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Australia’s housing market is expected to continue to weaken during 2018 as tighter lending restrictions from banks start to bite.

Property data analytics group CoreLogic expects dwelling price falls across Sydney, and to a lesser extent Melbourne, will lead a national fall in home values next year.

Driving the fall, will be the restrictions on interest-only loans introduced by banking regulator the Australian Prudential Regulation Authority’s earlier this year, CoreLogic head of research Tim Lawless says

Since April, interest-only mortgages have been capped at 30 per cent of lenders’ new residential lending and Mr Lawless says as a result, the growth in house prices has gradually lost steam during the year.

Overall prices were flat in October and November and Sydney values started to edge lower from September, he said.

Mr Lawless said when APRA introduced a 10 per cent benchmark for growth in lending to investors in December 2014, it caused a national housing downturn in the following years.

House prices dropped one per cent from September, 2015 to March, 2016.

‘The first round of macroprudential measures introduced by APRA resulted in a temporary slowdown in the market,’ Mr Lawless said.

‘However, a loosening of credit availability and lower mortgage rates threw a lifeline to the housing market.

‘We don’t expect to see a lifeline thrown to the residential property market in 2018.’

Mr Lawless said the RBA would likely keep interest rates on hold during 2018, with lower rates unlikely because they would counter the controlled slowdown in the housing market, while any rise would stifle household consumption and business investment.

‘Regulators and policy makers will be encouraging households who hold high levels of debt to reduce their exposure while rates remain low,’ he said.