Looser lending prompts increased likelihood of stricter macroprudential lending controls

Reserve Bank governor Philip Lowe, when announcing the cash rate would remain on hold at 0.1 per cent at its September meeting, again warned about maintaining lending standards. But figures from the Australian Prudential Regulation Authority show a big increase in mortgage lending at high debt-to-income ratios. The figures show that debt was some six times greater than income in around 22 per cent of new home loans during the June quarter. It was up from 16 per cent in the September quarter last year. The RBA noted housing prices are continuing to rise, although turnover in some markets has declined following the virus outbreak. "Housing credit growth has picked up due to stronger demand for credit by both owner-occupiers and investors," the September minutes advised. "Given the environment of rising housing prices and low interest rates, the Bank is monitoring trends in housing borrowing carefully and it is important that lending standards are maintained." The prudential regulator which controls residential mortgage lending is expected to shrink the maximum borrowing capacity of customers. Economists had thought it might happen later this year, although the latest lockdowns may prompt a pause until 2022. It follows comments from Dr Lowe that "the delta outbreak is expected to delay, but not derail, the recovery." AMP Capital chief economist Shane Oliver said although the RBA did not significantly change its assessment of the housing market, "the continuing strength in housing finance and house prices is consistent with APRA announcing a formal tightening in lending standards – although it may wait till after the dust settles from current lockdowns before moving." Tim Lawless at CoreLogic told The Australian he believes any macro prudential intervention will be aimed at keeping a lid on household debt rather than investor activity or interest-only lending, like earlier interventions.