The top 20 locations most impacted by lending curbs

A further lending clampdown seems increasingly likely for the housing market, and house prices in locations in Sydney and Melbourne may be the most impacted in the immediate term.

Lending curbs looming

The market regulator APRA has already announced changes to serviceability buffers, and there may be caps on debt-to-income ratios to follow next year.

The rules are likely to reduce the borrowing capacity of homebuyers. The most impacted property types will be family homes in areas where the price to income ratios have already become stretched, especially beyond the $1 million to $1.2 million-plus price range, where many dual-income households will cap out. In the price brackets under $1 million, we should expect to see less impact on the market.

Buyers are likely to remain active but may need to adjust their budget and expectations slightly if the changes occur.

Further cooling measures in 2022 could include restrictions to borrowers at more than six times income, potentially including floor assessment rate changes.

Some borrowers might still move to non-bank lenders, offsetting the restrictions to some degree. However, 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.

The top 20 impacted locations

Locations in Greater Sydney and Greater Melbourne where house price to income ratios are already well above six times may be impacted to some degree. Our analysis highlights twenty locations where the median house price to household income ratios are 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 on market dynamics. These changes would not be as dramatic as those experienced through the macroprudential measures of 2017. Still, they would have a temporary cooling effect on highly leveraged housing market sectors in Sydney and Melbourne.

State GCCSA 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 99,788 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 Brisbane 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 
NSW Rest of NSW Richmond – Tweed 921,703 599,107 55,588 10.8 
NSWSydney Sutherland 1,647,747 1,071,036 102,908 10.4 
NSW Melbourne Mornington Peninsula 1,036,896 673,983 67,756 9.9 
NSW Rest of NSW Shoalhaven/S. Highlands 855,695 556,202 56,732 9.8 
NSW Sydney Parramatta 1,185,882 770,823 79,040 9.8 
WA Perth Inner Perth 1,571,020 1,021,263 106,028 9.6 
NSW Sydney Baulkham Hills and Hawkesbury 1,680,838 1,092,545 118,040 9.3 
NSW Sydney Central Coast 908,791 590,714 65,416 9.0 
QLD Rest of QLD Sunshine Coast 899,962 584,976 65,520 8.9 
NSW Rest of NSW Illawarra 952,391 619,094 70,304 8.8 
Figure 1 – Top 20 SA4 regions impacted by lending curbs / Source: RiskWise Property Research, CoreLogic

Incomes are high in Canberra, so that market might be less impacted, while much of the money driving the market in Queensland is coming from the southern capital cities.

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 cash flow outcome. But the top end of the market, dominated by owner-occupiers, will likely see some cooling.

There has been some pull-forward of enquiries and demand as property buyers look to lock in mortgage pre-approvals before the advent of any such changes. There is a sense of looking to get moving in advance of any potential restrictions, especially now that one-to-one inspections have become a possibility in Melbourne again.

Summary of impacts

Over the long term, changes to lending rules are unlikely to impact housing prices, but they will likely change the shape of the lending market in the short term.

Overall, expect to see fewer first home buyers active in 2022, with the stimulus measures wearing off and borrowing power for single income earners being reduced. But investors will be active, especially up the $1 million price range.

Are you looking to buy a property before the lending changes come into effect? Get in touch with us today, to see how our experienced buyers agents can help you find the right property at the right price.