Potential lending restrictions proposed to address rising house prices
Investor borrowing for residential property has increased by $10 billion since the Reserve Bank of Australia (RBA) began lowering interest rates, leading to renewed calls for national lending restrictions to contain further rises in house prices.
In the quarter ending September, investors secured over $40 billion in mortgages, with most funds directed towards existing dwellings. Since the central bank began easing rates in February, property values in all capital cities have outpaced inflation.
This surge in investor activity has prompted speculation that the Australian Prudential Regulation Authority (APRA) may reintroduce macroprudential measures to limit investor lending, despite expectations of fewer rate cuts ahead.
Between 2014 and 2017, APRA implemented measures such as a 10% annual growth cap on investor loans and a 30% ceiling on interest-only lending to moderate the housing market. During that period, Sydney house prices were rising at nearly 20% per annum.
“APRA has a good record of regulation and supervision of the banking sector, and it has demonstrated historically that it has the tools available – and the ability to step in, when required – to tackle any potential system risks,” said Nico DeLange, banking analyst at S&P Global Ratings, in a report by The Sydney Morning Herald. “We expect APRA to tap these sorts of tools again, if necessary, to support financial system stability in the Australian banking system.”
Matt Wilson, analyst at Jarden, observed that investor housing loan growth is currently around 7.3% annually, below the 10% threshold previously set by APRA. “They would certainly be thinking about it. It might be prudent to put the brakes on,” he said. “A rate of growth of about 10% might start to raise the eyebrows.”
Following APRA’s previous intervention, the Reserve Bank of Australia (RBA) found that house prices in areas with fewer investors rose about 7% more than in investor-dominated regions. The RBA attributed two-thirds of this difference to APRA’s policies. The central bank also noted that the rules indirectly affected developers’ access to finance for new housing projects.
An APRA spokesperson previously stated that Australian banks are required to maintain strong financial and operational standards, including “unquestionably strong” capital levels and “sound lending standards for each and every loan".
“We are engaging with banks on implementation aspects of different macroprudential tools to manage lending risks, which may include limits on new high debt-to-income lending, or limits on new investor or interest-only loans,” the spokesperson said.
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