First home buyers, and the broader property market, will be the first victims if a proposal from the Reserve Bank of Australia to tighten lending standards is approved.
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 Real Estate Business, 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 and rents will be impacted further."
Pointing to historical data, Mr Tarbey believes lending standards are at excellent levels at the moment and don’t need to be touched.
“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.”
Mortgage aggregator Vow Financial chief executive Tim Brown was also critical of the Reserve Bank’s idea because “you cannot protect a consumer from themselves”.
“The buffer only works if the consumer does not commit themselves to new debt once the mortgage is completed,” he told Real Estate Business's sister title The Adviser.
“Unfortunately, in my experience, once the consumer has their new home, they then decide they need new furniture, new appliances and a new car.
“None of the institutions that supply credit for these retailers are required to apply the same interest rate buffer that mortgage lenders do when calculating the customer’s ability to repay now and into the future.”