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SYDNEY, Oct. 6 (Reuters) – Australia’s banking regulator on Wednesday tightened restrictions on mortgage lending, with rapid loan growth fueling price spikes and posing a risk to financial stability.
The Australian Prudential Regulation Authority (APRA) has increased the minimum interest rate cushion it expects banks to use when assessing the viability of mortgage loan applications.
APRA said it told lenders that they expected them to assess the ability of new borrowers to repay their loans at an interest rate at least 3.0 percentage points higher than the rate on the loan. loan product. This compares to the current buffer of 2.5 percentage points.
“APRA works to ensure that the financial system remains secure and that banks lend to borrowers who can afford the level of debt they take on, both now and in the future,” said APRA President Wayne Byres said in the statement.
With record interest rates and a central bank reluctant to increase the cash rate by 0.1% until 2024, house prices in Australia have risen sharply this year, causing much concern about affordability and debt.
More than a fifth of new loans approved in the June quarter were more than 6 times the borrower’s income, and home loan growth is expected to outpace household income growth, the regulator said.
“As the economy is expected to rebound as lockdowns begin to be lifted across the country, the balance of risks is such that higher service standards are warranted,” Byres said.
Since some borrowers are already constrained by the floor rates used by lenders and many borrowers are not borrowing at their maximum capacity, the overall impact on overall housing credit growth that results is expected to be quite modest.
In a letter to the banks, the regulator asked them to review their risk appetite for loans with high debt / income levels, warning that if these loans continued to grow, it would consider further macroprudential intervention.
Reporting by Wayne Cole and Paulina Duran Editing by Chris Reese and David Gregorio
Our standards: Thomson Reuters Trust Principles.
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