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Investors to flourish at FHBs' expense

13 March 2014 Steven Cross

A new proposal from the Reserve Bank of Australia (RBA) to tighten lending standards would reduce first home buyer numbers, leaving room for further investment activity.

RBA governor Glenn Stevens told parliament last week that to reduce risk in the housing market lenders should be forced to set a higher benchmark for borrowers.

Mr Stevens suggested borrowers might have to prove they could repay their loan not just at the current rate but at 300 or 400 basis points higher, compared to the current buffer of 200 points.

Speaking with Residential Property Manager, Charles Tarbey, owner and chairman of CENTURY 21 Australasia, believes such an action would significantly impact the property market.

“We know this will impact the property market because New Zealand made a change late last year. While that was to do with loan-to-value ratios, not stress testing, we have seen that playing with borrowing capabilities affects the property market, particularly for first home buyers," he said.

“They’re talking about how difficult it is for first home buyers to get into the market now, well this will just make it even more difficult.

“The shift will go back across to the investor... which isn't neccesarily a good thing. Not only will first home buyers not be able to buy a property, but rents will start to increase as a result."

While landlords may relish the oppurtunity to purchase property with less competition, Mr Tarbey believes that overall, the proposal wouldn't be beneficial to the market.

“Lending standards are substantially better than they used to be," he said. "If you look closely over the last few years, the defaults ratio is significantly lower. That should be telling them that whatever they’re doing right now is working reasonably well.”

Investors to flourish at FHBs' expense
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