Regulators eye lending controls amid hot property market

Financial regulators have signalled they are ready to step in to stop any slip in loan standards as the homes market explodes again.

Reserve Bank of Australia Governor Philip Lowe is keeping an eye on the housing market. Picture: Getty Images

The nation’s key financial regulators have declared they are ready to step in and curb any signs of bad lending, as evidence grows that low rates and a robust economic recovery from the COVID recession have reignited a property market boom.

In a quarterly statement released on Wednesday, the powerful Council of Financial of Regulators, which is chaired by Reserve Bank governor Philip Lowe and includes APRA chairman Wayne Byres, ASIC chair James Shipton, and Treasury secretary Steven Kennedy, said it was “closely monitoring developments” in the housing market.

As new borrowing surged to record highs in January amid the fastest house price growth in 17 years, the co-ordinating body for Australia’s main financial regulatory authorities said it would “consider possible responses should lending standards deteriorate and financial risks increase”.

The strong signal of intent comes after Dr Lowe inserted a comment into Tuesday’s RBA board meeting statement that “lending standards remain sound and it is important that they remain so in an environment of rising housing prices and low interest rates”.

ANZ senior economist Felicity Emmett said she expected so-called “macroprudential restrictions will be introduced later this year”.

Ms Emmett said residential property values may climb by more than the 10 per cent growth predicted for this year, “but signs of easing lending standards will be the trigger for the regulator rather than the extent of house price gains”.

The RBA is not prepared to raise rates to cool a hot housing market, believing that to do so would come at the expense of jobs and growth. On Tuesday, Dr Lowe reiterated that borrowing costs would likely stay near zero until 2024.

If required, APRA could focus on mandating banks put in place limits to debt-to-income ratios when extending new loans, Ms Emmett said, or limits to investor lending should the housing investment take off again – a measure which proved incredibly effective in blunting the last speculative housing market frenzy some years ago.

The CFR statement on Wednesday, which followed a meeting on Friday, said “commitments for new owner-occupier housing loans have increased strongly in recent months, consistent with most other indicators of housing market activity”.

“There has been some increased availability of mortgage finance recently, though lending standards are generally being maintained at this stage.”

The CFR members said regulators will need to remain “vigilant” to risks associated with the end of JobKeeper at the end of March, although they noted that households and businesses had “strengthened financial buffers over the past year”.

The Morrison government in September proposed legislation to wind back some responsible lending rules.