APRA just moved to put a rocket under Australian house prices in 2019

PHOTO: The big four banks

Australian house prices have been falling since mid 2017, but today the banking regulator APRA just handed homeowners and property investors some great news likely to see Australian house prices head higher once again in 2019.

The regulator scrapped its rule that lenders must assess home loan applications on the basis that the borrower is able to pay back the loan at an interest rate of 7%. This rule had prevented major lenders such as the Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC) and National Australia Bank Ltd (ASX: NAB) from extending as much credit to home buyers.

The less applicants are permitted to borrow, the less they can afford to spend on a property so new rules that mean banks will be able to set their own interest rate floors for use in serviceability assessments should theoretically send Australian house prices higher once again in 2019.

APRA has stipulated the banks must use an interest rate buffer of at least 2.5% over the loan’s rate to help avoid mortgagor’s defaulting. It has justified the move on the back of the RBA taking benchmark lending rates to a record low 1%.