Regulators have prepared for new lending regulations, despite the rise of Australian housing borrowing

Regulators have prepared for new lending regulations, despite the rise of Australian housing borrowi ...

  • Summary
  • Aug housing credit +6.2% y/y, fastest since Feb 2018 with more than 6.2 percent of its average income since Jan 2018
  • The rise of house price and loan outpacing incomes oversold income.
  • Regulators are expected to tighten macroprudential rules in the upcoming months due to severe regulatory restrictions.

SYDNEY, Sept 30, Australian home lending in August increased at its fastest annual rate since early 2018 as buyers borrowed even more to get into a red-hot market, preying on tougher regulations from regulators concerned about rising financial stability.

On Thursday, outstanding home loans from the Reserve Bank of Australia (RBA) figures showed outstanding loans rose 0.6 percent in August, from July, boosting annual growth to 6.2%. That was the most significant annual rise since February 2018 and the same year as it was a year ago.

Read more about record-low mortgage rates, which have fueled the rise in debt, increasing house prices. read more

According to property consultant CoreLogic, the annual price rise climbed an eye-watering 18.4% in August, which was the fastest rate since July 1989 and a gain of A$1,990 ($1,444) per week for the median property.

With prices rising significantly faster than incomes, policy makers are concerned that borrowers are taking on ever-larger amounts of debt, leaving them vulnerable to an economic downturn.

The annual growth in new home loans increased to 68% in July, and lending for investment properties almost doubled from a year ago, reassigning alarm bells among regulators.

Even the IMF and the OECD have stepped in, recommending a tightening of macroprudential measures to combat the worst market excesses. read more

The Australian Prudential Regulation Authority (APRA) on Wednesday stated it will publish an information paper on macroprudent policy in the next few months, alerting banks that a tightening was imminent.

Serviceability and interest rate buffers, debt to income ratios and limits on loan to value ratio's were recently revealed by Michelle Bullock, the head of financial stability of the Reserve Bank of Australia.

The central bank has unintentionally rejected calls to hike interest rates to cool the housing market, arguing that house prices were not a target of monetary policy, and any hike would only slow the economy and put people out of jobs.

"As the economy's weakness and uncertainty hangs over the rest of the world, increasing interest rates is not possible, and crashing the market to obtain more affordable housing will assist no one," says Shane Oliver, head of economics at AMP Capital.

He noted that macroprudential policies had worked before to halt the market, albeit they were a short-term solution for tampering requiring longer-lasting solutions.

These included facilitating the establishment of new homes and tax reforms that favored housing speculation, albeit these often face big political difficulties.

($1 = 1.3778 Australian dollars) = 1.378 dollars

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