APRA Cautions Banking Sector on Housing Bubble
- Simon. B
- Apr 5, 2017
- 2 min read
The Australian Prudential Regulation Authority (APRA) has addressed growing concerns over the Australian housing market this week with a protective, though dire, message to Australia’s major banks; curb mortgage lending or risk contributing to another housing-led financial crisis.
Coming in the wake of the Reserve Bank of Australia announcing it will hold the cash rate at 1.5 per cent for the 12th consecutive month in a row, APRA has announced measures to “reinforce sound residential mortgage lending practices in an environment of heightened risks”. In their statements they outline the fundamentals which they advise the banking sector to follow if they wish to maintain Australia’s high investment opportunities while mitigating contributions to a potentially disastrous housing crash:
Limiting flow of new interest-only lending to 30 per cent of total new residential mortgage lending
Manage lending below the 10 per cent benchmark
Review of current buffers and rate checks
Restraint of lending in high risk portfolios
Yet with the rising prices of properties in major housing markets like Sydney and Melbourne, where according to property data group ‘CoreLogic’ property value has risen by as much as 1.4% this month alone along with drawing the annual combined growth rate to 12.9%, are these warnings coming too little too late or are they overblown? Some banking insiders are already disregarding the projected outlook, with Australian Banker's Association’s (ABA) new head Anna Bligh bulking at the idea even though she admits to keeping a “close eye” on the stretched market. Even the Prime Minister Malcolm Turnbull has taken a strong stance against any major reform measures, such as Negative Gearing, in the face of opposition from both the ALPand the Greens, while the issue of foreign investment disrupting regulation efforts also rearing its head. Despite all this, watchdog groups have been in unison; take caution in your investments, with Australian Securities and Investments Commission (ASIC) chairman Greg Medcraft warning "we don't want to see that people have put themselves in over their heads, and when rates rise they can't afford to pay their mortgage". Coupled with APRA’s stark calls for action, it’s a sure prediction that no matter the political banter and calls for calm, there is a need in the house sector for reform and regulation.
