Franchise CEO blasts APRA investment decision

by Adam Smith23 Dec 2014
The CEO of a major franchise has criticised APRA’s decision to cap growth on investment lending.

Mortgage Choice chief executive Michael Russell has taken aim at APRA, saying he is “astonished” the regulator “has shackled the banks with a 10% annual growth cap on investment lending”.

Russell said APRA’s decision undercut the ability of Australians to save for their future.

“Australians are being encouraged to grow their wealth to be able to self fund their retirement years and many do so by investing in property. And now we have a regulator working at odds to this very fundamental and crucial requirement. It doesn’t make sense.”

Russell said current market conditions were positive for property investors, with rising household equity levels, low interest rates and stiff competition between lenders.

“These conditions combined have helped drive a 9.9% increase in credit growth to investors over the past year, which is making regulators nervous, mainly because of the growth in property prices relative to household incomes. However, the risks APRA’s actions pose to housing demand, construction employment and broader economic activity are very concerning,” he said.

Russell argued that the timing of APRA’s decision made little sense.

“While I could possibly understand if APRA announced its desire to curtail growth in investment lending 12 -18 months earlier when dwelling price growth was surging, I can’t fathom why they would want to do it now given annual dwelling price growth has cooled from 11.4% to 8.5% in the past 8 months without any need for regulatory interference. Property investors are assessed for finance at prudent buffers over current interest rates with sound legislation in place to ensure that loans granted to property investors are not unsuitable.  It’s also worth noting that advance mortgage repayments are presently at historical highs.”

Russell said current economic conditions made the decision a risky one.

“We have much more to lose if this APRA intervention goes ahead and slows down investor housing demand and broader economic activity. Why? Because Australia is presently at a very critical juncture as we transition from the final phase of the mining boom to construction.  A strong demand for investment property is crucial to this transition.

“Unemployment is already on the rise, especially in the mining sector where employment numbers fell by an alarming 10.2% in the 4 months to August this year.  To risk increasing unemployment in the construction sector just makes no sense. Thankfully employment in real estate services and construction is up 16.5% and 2.8% respectively over the past year. The Australian economy needs this trend to continue, not go backwards due to unnecessary regulatory supervision constraining the construction industry.

“It is also worth noting that seasonally adjusted GDP growth in the September quarter was a paltry 0.3% or just 1.2% when annualised. This alone should be enough reason for the regulator to be restrained.  Of the 0.3% growth, 0.2% came from Financial and Insurance Services.

“Then consider that consumer sentiment this month plunged 5.7% and is at its lowest level since August 2011. Consumer spending and investment is likely to be very constrained in the coming months - yet here we are trying to cool-down those who are game enough to consider investing in property to grow their wealth and self fund their retirement. 

Moreover, Russell said the decision could have knock-on effects beyond the investor market.

“Finally, what APRA may not realise is that any decision to cap investor lending could further restrict first home buyers entering the market.  Our research clearly shows first home buyers are increasingly choosing to buy an investment property before an owner occupied property as it allows them to buy where they can afford and still live where they want to. 

“Moving forward, I would hope that the state and federal governments give this decision a lot more consideration and soon take the lead in a consultative phase with APRA.”