Home loan lending to get harder for borrowers: Shane Oliver

Limits on high loan to valuation ratio lending and high debt to income ratio lending may be coming too

Home loan lending to get harder for borrowers: Shane Oliver
Home loan lending to get harder for borrowers: Shane Oliver

It will "make sense" for the lending regulators to start tapping the lending standard’s brake soon, according to Shane Oliver, the chief economist at AMP Capital.

"The first thing to do would be to increase interest rate buffers used by banks to assess how much people can borrow," Oliver said.

"Limits on high loan to valuation ratio lending and high debt to income ratio lending may make sense too," he added.

"The booming property market indicates that macro prudential tightening is likely getting closer in Australia. 

"While APRA and the RBA don’t have a mandate to target house prices and are of the view that we have not yet seen a significant deterioration in lending standards on the metrics they look at, past experience indicates that surging house prices like we are seeing now leads to a deterioration in lending standards and increasing financial stability risks. 

"And the metrics they look at are starting to push in the direction of a deterioration in lending standards with record housing finance pointing to an acceleration in housing credit growth, an increasing share of lending at high loan to valuation ratios and a rising share of interest only loans (albeit both from a low base but the data only goes up to late last year with further increases likely since then," Oliver said.

Last month  investment advisor Jarden advised the five key risks for house price concerns watched by the APRA were starting to rise, but not yet at a point of requiring regulatory action.

He tipped any restrictions on lending were more likely to target incomes and debt rather than the values of the property.

The chief economist at Jarden Carlos Cacho noted investor credit growth has started to rise, has have interest-only loans and the share of high loan-to-value ratios such as more than 80 per cent leverage.

Cacha advised the share of very high loan-to-income lending of more than six times income had started to rise, as well as the share of very high debt-to-income lending.

"While all these categories of higher risk lending are increasing, we think they remain below levels which would concern APRA enough to take action – so far," Cacho told The Australian Financial Review.
 

Jonathan Chancellor

Jonathan Chancellor

Jonathan Chancellor is one of our authors. Jonathan has been writing about property since the early 1980s and is editor-at-large of Property Observer.

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