APRA plans to clamp down on housing market in coming months

The Australian Prudential Regulation Authority (APRA) is currently weighing up strategies to cool down the nation’s housing market, citing concerns about growing risks to the economy.

At the quarterly meeting of the Council of Financial Regulators last week, members discussed soaring Australian property prices, which many are worried could tip household debt levels into unsustainable territory.

“The recent lockdowns have reduced transactions and new listings, but prices are still rising briskly in most markets,” the council said.

“The council is mindful that a period of credit growth materially outpacing growth in household income would add to the medium-term risks facing the economy, notwithstanding that lending standards remain sound.”

While the property boom has certainly slowed in recent months, Australian housing values are still 18.4 per cent higher than they were a year ago, according to CoreLogic’s August update. In comparison, wages have increased by just 1.7 per cent.

CFR members noted that even with lockdowns across major markets, new housing loan commitments are high and credit growth is expected to remain relatively strong for some time.

In light of these conditions, the CFR discussed the need for a shift in regulatory policy. Possible measures will be outlined in an information paper by APRA due to be released in the coming months.

The regulator has a number of macroprudential tools at its disposal, including applying caps to loan-to-value ratios , which would affect those with low deposits, and restricting lending to high debt-to-income borrowers.

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Recently, Commonwealth Bank chief executive Matt Comyn called on banks to tighten their lending standards ahead of any rule changes by regulators, saying it would be “prudent to act sooner rather than later.”

CBA’s preferred approach has been to lift its serviceability floor rate, which is the higher interest rate banks use when assessing a borrower’s ability to service a loan.

The International Monetary Fund also issued a report last week warning that rising household debt levels could put undue strain on Australia’s economy.

It recommended banks adopt a more conservative approach to lending, and also spoke of the need to reform housing-related taxes and ramp up residential construction.

For more information on property and lending trends, visit our home loan statistics page.