Bank boss in housing boom fear

‘Take steps sooner, not later’

COMMONWEALTH Bank has split from the banking pack by calling for the implementation of “modest” measures to rein in the housing boom, saying it is “increasingly concerned” about the prospect of mortgage stress.

Appearing before the House economics committee on Thursday, CBA chief executive Matt Comyn said he was not particularly concerned about the current state of the market.

However, it was prudent to take proactive regulatory action “sooner rather than later” to avoid harsher measures in the future, like those taken in New Zealand. “If we look at the simple numbers and the relative growth rate of housing over the last 12 months, I am not concerned per se about the period just gone,” Mr Comyn said.

“But in terms of increasing housing debt and increasing house prices, we are increasingly concerned.

“We think it would be important to take some modest steps sooner rather than later to take some of the heat out of the housing market.”

Appearing before the same committee, ANZ Bank chief executive Shayne Elliott said the bank had also been concerned about the level of household debt.

But Mr Elliott said it was important to understand with a “high degree of clarity” the precise problem that the measures were designed to address. CBA is the first of the major banks to make the call for macroprudential measures to restore some stability to the runaway housing market, where prices are expected to lift by about 20 per cent this year before moderating in 2022. The core of the bank’s concern was the likelihood of housing credit growth outstripping the outlook for wages growth, with Mr Comyn commenting that it was much harder to act when the market was accelerating.

With interest rates currently at record lows, borrowers could take on too much debt, creating elevated stress if rates were to spike.

Any associated impact on consumption levels could have adverse implications for the wider economy.

Mr Comyn said the strength of the market was different to the investor and interest-only booms, which led to the introduction of macroprudential speed limits in 2014 and 2017. The most appropriate regulatory action this time around was to limit borrowing capacity by raising the banks’ serviceability floor, which measures a customer’s capacity to make repayments in a higher rate environment.

The problem, according to the CBA chief, was more macro than prudential, because there was no evidence of a widespread decline in lending standards.

“An increase in the (floor servicing rate) is very easy to implement and could apply to non-banks as well as banks,” he said.