RBA considering restraints on investor lending. Good news for first home buyers?

There has been much public debate in recent times about significant increases in residential property prices, particularly in Sydney and Melbourne as a result of increased buyer activity by property investors. Whilst this has not yet hit Adelaide, any action by the Reserve Bank of Australia (RBA) to curb investor activity will have an impact Australia wide as the tools that RBA can use to influence the economy are applied nationally.

Initial reports were that RBA was considering changing Loan to Security Value (LVR) ratios to reduce investor activity. This would mean that investors would have to additional equity to borrow for investments, say at least 20 per cent whereas currently they can get away with as little as 5 per cent. However, information provided by RBA at a senate enquiry yesterday revealed that they now believe such measures would have little impact as investors usually have equity in other property(ies). The RBA is now looking at alternative controls, such as increasing the serviceability requirements for investors applying for finance. This means that investors would have to evidence they have a greater capacity to meet interest rate rises and other costs than those applying for a loan to buy their own house.

If this action is successful in reducing investor activity, it should also result in a slow down in the escalation of house prices or possibly a reduction in house prices. This would be good news for first home buyers who often struggle to have sufficient equity to contribute towards the purchase of a property. Stabilising &/or reduced property prices will reduce the amount of equity required.

RBA assistant governor Malcolm Edey and head of financial stability Luci Ellis said yesterday, measures to curb investor lending are expected to be announced before the end of the year.

To read more about this click here.