Stricter rules for home lending in Australia reflect the regulator’s concern over potential property bubbles more than a move to crush the market amid an economic recovery, analysts said.
The Australian Prudential Regulation Authority, or APRA, on October 6 asked banks to assess the ability of new borrowers to meet repayments on their loans at an interest rate at least 3 percentage points above the rate. of loan proceeds, compared to the previous buffer of 2.5%. points, to ensure the safety of the financial system.
“APRA is concerned about the credit growth induced by lending to heavily indebted borrowers, ”said Nico DeLange, banking analyst at S&P Global Ratings. “As a general rule, the tools used must manage the risk. We haven’t quantified the impact, but lifting the sustainability cushion will reduce the borrowing capacity of new, heavily indebted borrowers. ”
House prices are likely to remain high due to low interest rates, supply constraints and the arrival of new migrants once borders reopen, according to Ratings’ July 2021 banking outlook.
The stricter rules on home loans came as no big surprise to Omkar Joshi, Director at Opal Capital. “I think today’s changes will have some impact on the housing market, but they are not as big as they might have been if APRA had imposed low interest rates or low rates. caps on high yield debt, ”Joshi told S&P Global. Market Intelligence in an email.
APRA President Wayne Byres said while the banking system is well capitalized and lending standards have been maintained, the increase in the share of heavily indebted borrowers and indebtedness in the household sector in general means that medium-term risks to financial stability are mounting.
Low Australian interest rates and rising house prices have put pressure on household debt. The Reserve Bank of Australia, or RBA, lowered its benchmark rate to a record low of 0.10% in November 2020 to support the economy during the COVID-19 pandemic. House prices in eight capital cities rose 16.8% in the fiscal year ended June, according to an Australian Bureau of Statistics report released on September 14. The country’s economy grew 9.6% in the fiscal year ended in June, although RBA Governor Philip Lowe said The latest outbreak of the delta variant of COVID-19 halted the economic recovery and gross domestic product is expected to have declined slightly in the September quarter.
APRA said the new requirements will have a fairly modest impact on overall housing credit growth. The regulator is not trying to target the level of house prices, but it does want to ensure that mortgages are carried out with caution. APRA has said it is not ruling out further measures in the future.