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APRA says fewer home loans a 'good thing'
Australian Financial Review Oct 20 2016 4:45 PM
Joanna Mather
The prudential regulator says tighter lending standards have been successful in slowing loans to investors, thereby taking some of the heat out of the housing market.
Asked whether it had also eased apartment risk, Australian Prudential Regulation Authority chairman Wayne Byres said "we would certainly hope so".
In a Senate estimates hearing a day after Treasury secretary John Fraser admitted the country's high cost of housing was a "worry", Mr Byres was asked about the effects of APRA's tighter lending standards on growth in the housing lending market.
"Over the past year, we believe the industry has appreciably improved its lending standards," he said.
"[That has] probably had the effect of slowing the growth in credit for housing and we think that's a good thing, because we did have a concern that credit was growing very strongly, particularly credit to investors."
"In some cases that was being achieved by a lowering of lending standards we thought that was probably not a wise thing."
APRA imposed a 10 per cent growth cap on bank investor loan portfolios. It also forced the big four banks and Macquarie to increase the amount of regulatory capital they hold against their mortgage loan books, starting in 2016.
Banks were giving fewer loans to marginal borrowers which on balance was a "good thing for the system", Mr Byers said.
But with house prices and household debt remaining high and wages growth subdued, it was still "time for caution".
"We think we have improved lending standards. That has had the effect, probably, of meaning there are a few less housing loans being given, particularly to marginal borrowers and we think on balance that's a good thing for the system."
"What you hope through all of this is banks are making sensible loans to people who can afford to pay it back. And if banks do that, it's in everybody's best interests."
Apartment market risk
Mr Byres was asked whether the tighter standards had eased risk, specifically in the apartment market.
"We would certainly hope so," he said. "That's not to say the risk is not there and there are many other drivers. But certainly making sure that people are not over-extending themselves as they are taking on finance, and if we take some of the competitive heart out of the current market, we think that's a good thing."
Mr Byres said because housing lending accounted for 60 per cent of bank lending portfolios, APRA always paid particular attention to the area.
"What we've done this calendar year that's perhaps had less attention ... is that we've spent a bit of time looking at who is financing the developers.
"We have been looking at the way in which a lot of these new inner-city apartments in particular have been developed, financing that, and on what terms and conditions that has been financed."