Mortgage brokers on high alert
Warning of housing recession
THE mortgage broking industry has warned that the nation risks a “housing recession” if financial regulators overplay their hand while implementing measures to rein in the current boom.
Industry groups expressed their concerns after the Council of Financial Regulators said on Wednesday it had discussed possible measures to curb the boom.
Finance Brokers Association of Australia managing director Peter White, who represents 8500 mortgage and finance brokers, said the market was overheating but regulators had to be extremely careful to avoid unintended consequences.
“One of the risks in lifting serviceability rates, which has been proposed by some banks, is that borrowers become mortgage prisoners because they can’t refinance even if the repayments would be lower,” Mr White said.
“Any measures to curb the boom must have a clear rationale, otherwise there’s a risk of a housing recession. So we would oppose higher floor rates if there are no accompanying measures to ensure borrowers can refinance.”
The Customer Owned Banking Association added its voice to Mr White’s concerns, urging regulators to take care to avoid anti-competitive effects on smaller banks. Any policies, it said, should be carefully targeted at a “clearly identified problem” so mutual banks and first home buyers were not disadvantaged.
RateCity research director, Sally Tindall, said any new macroprudential policy measures must be carefully considered. “Record low rates mean people can borrow more without blowing the budget, but what is blowing out are loan sizes,” she said. “Measures designed to curb people’s borrowing power will help prevent some from taking on risky levels of debt, however, first home buyers must be supported in the process.”
Officials have been flagging the climbing number of mortgages made at more than six times the borrower’s income will be the key focus of any potential intervention.
Just under 22 per cent of new mortgages in the June quarter were at debt-to-income ratios above six – versus 16 per cent a year before, according to bank regulator APRA. Two individuals each on a full-time median wage of about $90,000, at a debt-toincome ratio of six, could jointly borrow up to nearly $1.1m.
Jarden chief economist Carlos Cacho said regulatory intervention later this year was “absolutely possible”.
“The risk is that Australian households are building up too much debt at a time of record low rates,” he said. “If we think forward two or three years when the RBA will want to raise rates, that certainly leaves the economy more vulnerable and could reduce consumption sharply if rates do rise.”