October 31, 2017 / 11:01 PM / a year ago

Australia home prices hamstrung in Oct as watchdog bites

SYDNEY, Nov 1 (Reuters) - Home prices across Australia’s major cities went flat in October as Sydney suffered a second month of falls, as regulators’ efforts to rein in investment lending continued to bite.

Property consultant CoreLogic said its index of home prices for the combined capital cities was unchanged in October, from September when it edged up 0.3 percent.

Annual growth in prices slowed to 7.0 percent in October, from 8.5 percent in September and 10.5 percent mid-year.

“The slowdown in the pace of capital gains can be attributed primarily to tighter credit policies which have fundamentally changed the landscape for borrowers,” said CoreLogic head of research Tim Lawless.

The impact was clearest in the once red-hot market of Sydney where prices fell 0.5 percent in September, while annual growth braked to 7.7 percent.

Melbourne proved more resilient, thanks in part to strong population growth, and prices rose 0.5 percent in the month taking the annual pace of gains to 11.0 percent.

A slowdown is much desired by the country’s bank watchdog which has tightened standards on investment and interest-only loans, leading banks to raise rates on some mortgage products.

“Lenders have tightened their servicing tests and reduced their appetite for riskier loans, including those on higher loan to valuation ratios or higher loan to income multiples,” said Lawless.

The Reserve Bank of Australia (RBA) has also been concerned that debt-fuelled speculation in property could ultimately hurt both consumers and banks.

Conditions varied widely across other cities, with Hobart rising 12.7 percent on the year while prices in Perth fell 2.5 percent.

Outside the cities, prices were flat for the month to be 4.9 percent higher for the year.

The RBA holds its November policy meeting next week and is considered certain to keep rates steady again, in part because further easing might only encourage more borrowing by already heavily indebted households.

The inexorable price rise in the major cities has taken homes out of the reach of many first-time buyers and become a political hot potato.

The conservative government of Malcolm Turnbull has blamed a lack of supply for the problem, while the opposition Labor Party has pointed the finger at favourable tax treatment for property investment. (Reporting by Wayne Cole)

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