RBA, APRA should curb investor loans: David Murray

The Australian 12:00am February 13, 2017

Michael Roddan

David Murray, the head of Australia’s financial system inquiry, says the regulators’ 10 per cent limit to growth of investor loans is not enough to slow down fast-paced investor lending, which is creating complex instability in the debt-laden housing market.

Mr Murray, a former Commonwealth Bank chief executive, also urged governments to consider increasing the use of lenders’ mortgage insurance to pool risk in the market and get more owner-occupiers and first-home buyers into the market.

The comments come after two cuts to the official interest rate last year by the Reserve Bank reignited rampant lending to property investors, with current rates of lending labelled a “concerning development” by analysts, given the banking regulator’s attempts to slow runaway house price growth and record-high levels of household debt.

On Friday, Australian Prudential Regulation Authority chairman Wayne Byres reaffirmed the regulator’s commitment to its 10 per cent annual “speed limit” on the growth of ­individual banks’ investor loans, which appeared to slow lending to property investors up until last year’s federal election.

But a number of analysts, along with Mr Murray, believe the rate is too generous, as evidenced by the recent pick-up in investor lending.

Growth in investor lending across the nation was rising at an annual rate of more than 10 per cent until September 2015, but slowed to as low as 4.5 per cent in August last year, following APRA’s crackdown. Since then, it has steadily increased and reached 6.2 per cent, year-on-year, APRA data showed.

But according to December’s data, investor lending is rising at an annualised 10.1 per cent, ­putting growth potentially above the limit. “It seems no doubt that activity in the market is still strong,” Mr Murray told The Australian.

High rates of investor lending sparked many concerns as household debt — at a world- leading 187 per cent of income — was reaching potentially unstable levels, he said.

“APRA and the Reserve Bank should consider doing more on investment housing. I don’t think it’s entirely healthy,” Mr Murray said.

“It’s concerning that house prices should be so high and household indebtedness should be so high. It presents a future risk to the economy, so I’d be in favour of more being done.”

Investor loans now account for 40 per cent of all lending and house prices continue to streak away from the control of the ­regulators.

The RBA’s statement on monetary policy on Friday noted the central bank was concerned a flood of new apartments in Sydney and Melbourne could push down prices and trigger heavy losses for developers. The IMF also warned of Australia’s ever rising household leverage.

“If there are more investors in the market and the market ­softens, you’re more likely to have forced sales in the market — there’s less stability in this kind of market,” Mr Murray said.

The Australian understands APRA has recently told the banks to get investor lending under control, which may explain recent hikes to investor loan rates across the system. Lenders also hiked investor loans out of cycle in mid-2015 when APRA found the lenders weren’t complying with the growth limit.

But one big problem with an individual lender limit of 10 per cent is that an investor can easily find business at another bank that is growing under the limit.

Suncorp chief executive ­Michael Cameron said last week that as other banks neared the APRA limit “it does provide more opportunities to lend to ­investors because they naturally come our way”.

“If the amount of loans were filling up all the banks, then it is an effective regulation. But if one bank from time to time gets to the limit, it probably is less effective,” he told The Australian.

While a number of lenders have, for periods of time, frozen new loans to investors, last week Commonwealth Bank said it would start turning away investors who wish to refinance. While CBA’s investment lending is leading the four major banks, it is still under APRA’s limit, at 7.2 per cent, year on year.

But according to Martin North of Digital Finance Analytics, CBA is growing at an annualised rate of 10.3 per cent.

“Investment lending has been running hot, much due to investors seeking to refinance to avoid recent price hikes,” he said. “Ten per cent is, in our view too high.”

But AMP chief executive Craig Meller said the “macroprudential settings are pretty smart” in achieving the slowdown. AMP in 2015 froze investor loan approvals after it exceeded the limit.