Hello (APRA) it’s me, I was wondering if after all these years you would like to meet. To go over everything…
In late 2014, the Australian Prudential Regulation Authority (‘APRA’) burdened the banks with a 10% investment loan growth cap and MoneyQuest Managing Director, Michael Russell, is convinced they did so without any consideration of the unintended consequences.
“Staunchly opposing prudential intervention, I have always favoured free markets to find their own equilibrium.
APRA’s response to reign in investor housing has been so short-sighted, that it’s further fuelled my support of uninterrupted markets.
Let’s look at what APRA has really done.
They have simply abrogated the real decision making to our banks.
Think about that for a moment – APRA have instructed the banks to curb investment housing demand – something that is diametrically opposed to a banks DNA.
In the animal kingdom, it would be akin to instructing lions not to hunt antelope.
How have the banks unilaterally responded?
This really should come as no surprise (remember the lions) – they have increased investment loan interest rates!
And not just on new investment loans but on existing investment loans as well.
While APRA and the banks might think this seems like a good idea, those of us who have worked at the coalface know full-well that a 25-50 bpt increase has, and will continue to have, a zero impact in deterring investors.
Let’s not even contemplate for a minute the irony that raising mortgage interest rates is actually counterproductive to mortgage stress – which is what APRA is trying to negate!
Back to unintended consequences, what we are seeing at the coalface is actually quite disturbing.
Towards the end of each month, some banks are becoming so fearful of breaching the cap they are electing to cancel purchase settlements and rebook next month.
When this happens the consequences can be particularly dire, not only for the purchasing investor but particularly for the unfortunate vendor who is often dependent upon the sale of their property to fund a simultaneous purchase. The vendor of that second purchase is then an unwilling participant in the collateral damage that is impacting far too many hardworking everyday Australians.
So let’s now turn our attention to these evil property investors.
These everyday Australians who, because they are now living longer, are being encouraged by the Federal Government to self-fund their retirements.
That’s right, these everyday Australian’s who are investing in real estate to grow their personal wealth, are being targeted by APRA and harassed – under APRA’s instructions – by the banks.
Some market commentators and almost every economist – local and overseas – have branded them virtual outlaws!
In recent weeks, I have witnessed first-hand the personal toll being inflicted on far too many of our unsuspecting clients.
My question to APRA and the Federal Government is ‘Do you really want every-day Australians to stop saving and investing in property in favour of doing nothing and praying the Government can fund their massive pension liabilities in the years to come?’
After more than two decades of compulsory superannuation, predictions are that most baby boomers will be unable to fully fund their retirement and be forced to survive on the aged pension.
If only they had been encouraged to work hard and invest in Australian real estate!
At the outset, I made it very clear that I am against prudential intervention of any kind – however if APRA is intent on interfering to cool the housing market, then it must, at the very least, consult with ALL stakeholders to at least minimise the short and long term distress of everyday Australians” said Michael Russell.
Established in 2007, MoneyQuest was founded with a clear goal – to make property ownership easy and rewarding for everyday Australians. MoneyQuest has over 50 offices across Australia helping thousands of families and investors build their financial future – from first home ownership right through to retirement. More information on MoneyQuest.
Money Quest Australia Pty Ltd, Australian Credit Licence 487823.Michael Russell
(03) 9583 6598