In March 2017 tighter credit controls were placed on interest only loans on offer to investors.
This was simply following on from overall tighter credit controls on investors introduced by the banks in recent years, following on from Government regulatory changes. Access to credit has become more difficult for investors. These changes have finally made an impact on the asset values of Australian residential property. The major capital of Sydney has seen median property prices falling in the second half of 2017 & in Melbourne the price growth has slowed. Auction clearance rates in these two capitals are at multi year lows as reported by Cameron Kusher research analyst at ‘Corelogic’. Supply & demand conditions will continue to come more into balance as investors see less likelihood of capital growth in property in the short to medium term. That further places less pressure on residential property prices.
Turning to interest rates, the Government is well aware of the level of high household debt in Australia & therefore they are likely to keep pressure on the banks to sustain strong credit controls & would not like to see rates fall further as this could reignite stronger credit growth. Notwithstanding that, the Government are also cognisant of the fact that interest rate rises could have a significant negative effect on household consumption & spending because of those high household debt levels. Given these two positions it is highly likely that we would see an environment of stable interest rates for the foreseeable future. I’ll qualify this of course by saying that this is only considering domestic factors & as an example, a rise in US interest rates could mean a subsequent forced rise in Australia.
A stable interest rate environment is not such a bad thing & can at least provide some certainty for both residential home loan & business borrowers alike.