner North $1,687,385 $1,096,801 $88,348 12.4
NSW Sydney City & Inner South $1,867,331 $1,213,765 $98,488 12.3
NSW Sydney Inner South West $1,360,973 $884,663 $74,412 11.9

Source: BuyersBuyers, RiskWise and CoreLogic.

In terms of other markets, Canberra could be less impacted due to the high levels of income already in the nation’s capital.

“We believe property investors will remain active overall, simply because rental prices have been rising, and the cost of borrowing has moved considerably lower, making for an attractive cashflow outcome. But the top end of the market, dominated by owner-occupiers, will likely see some cooling,” he added.

Mr Wargent noted that data shows there has been some pull forward of enquiries and demand as buyers are keen to lock in mortgage pre-approvals before the full extent of lending curbs are felt.

“There is a sense of looking to get moving before lending curbs impact borrowers, especially now that one-to-one inspections have become a possibility in Melbourne again.”

“Over the long-term, changes to lending rules are unlikely to have much impact on housing prices, but in the short term, they will likely change the shape of the lending market. I’d expect to see far fewer first homebuyers active in 2022, with the stimulus measures wearing off and borrowing power for single income earners being reduced.”

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