Regulators keep eye on home loan activity

Australia’s financial regulators believe it is too early to assess the impact of the recent tightening in rules when applying for a home loan in the face of a heated housing market.

In October the banking watchdog, the Australian Prudential Regulation Authority, ordered lenders to assess new borrowers’ ability to meet their loan repayments at an interest rate at least three percentage points above the loan product rate they are applying for.

That compared with previous the serviceability buffer of 2.5 percentage points that has been commonly used.

The Council of Financial Regulators at their quarterly gathering this week reiterated their support for the move, agreeing that given the risks that had been building, this measure will help support the resilience of both new borrowers and lenders.

“It remains too early to assess the effects of the measure; members will continue to monitor developments closely,” the council said in a statement on Thursday.

It said housing credit growth had remained strong in the second half of the year.

While commitments for new loans have eased, they remain at a high level, suggesting that credit growth will continue to be relatively strong, with further increases in new lending to investors.

“Housing prices are still rising briskly in most markets, albeit at a slightly slower rate overall than earlier in the year,” the council said.

House prices have risen by more than 20 per cent nationally in the past year.

The council is made up of APRA, the Australian Securities and Investment Commission, the Reserve Bank of Australia and Treasury.