Single-income earners would be worst hit by home loan limits

“When restrictions were introduced to cool the Australian housing market in 2017, the stated aim was clearly to quell the risks of too much interest-only lending, especially to investors, which had become very prevalent at that time,” Mr Wargent said.

Those aims, he noted, were achieved, as interest-only lending is no longer a systemic risk in Australia. Mr Wargent said that with new measures looking to tighten high debt-to-income lending, “single-income earners might find that they can’t borrow as much next year, which will make life tricky for those struggling to get into the housing market.”

Doron Peleg, CEO of RiskWise Property Research, agreed, noting that regulators were taking a keen interest in lending at debt-to-income levels of above six times, which has been increasing since the third quarter of 2020.

“There has been some low deposit lending through the first-home buyer stimulus and boom, but that’s now largely washed through. So, that leaves higher debt-to-income lending as the sector of the mortgage market most likely to be targeted by curbs in 2022.”

“In plain English, borrowers might not be able to borrow as much next year, and those with single incomes will likely be the most impacted,” Mr Peleg said.

In Mr Wargent’s opinion, debt-to-income caps would change the shape of the mortgage market, with some lenders likely reducing their volume of lending at higher multiples of income, while others might consider stepping into the fold or increasing mortgage sizes to compensate.

The impact of similar measures introduced in other markets is helping to set expectations. Mr Wargent noted that in the UK, for example, comparable regulatory changes prompted an increase in joint borrowers and a decline in first-home buyers on a single income.

“The benefits to financial stability are up for debate,” he said of the RBA’s potential plans. “But it’s very likely that such a move would knock more first-home buyers and single-income earners out of the market, at the expense of higher-income upgraders and joint income loan applicants.”

Mr Wargent sees the more affordable capital city suburbs gaining popularity next year as a result of any changes. Before that happens though, he suggests first-home buyers assess their options. 

“First-home buyers looking to make their move may be wise to do so before any such restrictions come into play.”