Treasury warns on housing downturn risks, backs go slow on mortgage brokers

Australian Financial Review Feb 20, 2019 11.43am

Matthew Cranston

Treasury Secretary Philip Gaetjens has warned that "falling house prices could also cause consumer spending to be weaker than forecast" and said "care must be taken" on mortgage broker reforms.

Mr Gaetjens told an estimates committee that government needed to remain fiscally disciplined at a time where debt to GDP was now at 14.6 percent and risks were now falling house prices.

"With new risks emerging it is vital that discipline be maintained," Mr Gaetjens said.

"Falling house prices could also cause consumer spending to be weaker than forecast."

Mr Gaetjens wouldn't give any view as to where Treasury's next forecasts were likely to land but said that "the downside risks appear to be more intensified" than they were at the mid-year budget update.

"Central forecasts remain solid but there is an accumulation of risks domestically and internationally. We are paying attention to those risks...but to pre-empt what is going to be in the budget..."

Mr Gaetjens cautioned against using the banking royal commission findings to push too hard on reforming home loan brokers at the cost of removing competition from big banks.

"Treasury did express a strong view to the role of mortgage brokers in maintaining competition."

"It is important that care be taken to not damage and where possible enhance competition among the banks."

He did assuage the concerns around house price falls by emphasising the historic ramp up in house prices noting they rose 50 per cent across the combined capital cities and that they were were now 35 per cent higher than 2012 prices.

"It is important to put some context around growth."

"There are quite a few inter-playing factors. We are looking at prices coming back but no where near how much they went up. The primary driver is supply and demand and what is happening on top of that... there is more paper work to be done to comply with landing standards.

"Sometimes people used to be awarded a maximum credit amount but people never used to use that."

"The pace at which house prices accelerated has not caused us an issue."

Finance Minister Mathias Cormann acknowledged "there are downside risks both externally and internally".