Lending restrictions to affect single income earners

The Reserve Bank of Australia dropped its strongest hint yet that macroprudential measures may be introduced to curb the property market in 2022. And this time around, the rules will impact single income earners the most.

Use of credit restrictions to curb the market

When the credit restrictions were introduced to cool the Australian housing market in 2017, the aim was to quell the risks of interest-only lending, especially to investors, which had become very prevalent at that time. Those aims were achieved, and interest-only lending is no longer a systemic risk in Australia.

The looming changes to the lending market may knock on single income earners and first home buyers out of the property market.

Investor credit growth is clearly on the rise; however, we need landlords in the market, as rental vacancies away from the Sydney and Melbourne CBD areas are as tight as we’ve ever seen them.

Share of interest-only lending by value
Figure 1 – Share of interest-only lending by value

The low deposit lending experienced through the first homebuyer stimulus and the boom has now largely washed through, leaving higher debt-to-income lending as the mortgage market sector most likely targeted by lending curbs in 2022.

Regulators are, in particular, taking a keen interest in lending at debt-to-income levels of above six times, which has been increasing since last year. This may mean that borrowers might not be able to borrow as much next year, and those with single incomes will likely be the most impacted. Thus, making it tricky for those struggling to get into the housing market.

Housing loan characteristics
Figure 2 – Housing loan characteristics

The top 10 affordable suburbs list 

We have a shortlist of affordable suburbs around the states that we recommend buyers look at, especially first homebuyers and single-income earners.

The impacts of lending curbs 

Although there might be some marginal impact on reducing mortgage default risks, the curbs would be most likely to impact single-income earners. Similar measures have been used in other markets, including the UK, and the results were mixed. For example, there was a sharp increase in joint income borrowers but a marked decline in first homebuyers on a single income. 

The benefits to financial stability are up for debate. Still, such a move would likely knock more first homebuyers and single income earners out of the market at the expense of higher-income upgraders and joint income loan applicants. 

We think the more affordable capital city suburbs will be very much in focus next year. First homebuyers looking to make their move may be wise to do so before any such restrictions come into play. 

We recommend using an experienced mortgage broker to confirm the available budget and possible borrowing reduction for financial guidance. A licensed buyers agent from our national network would also be able to help research more affordable properties and plan the property buying process to help singles and inexperienced buyers avoid some of the most common property-buying mistakes. 

Are you looking to buy a property? Talks to us today to find out how we can help you.