2018: the year getting a mortgage will become harder

National housing prices are officially in decline. There are a couple of issues those in the market for a house and those with a mortgage should be looking at in 2018.

The first is, what is the increasing difficulty buyers will have in securing a loan for residential property? The other is, will there be growing pressure to pay down the mortgage while interest rates are still low?

There will undoubtedly be ramifications for the broader economy if too much household income is being funnelled into reducing debt and taken away from general spending.

The punt for 2018 will be predicting how far house prices will fall.

Based on the expectations of most economists, mortgage holders have between nine and 18 months of the current record low interest rates before the Reserve Bank will begin the process of moving them up towards more long-term historical norms.

Spurred by the growth in house prices, household debt held by Australians has more than doubled in the past 12 years. A recent report from the Australian Bureau of Statistics said almost 30 per cent of households fell into the class of "over-indebted".

Numerous analysts have described the levels of mortgage stress as significant in various pockets across the country, particularly in mining communities in Western Australia and Queensland.

The financial regulator, the Australian Prudential Regulation Authority, has already moved to curb the growth in investor loans and interest-only loans - thus pushing bank lenders to give more favourable interest rates to owner-occupier and interest and principal borrowers.

Therefore, 2018 should see more of a focus on measures to ensure over-extended households pay down loans.

It was the move by regulators that put a cap on the growth rates in property. APRA engaged in the first of its macro-prudential moves in 2015, but the impact was offset when the RBA twice dropped interest rates.

Last year's second attempt by APRA was far more successful at putting the brakes on house price gains and (over the past month) putting them into reverse.

Corelogic's Tim Lawless takes the view that in 2018 "we are likely to see lower to negative growth rates across previously strong markets, more cautious buyers and ongoing regulator vigilance of credit standards and investor activity".

This time around, the Reserve Bank is not likely to repeat previous mistakes and lower interest rates.

The declines in national housing prices should now be sustained.

Figures released in late December by the Reserve Bank showed housing credit grew by only 0.4 per cent in November - the slowest in 20 months. This took the annual rate of housing credit growth to 6.4 per cent. Not surprisingly, growth in investor loans slowed proportionately more than loans to owner-occupiers.

Lawless points out that when the cycle moves down from peak to trough, so does the level of transactions. This will put pressure on credit growth.

Already, we have seen a fall in clearance rates as seller expectations have not adjusted to what is now a fall in prices.

Meanwhile, and not surprisingly, Sydney has been the main culprit in pushing down the national value of the residential property market. Its prices were the hottest among the capital cities and had the largest portion of investors.

It has taken a few months but Melbourne has now joined its northern neighbour. Thus, the new game for pundits is guessing how far and how fast house prices will fall.

On the more conservative side some economists predict Sydney house prices will fall by about 5 per cent in 2018 (they have already dropped by more than 2 per cent over the past three months).

At the other end of the spectrum there are those anticipating it could fall by more than 10 per cent - an outcome which could represent a bursting of the property bubble rather than a managed deflation.

The most important factor in maintaining a gradual easing in prices will be continued low unemployment.

The other swing factor will be what happens to interest rates. Despite some projections from economists that the RBA will move rates up mid to late 2018, the central bank will be keeping a very close eye on the housing market and will be loathed to become accountable for any precipitous fall in house prices.

Low wages growth and inflation and very weak consumer spending will provide it with the conditions to retain interest rates at 1.5 per cent.

Interest rates are more likely to go nowhere this year.

This story 2018: the year getting a mortgage will become harder first appeared on The Sydney Morning Herald.