Credit restrictions are possible later in 2021
13 Mar 2021

RiskWise Property Research CEO Doron Peleg says that credit restrictions are possible later in 2021 to slow down a firing housing market.

"APRA's previous market intervention in 2017 to slow down the pace of investor and interest-only lending showed that targeted measures can be very effective in reshaping the trajectory of the housing market".

Figure 1 – Housing credit growth 1992 to 2018

Figure 2 – Dwelling price changes during credit squeeze

"This time around the dynamics are different. In fact, the share of investor loans has been very low, and the stock of interest-only loans as a share of total mortgage debt is now at record lows and falling" Mr Peleg said.

Figure 3 – Interest-only lending


"Therefore, were any regulatory restrictions to be required later in the year, the measures might take a different policy approach".

"For example, in New Zealand loan to value restrictions have been put in place this year, alongside further tightening measures for investors, and this is expected to slow down the very fast pace of growth in housing prices as 2021 progresses."

"Australia's housing market is only just heating up now, and capital city prices are still tracking at around 2017 levels, so there will be no urgency to bring in credit restrictions."

Pete Wargent, co-founder of said that already there are the first signs of sellers becoming more willing to bring properties to market, and that the new supply was welcomed by all market participants, especially estate agents who have been starved of stock. 

"We've seen several property market frenzies over the years, and they do turn to die of old age eventually, as more sellers look to capitalise on their gains and as buyers become more circumspect as the cycle progresses" Mr Wargent said.

"Only a few short months ago some high-profile commentators were making bold (if largely substantiated) claims about a housing market calamity, so it's a bit of a stretch to say that the supply of credit should be throttled back already. We still have many borrowers on deferred mortgages too, and tighter lending restrictions will do nothing good for them" Mr Wargent said. 

"My opinion is that unless there's been clear evidence of pro-cyclical deterioration in lending standards, macroprudential measures should ideally be set and forget. Constant fine-tuning makes it very tough for market participants, including homebuyers and developers, to make important life and business decisions in good faith".

"Applying macroprudential measures as an independent arm of stabilisation policy complicates the task and accountability of the Reserve Bank. We have record low wages growth and a lot of slack in the labour force, while total credit growth was benign at just 1.7 per cent last month."

"The last thing we need is more restrictions right now. New measures should only be brought in if it becomes essential to slow the market towards the end of 2021" Mr Wargent said.

Mr Peleg of RiskWise said that macroprudential measures tended to have a greater impact on investor stock and the types of properties favoured by investors, such as off-the plan apartment purchases and high-rise units. 

"Buyers should try to focus on properties with a high level of owner-occupier appeal, as these will tend to be less affected by regulatory intervention" Mr Peleg said. 

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