The Australian Prudential Regulation Authority says household debt is still too high and could be cracking down on high loan-to-income mortgages in response.
The banking regulator has warned that Australia’s household debt is on a dangerous path and things go pear-shaped while interest rates remain at the record-low of 1.5 per cent.
APRA chairman Warren Byres indicated the regulator will be ramping up its monitoring of lending standards while the risks remained high.
“Household indebtedness is high,” he said.
“Perhaps more importantly, the trajectory is clearly for it to rise further.”
“Lenders need to be vigilant to ensure their policies and practices are both prudent and responsible.”
“In short, heightened risk requires heightened prudence by APRA but also – and preferably – by lenders and borrowers themselves.”
Mr Byres said high loan-to-income (LTI) lending in Australia was still too high and hinted at a crackdown.
“High LTI lending in Australia is well north of what has been permitted in other jurisdictions grappling with high house prices and low interest rates such as the UK and Ireland.”
Mr Byres told the Australian Securitisation Forum that APRA’s focus is to make sure mortgage borrowers only borrow what they can realistically service.
“We have confirmed there is more to do in this area to improve serviceability measures, particularly in relation to the assessment of living expenses and the identification of a borrower’s existing debts,” he told the conference.
“We have been challenging lenders to ensure their serviceability methodology is robust and that includes adequate conservatism to ensure that borrowers are not unduly exposed if their circumstances were to change.”
The comments from APRA come off the back of recent statements from Reserve Bank governor Philip Lowe who recently said they were concerned about home loan borrowers trying to keep up repayments while wages growth was going nowhere.