Lending warning issued to banks

THE nation’s financial watchdogs are on alert amid signs of “increased risk taking” in the booming housing market, with the prudential regulator seeking assurances from the major banks that lending standards haven’t dropped as borrowers rush to secure larger loans.

The Council of Financial Regulators, made up of the Reserve Bank, Treasury, the Australian Prudential Regulation Authority and the Australian Securities and Investments Commission, held its quarterly meeting on June 11 and determined that, overall, lending standards in Australia remain sound.

But with house prices set to rise further in the coming months, the council emphasised the need for lenders to proactively manage risks in their portfolios.

“Over the past few years owner-occupiers have accounted for most of the increase in household borrowing. The demand for credit by investors has been subdued, but is now increasing,” the council said in its quarterly statement released on Thursday. “There have been signs of some increased risk taking recently, but overall lending standards in Australia remain sound.

“APRA has written to the largest Authorised Deposittaking Institutions (ADIs) to seek assurances they are proactively managing risks within their housing loan portfolios, and will maintain a strong focus on lending standards and lenders’ risk appetites.”

The powerful financial council also said it was paying close attention to the implications of trends in household debt, as it flagged the possible introduction of macroprudential policies to take some of the heat out of the market.

“(Members) discussed the risks that could build if growth in household borrowing substantially outpaced that in income, as well as potential policy options to address these risks,” it said.

House prices across the nation have surged this year as the economy marked a swift turnaround from the hit it took through 2020, with residential property prices jumping 5.4 per

cent in the March quarter, in the biggest rise since 2009.

Australia’s home market is now worth more than $8 trillion, while average dwelling prices in NSW have pushed above $1m for the first time.

The housing boom this time around has not been confined to the east coast, with values up by more than 1 per cent in every capital city in May, building on the gains of prior months.

CoreLogic’s home value index jumped 2.2 per cent in May, while in March the index recorded a 2.8 per cent rise, a 32-year high.

Economists see house prices rocketing up to 15 per cent this year as investors push into the booming market, with UBS’ George Tharenou not expecting APRA to intervene until November.

New Zealand’s central bank, also grappling with a hot housing market, this week said debt-to-income restrictions on mortgages would be “the most effective additional tool” in taking some heat out of the market, by reducing investor activity without undermining first-home buyers.

APRA may employ a similar tool if it does indeed step in to protect against the risk of overleveraged borrowers.