Out of cycle rate rises “biggest risk” to property market

by Miklos Bolza15 Mar 2017
While the likelihood of a nationwide correction in the residential mortgage market is slim, thanks in part to action by the regulators over the past few years, interest rate changes by the banks may still pose a significant danger.

In a speech at the Urban Taskforce Industry Breakfast yesterday (14 March), Sholto Maconochie, head of Australia real estate at brokerage and investment firm CLSA, said that although these rate increases are necessary, they need to be carefully considered.

“The biggest risk that we see is more out-of-cycle rate rises by the banks as they have to face stiffer APRA requirements in terms of lending, investors, FIRB buyers and also around their NIMs being preserved as funding goes up,” he said. “So we see more out-of-cycle rate rises from RBA into the resi market.”

With rates at 4% with discounts for the average owner-occupier, Maconochie noted that a rise of over 1% would shock the market and create higher levels of mortgage stress.

However, the banks would be considering this risk internally within their forecasts as well as in consideration with APRA’s prudential guidelines, he added.

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