More behind APRA moves than just housing price growth

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The head of the Australian Prudential Regulation Authority (APRA) has defended recent efforts to slow down lending to investors in front of federal government inquiry into home ownership.

In recent months APRA has written to banks urging them to keep the year-on-year growth of lending to investors at or below 10% and has also required major banks to hold more capital against their mortgage books.

Speaking at the House of Representatives Standing Committee on Economics Inquiry into Home Ownership, APRA chairman Wayne Byers said these moves were “common sense.”

“We have requested banks to take a prudent view of borrower income, ensure they are not underestimating a borrower’s living expenses, and allow for the fact that interest rates will not always be as low as they are today,” Byers said.

“None of this should be seen as anything other than common sense,” he said.

While many have speculated that APRA’s actions have been spurred on by the continual growth of house prices in Sydney and Melbourne, Byers said the regulator was looking at the much bigger picture.

“It is important to note that APRA’s concerns are not driven solely by housing price growth in the major markets of Sydney and Melbourne.

“Our objective has been to ensure that in the broader environment of high house prices, high household debt, historically low interest rates and subdued income growth - along with strong competitive pressures within the financial system - sound lending standards are maintained across the board.”

Byers said while the full effect of the regulators recent move of forcing bank to hold more capital against their mortgage books would not be felt for some time, it would be interesting to see how the move affects the balance between major and non-major lenders.

“Given implementation is still 11 months away, it is too early to assess the impact of this change on the housing loan market.  

“The extent to which those banks are capable of repricing their business in response will provide an interesting insight into the extent to which the largest banks are subject to competitive pressure from the range of other housing lenders present in the market.”

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