Josh Frydenberg gives financial regulators green light to high debt home loans clamp down

A major crackdown for home loans is on the cards to stop a growing problem caused by historically low interest rates and surging property prices.

More than one in five home buyers are borrowing more than six times their income, prompting the Treasurer to consider stepping in to crack down on home loans.

Josh Frydenberg has met with financial regulators to discuss the hot housing market, and given them the go ahead to consider clamping down on high-debt home loans in order to minimise risks caused by historically low interest rates and surging property prices.

Regulators could announce within the coming weeks or months new limits to high-debt loans, as concerns about the amount of debt being taken on by lenders increases.

In the June quarter, the number of new residential mortgages where debt was at least six times greater than income jumped to 21.9 per cent, up from 16 per cent in the same quarter last year.

Figures from APRA show that 21.9 per cent of Australians have a home loan more than six times their income. Picture: NCA NewsWire / Nikki Short

The jump has prompted concerns that some borrowers could fail to meet their loan repayments if interest rates rise or they lose their jobs.

Financial regulators are now considering plans to potentially clamp down on the increasing rates of high debt-to-income ratio borrowers, but must find a way to do so without hurting first home buyers.

It’s predicted any clamp down would affect investors as they are the group more likely to take on more debt.

Treasurer Josh Frydenberg said ongoing risk assessment was needed in the hot market. Picture: NCA NewsWire / Martin Ollman

Mr Frydenberg said a positive feature of this housing boom compared to the last was a higher proportion of first home buyers and owner-occupiers entering the market, but risk assessment needed to be ongoing.

“With Australia’s economy well positioned to strongly recover as restrictions ease, it is important to continually assess the appropriateness of our macroprudential settings,” he said.

“Last Friday I joined the Council of Financial Regulators to discuss a range of issues, including the state of the housing market with is a particular focus for both Australian Prudential Regulation Authority and the RBA.

Mr Frydenberg said APRA had a range of tools available to ensure ‘targeted and timely adjustments’ to the home loans system. Picture: NCA NewsWire / Nikki Short

“We must be mindful of the balance between credit and income growth to prevent the build-up of future risks in the financial system.

“Carefully targeted and timely adjustments are sometimes necessary.

“There are a range of tools available to APRA to deliver this outcome.”

The Council of Financial Regulators will publish their next quarterly statement on Wednesday.