House price, mortgage debt surge no cause for ‘immediate alarm’, says APRA

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The financial system regulator has reminded Australians that it does not have a mandate to target house prices, or housing affordability.

Instead, it said it is focused on the stability of the financial system, and house prices are simply a “risk factor.”

However, Wayne Byres, the chair of the Australian Prudential Regulation Authority (APRA), added that he is watching developments in the property market closely, given the runaway price rises in recent months.

“There does not seem cause for immediate alarm,” he commented.

“Nor, though, for complacency. We are watching risk-taking by the banking sector closely, along with our colleagues on the Council of Financial Regulators.”

Concerns about runaway house prices

Mr Byres made his comments in a speech to the 2021 AFR Banking Summit in Sydney.

His views were delivered as public concerns increase about the consequences of runaway house price growth.

Recent data from the Bureau of Statistics showed household wealth hit record levels in December, driven by surging property price rises and recovering stock markets in the second half of 2020.

However, property owners have taken the lion’s share of the increase in wealth.

Last week, ANZ economists said it looked like national property prices could grow by 17 per cent this year, as first home buyers and investors responded to historically low interest rates and federal government programs designed to support the property sector.

Regulator is alert to rising household debt

Mr Byres said he was prepared to use regulatory tools to slow the growth of household debt, or to tighten lending standards, if risks materialised this year.

“We are alert to signs that very low interest rates and rising housing prices create a dynamic in which households seek to take on even higher debt levels, and that banks searching for credit growth seek to accommodate that demand through greater risk taking,” he said.

“That could be in the form of looser lending standards, relaxing portfolio limits, or simply not adjusting to market developments.

“At an aggregate level that is a scenario that’s not evident yet, but the aggregates can hide a lot so we are digging into this more deeply, as you would expect.”

Mr Byres said the debate about house prices seemed to have shifted, in recent weeks, “from whether APRA will do something, to when we will do it.”

But he reminded everyone that APRA’s mandate was financial stability, not housing affordability or the level of house prices.

He agreed that household debt levels were “undeniably high” at the moment, but said they had declined recently relative to income.

“Serviceability of that debt is also being supported by historically-low interest rates,” Mr Byres added.

Housing credit growth expected to outpace wages

Mr Byres acknowledged there were signs that housing credit growth was picking up and it was likely to outpace income growth “for the foreseeable future”.

However, he said the nationwide lending statistics did not show major signs of a return to higher risk lending, yet.

He said the shares of investor lending and interest-only lending — areas where APRA had intervened with regulatory measures in the past — are below where they were 18 months ago, and were well down on the previous cycle.

But Mr Byres acknowledged the shares of high loan-to-value ratios, high debt-to-income ratios and the degree of broker-originated lending were all increasing.

“Albeit not at a particularly rapid rate, and at least some of this is simply a product of the relatively high share of first home buyers entering the market,” he said.

Mr Byres said APRA would take a wait-and-see approach.

“Should risks materialise we have a range of tools we could employ, ranging from interventions similar to that in 2015 and 2017, to the countercyclical capital buffer and (if appropriate) the new non-ADI lending rules,” he said.

By business reporter Gareth Hutchens (Original ABC Article)

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