Australia’s banking watchdog will be cracking down on risky mortgage lending practices as a guard against the hot property market.
In the first three months on 2015, all banks and lenders can expect a visit from the Australian Prudential Regulation Authority (APRA). If they spot any risky practices those financial institutions will be subject to increased scrutiny.
APRA could then take further action, including increasing the amount of capital a lender must hold as a financial buffer.
APRA chairman Wayne Byres told The Age that this measure was not being introduced just yet.
“This is a measured and targeted response to emerging pressures in the housing market,” he said.
“These steps represent a dialling up in the intensity of APRA’s supervision, proportionate to the current level of risk and targeted at specific higher risk lending practices in individual authorised deposit-taking institutions.”
“There are other steps open to APRA, should risks intensify or lending standards weaken and we will continue to keep these under active review.”
Some say the housing market is vulnerable in the current economic climate, with the combination of record low interest rates, high household debt and an ultra-competitive lending market.
The step-up in APRA’s monitoring is to focus on higher risk mortgages, spikes in lending to property investors and the ability of new borrowers to afford loans.
APRA said new borrowers should be able to afford a two per cent interest rate rise and if healthy lending standards were maintained, the buffer would be comfortably above that level.
The strong rise in property investors in the housing market – no doubt fuelled by the low interest rates on offer currently – has people talking about regulatory changes in the market.
The RBA has been talking to APRA about possibly intervening with macroprudential policy controls to rein in too many enthusiastic investors from inflating house prices.