The banking regulator will impose restrictions on home loans from early next year to limit the number of “high-risk” large loans being issued to customers, which could have major implications for home prices.
The Australian Prudential Regulation Authority (APRA) will impose so-called macroprudential restrictions on home loans from February 1, meaning that no more than 20 per cent of a bank’s new loans can have a debt-to-income (DTI) ratio of more than six.
For example, a household with an annual household income of $100,000 a year receiving a loan greater than $600,000 would be counted towards that limit.
The regulator says the 20 per cent cap will apply separately to investor and owner-occupier loans, to avoid the risk of investors “crowding out” owner-occupier buyers.
APRA said the 20 per cent cap was expected to bite harder for investors, who tended to borrow more relative to their incomes.
The Australian Prudential Regulation Authority’s chair, John Lonsdale, said the banking regulator was acting pre-emptively to head off risks generated by a booming housing market.
“One of the key structural risks to system stability that APRA has long been concerned about is high household indebtedness,” he noted in a statement.
“Rising indebtedness has in the past often been associated with an increase in riskier lending and rapid growth in property prices.”
Government welcomes move, Greens call for tougher investor limits
When asked in a media briefing whether the treasurer, Reserve Bank and other regulators had been consulted about the move, Mr Lonsdale confirmed they had.
Treasurer Jim Chalmers released a statement this morning backing the regulator’s action.
“These are important changes that will help with financial resilience and housing affordability,” he argued.
“It’s about managing emerging risks in our financial system and will help people into the market.”
However, Greens Senator Barbara Pocock, who recently wrote to the treasurer and APRA calling for macroprudential intervention in home lending, said the limits were not tough enough.
“$40 billion has gone to investors in the last three months, and APRA and Chalmers need to stop the tens of billions flowing to investors,” she said.
“APRA must use all the tools in their toolbox to rein in investor lending that is exacerbating the housing affordability crisis.”
Few banks and borrowers likely to be affected
The regulator said, overall, only about 4 per cent of new owner-occupier loans and 10 per cent of new investor loans were above the six-times income threshold, but added that there was a small number of institutions that were already near or above the 20 per cent cap.
“Although broader risks are contained, we have seen in the past that they can build rapidly when interest rates are low or declining, borrowers extend themselves and competition among banks for new mortgage lending intensifies, which can lead to easing lending standards,” Mr Lonsdale warned.
“We will consider additional limits, including investor-specific limits, if we see macrofinancial risks significantly rising or a deterioration in lending standards.”
APRA said bridging loans and loans for the construction of new dwellings would be excluded from the cap in order to avoid wider disruptions across the home building sector and keep out of the way of federal and state government ambitions to increase new home building.
