Will APRA’s property regulators ever act to cool house prices?
APRA says risky loans, not rising house prices, would cause a loan crackdown – and that doesn’t worry them at the moment.
With record interest rates and rising house prices, Australians are taking on heavy debt to enter the market. The APRA regulator is cautious but not alarmed at this time.
Speaking at the AFR Banking Summit Earlier this week, APRA Chairman Wayne Byres said that while household debt and house prices are both rising, current data “does not show major signs of a return to higher risk loans “.
Byres also stated that “we [APRA] do not have the mandate to target the level of housing prices or to act to improve housing affordability. For us, house prices are a risk factor, not a target. “
Byres acknowledged that rising prices and low interest rates could cause institutions to take on more risk, such as “more relaxed lending standards, loosening of portfolio limits, or simply not adjusting to changes. market developments “.
APRA will only act, if it feels the need to, if there are clear signs of irresponsible lending and borrowing. Real estate prices are one of them, but rising prices alone will not motivate APRA to curb lending.
What can APRA do to cool the real estate market?
In 2017, APRA took steps to limit the amount of loans granted to investors and the amount of interest-only loans (types of loans considered to be higher risk). These restrictions, along with the more cautious lending environment sparked by the Royal Commission on Financial Services, have resulted in lower house prices.
But unlike 2017, current price growth is largely driven by homeowners, including first-time buyers. Investor activity is declining.
Byres said two other risk factors were income borrowing and loan to value ratio, both of which are increasing. In other words, a growing number of borrowers taking on large debts on low incomes and buying expensive properties with deposits below 20% are signs of a risky credit environment.
This would prompt APRA to introduce restrictions. But “there does not appear to be any immediate cause for alarm. Nor, however, for complacency,” Byres said.
Australians are definitely borrowing more. In the most recent ABS loan figures, Australian mortgage loans rose 48.8% this year. Borrowing hit a record high in January, with a slight drop in February.
But for now, APRA is convinced that this does not represent a risk. And the RBA is unlikely to raise interest rates just now. Federal government wants to make lending even easier with reforms of the national consumer credit protection law.
Will anything, or anyone, stop Australian house prices from skyrocketing beyond the sun? Several connoisseurs told Finder recently that the market will regain a natural equilibrium by 2022 because rates can no longer fall and the market could “run out of steam”.