Australia tweaks loan buffers to cool the red-hot housing market

Banking regulators in Australia have increased the minimum interest-rate buffer required by lenders when evaluating home loan applications, citing the growing risk of financial stability from a growing housing market.

The Australian Prudential Regulatory Authority told lenders that it expects to evaluate the ability of new borrowers to complete repayments of loans that are at least 3 per cent higher than the rate of production of the loan. This is higher than the 2.5 per cent mark currently used by banks.

Asset prices are falling in response to extremely low interest rates, a phenomenon seen in the developed world as central banks simplify policies to support economies in times of crisis. The International Monetary Fund has called on Australia to curb lending, citing rising housing prices and raising questions about affordability and economic stability.

Su-Lin Ong, head of Australian Economic and Fixed, said: “This is in line with what we were expecting, albeit a little early, and will help boost credit growth, especially for those who are more indebted and for investors.” Income Policy in the Royal Bank of Canada. “If this fails to slow credit growth, we will expect further macro-pruning measures.”

Australia will hope to cool the housing boom, not crush it

Speed ​​is being set for debt controls, a central bank official was tasked with overseeing financial stability in a speech last month, and the latest statement from the Financial Regulatory Board says APRA plans to publish a paper on its framework for implementing macroprudential policy. The next two months. Treasurer Josh Friedenberg has also spoken on the subject.

“In taking action, APRA is focused on ensuring that the financial system remains secure, and banks are lending to borrowers who can afford the level of debt they are taking out – both today and in the future.”

Financial regulators are struggling to keep up with rising credit and red-hot property markets without hindering the recovery of the economy. The Reserve Bank has consistently said it does not expect rates to rise as early as 2024 – the only way to curb tight lending rules on the property market.

Matt Comin, chief executive of the Commonwealth Bank of Australia, said the decision would help remove some of the heat from the housing market. Shares of CBA, the country’s largest mortgage lender, fell 2.3% in Sydney by 11:05 a.m., with rival lenders making more quiet moves.

“We think this next step will provide additional relief for borrowers and is a prudent solution for lenders,” he said in an e-mailed statement on Wednesday. “We will implement the changes this month and expect that additional steps may need to be considered once the lockdown is over and customer confidence increases.”

The rise in house prices in Sydney and Melbourne is despite the long lockdown, and rising household debt raises questions of financial stability. The RBA has refused to tighten policy to cool property prices – unlike South Korea, and New Zealand’s central bank appears to be preparing for Wednesday’s meeting – instead focusing on pushing the economy towards full employment.

Prices go up
Nationally, prices have risen more than 10 times wages, creating a major barrier to first-home buyers’ access and highlighting the negative side of the RBA’s emergency stimulus. Australia already has the highest debt-to-income ratio in the developed world.

Data on Friday showed that prices rose 17.6% in the first nine months of this year.

About one in five new loans are being approved at a level six times the borrower’s income, which is seen as high risk. The RBA is concerned that over-extended families will find themselves in a precarious position if they lose their jobs or eventually raise rates.

The average valuation of Australian banks for determining borrowing capacity is currently at a high interest rate of 5.4%, which is almost 2 percentage points lower than the 7.3% used two years ago.

In 2017, when prices were rising, Australia’s banking regulator imposed restrictions so that home lenders would have to limit interest-only loans विशेष especially those favored by investors एकूण to 30% of total new residential mortgages. At the time, they were running close to 40%.

Disclaimer: The views, suggestions, and opinions expressed here are the sole responsibility of the experts. No Economyessential journalist was involved in the writing and production of this article.

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