Aussie banks to apply more pressure on home lenders?

image9Banks and other mortgage providers will be administered further regulatory medicine if they continue to compromise on lending standards, warns the regulator.

Australia’s top banking regulator has signalled that it might impose more restrictions on home lenders to combat “heightened risk” in the residential property market.

Wayne Byers, the chairman of the Australian Prudential Regulation Authority (APRA), believes lenders are increasingly approving loans to borrowers who will potentially be unable to meet repayments.

Speaking at a business lunch in Sydney on Wednesday, Mr Byers highlighted APRA research showing that the percentage of housing loans approved outside of lenders’ normal serviceability policies had more than doubled since 2009.

According to the regulator, almost four per cent of all home loans approved in Australia this year involved lenders compromising on assessments of borrowers’ ability to repay.

Lenders were pushing through loans by assuming borrowers had “meagre living expenses” or by relying “on interest rates not rising very much”.

Earlier this year, APRA imposed caps on the ability of banks to increase lending to investment borrowers and flagged plans to increase the amount of reserve cash the major banks must put aside for every dollar they lend to home borrowers.

“Given many changes to lenders’ policies, practices and pricing are still relatively recent, it is too early to say whether further action might be needed to preserve the resilience of the banking system,” Mr Byers said.

“We remain open to taking additional steps if needed, but from my perspective the best outcome will be if lenders themselves maintain a healthy dose of common sense in their lending practices, and reduce the need for APRA to do more.”

If rates were to rise …

Mr Byers said the combination of high levels of household debt, rising property prices and subdued income growth, meant that lenders were operating in an environment of “heightened risks”.

He noted that these risks were currently manageable because borrowers were exposed to historically low interest rates.

But he warned that more borrowers would find it difficult to service their debts if interest rates reverted to historic averages.

At present interest repayments account for less than nine per cent of household income, but this would blow out to 12 per cent if mortgage rates reverted to the long-term average of around seven per cent.

“Interest payments account for a lower share of household income than at any time since the financial crisis,” he said.

“Over a longer period, however, they do not necessarily look especially low.

Read the rest of the article by George Lekakis at The New Daily here.

Share this post

Share on facebook
Share on google
Share on twitter
Share on linkedin
Share on pinterest
Share on print
Share on email

Become a successful Property Investor

Start Here With Your Free Investment Gift Pack Valued at $297
how to project manage your renovation

Get one step closer, Fill in the form below

  • This field is for validation purposes and should be left unchanged.

More from Real Wealth Australia

What happens if your tenant doesn’t pay the rent during COVID_
Articles

What happens if your tenant doesn’t pay the rent during COVID?

I recently received a question from one of my subscribers… I have a question that I have noticed no one is bringing up since Covid …

Articles

My top 2 areas to invest in during the current market!

If you are in the market to buy property right now, then I have some news for you. In today’s video (blog), I’m going to …

Blog - The Next Boom Cycle Is Coming... Prepare Yourself
Articles

Post COVID-19 Property Boom Cycle is coming… prepare yourself!

The Corona virus pandemic is in the process of trashing property prices by possibly up to 30% according to some and when it’s over be …