Should it be easier for the banks to give you a home loan?

Discussion around access to the mortgage market reflects risks being confected by the vested interests of some banks, and political opportunism as we head into an election where housing has become a major battleground.

The banking fraternity is split, and political parties appear to be floating ever more radical solutions to the conundrum of facilitating people’s desire for home ownership.

Commonwealth Bank chief Matt Comyn supports APRA and its lending standards.

The only thing everyone appears to agree on is that there is a cohort of mostly young or less affluent Australians who can’t buy into the housing market.

How to address this issue is where there is divergence.

To its credit, the government appears to be at least attempting to tackle the biggest fundamental problem – the supply of housing stock. While it has stated its ambitious intention to build 1.2 million new dwellings over five years, this doesn’t solve anything in the short term and doesn’t tackle the immediacy of the problem.

But the Coalition’s response – floating changes that will allow those locked out of the market to get their hands on money by accessing their super, or the latest notion of reducing the borrowing safety interest rate buffers applied by the independent financial prudential regulator – is concerning.

Even the vaguest prospect of handing over the prudential standards of banks to the government (which is by its nature politicised) is fraught with danger.

As just about every economist will attest, policy moves that increase demand for housing without tackling its supply will only increase property prices, which in turn further restricts buyers from entering the market.

This week, the Commonwealth Bank’s chief executive, Matt Comyn, became something of a proxy for the views of three of the four major banks in supporting the Australian Prudential Regulation Authority and its role in applying the safety buffer on lending.

As it now stands, APRA rules mean that banks need to ensure borrowers are assessed using serviceability measures that they can finance a loan 3 percentage points higher than the prevailing interest rate. For example, a borrower paying a 6 per cent interest rate has to be able to service an interest rate of 9 per cent.

ANZ is the dissenting bank that argues that APRA’s conservative financing rules cut many out of the market for mortgages.

Andrew Bragg, the opposition spokesman on home ownership, says APRA’s power to set mortgage lending standards should be up for debate.Credit: Oscar Colman

And you would have to think that it is no accident that ANZ, which has been aggressively pricing mortgages to improve its market share (and recently spent almost $5 billion to acquire Suncorp’s banking arm), is spearheading the criticism that lending standards are sufficiently onerous that they are cutting some people out of the mortgage market.

At the other end, Australia’s biggest mortgage lender, the Commonwealth Bank, has voiced its support for more conservative lending standards.

To reduce the serviceability buffer could invite a different variation on the mortgage wars – morphing from competition over the price of their interest rates to competition around each bank’s appetite for risk.

Andrew Bragg, the federal opposition spokesman on home ownership, isn’t making any definitive statements on these interest rate buffers, but says the prudential regulator’s power to unilaterally set mortgage lending standards should be up for debate, warning its current policies were potentially too conservative and locking out first home buyers.

Bragg says the issues will be explored by a Senate inquiry that will examine how Australia’s financial regulation can drive home ownership.

However, even the vaguest prospect of handing over the prudential standards of banks to the government (which is by its nature politicised) is fraught with danger.

Allowing the robustness of lending controls on mortgages, which feed heavily into the country’s economic wellbeing, to be determined by anything other than an independent regulator comes with plenty of risk.

APRA needs to have its hands on the tiller to ensure the soundness of our financial system, in the same way an independent Reserve Bank needs to set interest rates without reference to Canberra.

APRA can take a large dollop of credit for the low levels of mortgage delinquencies that banks are experiencing, despite the rapid rise in interest rates over the past few years.

“I think the fact that mortgage delinquencies are next to zero is actually a problem. It tells you the banks can’t take any risk, or won’t take any risk, and that’s bad because we want banks to take risks on first home buyers,” Bragg said this week.

So what happens when interest rates finally start to fall next year? Some of those would-be borrowers at the margin might get their chance.

But if a range of sugar-hit policies spur fresh demand leading to higher property prices, ownership could remain beyond the reach of many Australians.

Tackling the issues that restrict the construction of new housing feels like a more sensible and sustainable solution.

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