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Rates and property: What’s in store for 2015?

Interest rates, property prices, property investors: What’s in store for 2015?

Will they or won’t they, was the main question being asked at the end of last year – cut rates that is. While most of the talk from 2014 was around when rates would rise, towards the end there was some talk that another cut, or even two, might be on the horizon.

Some fund managers came out to say that the falling commodity prices and cooling housing market would force the Reserve Bank of Australia’s (RBA) hand in this area.

 

What happened last year?

Last year was also one where property investors remained well and truly in the spotlight. They continue to cause concern to regulators who say they are driving the rise in house prices, especially in capital cities, which may lead to a property price bubble.

And if you did invest in property, it’s likely you did quite well, especially if you bought in any of the capital cities. The CoreLogic RP Data Home Value Index found combined capital city home values rose 7.9 per cent over 2014. However, the annual rate of capital gain across capital cities continued to slow. The capital gain on houses, compared to units, was higher – 8.4 per cent and 5.1 per cent respectively.

The survey also found that at an individual capital city level, the annual rate of home-value growth is now lower than its recent peak, suggesting the peak value growth has now passed.

 

But what is the outlook for 2015?

The regulator will remain keeping a watching brief on the investor market. They remain less concerned about owner-occupiers and first-home buyers. The build-up of credit to investors is an issue and talks have taken place between RBA governor Glenn Stevens and the Australian Prudential Regulation Authority (APRA) around what can be done to reinforce sound lending standards.

There has already been mention of macro prudential controls on high-risk lending and these remain on the agenda as a tool to slow lending. Examples of these macro prudential controls include capping loan-to-value ratios, capping debt-to-income ratios or stress-testing borrowers’ capacity to cope with rising rates.

APRA has also written to banks requesting them to set out their plans to reinforce sound residential mortgage lending practices, stating that it will be “further increasing the level of supervisory oversight on mortgage lending in the period ahead”.

APRA’s announcement around lending may lead to restrictions on the availability of finance for investors. Lenders may be required to keep growth in their investor loan portfolio to around 10 per cent and this is likely to dampen the pressure around investor-related property demand.

Meanwhile, the Australian Securities and Investments Commission (ASIC) will investigate interest-only loans, and both banks and non-bank lenders will be questioned about their behaviour around property markets.

ASIC, APRA and the RBA are working together on the investigation, which will “monitor, assess and respond to risks in the housing market”, ASIC said.

 

Strong housing market still needs a strong economy

Overall, 2015 is likely to be another positive one for property owners, especially as the consensus builds for another rate cut – some economists are predicting the first may happen by April this year

Any cuts in rates should give the market a boost but with more supply coming on the market, price-growth is expected to be softer.

One deterrent against a stronger housing market is the economic outlook, which continues to weaken, especially with regard to the jobs market. While the high unemployment rate may be a driver behind rates being cut, without economic conditions improving, and a corresponding increase in confidence, lower rates may end up having little significant effect on housing markets.

Unless crystal balls have improved in recent times, we’ll just have to wait and see what the year brings.

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Gayle Bryant

Gayle has been a financial and business journalist and sub-editor for almost 30 years. She has written for a wide range of newspapers, magazines, custom and trade press and websites. Gayle’s articles regularly appear in the Sydney Morning Herald’s small business section and the Australian Financial Review’s special reports section.

The opinions expressed in this article are the opinions of the author(s) and not necessarily those of Homeloans Ltd.