Is APRA about to clamp down on the mortgage market?
Bit of chatter in the financial papers lately about the possibility of APRA clamping down on the mortgage market.
Remember, they did this between 2014 and 2016, and it tonked property prices on the head – they fell about 5-10% across the country.
I don’t know if you were in the game back then, but APRA (the bank regulator) came in a put all these restrictions on the banks. There were limits on how many loans could be interest only. There were changes to the buffers and servicability calculations. There were restrictions on debt-to-income ratios.
All together they generated a bit of a credit freeze. It was a tough time to get finance. Prices fell.
Now, people are wondering if we might be set for a repeat.
Because across the ditch in New Zealand, they’re well under way:
New Zealand’s central bank said it intends to further restrict access to mortgages as house prices continue to soar.
The Reserve Bank plans to reduce the amount of low-deposit lending banks can make from October 1, and will also consider introducing debt-to-income limits and/or interest-rate floors later this year, deputy governor Geoff Bascand said on Tuesday in Wellington.
Reserve Bank governor Adrian Orr is using further macroprudential measures to minimise risk in one of the most overheated housing markets in the world.
A previous tightening of restrictions has not seen a sufficient reduction in risky lending and, if house prices were to fall, some buyers could face the possibility of negative equity, he said.
New Zealand policymakers are battling one of the hottest property markets in the world, with prices surging 30 per cent in the year to the end of June. The government has already changed tax rules for property investors in an effort to damp down demand and, with the economy showing signs of overheating, the RBNZ has signalled it may start raising interest rates as soon as next month.
The central bank proposes to restrict the amount of lending banks can make to house purchasers who have less than a 20 per cent deposit to 10 per cent of all new loans, down from 20 per cent now. It also intends to consult in October on implementing debt-to-income restrictions and/or interest-rate floors.
We also had revelations this week that APRA has already fired a shot across the bows of the Australian banks, sending them a strongly worded letter in April:
The letter from the head of the Australian Prudential and Regulation Commission sent to the boards of the biggest banks warns lenders to be “especially vigilant in managing the risks within their residential mortgage portfolios in the current environment”.
The letter, released under freedom of information rules, also gave bank boards just weeks to sign off on assurances that lending growth across the sector wasn’t reckless…
APRA chairman Wayne Byres told the banks in the letter, dated April 23, that the lending growth was coming in a backdrop of “extraordinarily low interest rates, high household indebtedness and accelerating housing prices”…
While borrowers were expected to have serviceability buffers in place it was important that “excessive debt levels are not being incurred by customers during a period of exceptionally low interest rates,” Mr Byres said.
Meh. For now, I think we’re jumping at shadows.
If you look at the make-up of current lending, it’s being driven by owner-occupiers, and trading doesn’t seem to be ‘speculative’ – interest only lending is around normal levels.
I think we’d need to see a big acceleration in investor lending and increases debt-to-income ratios before APRA and the RBA were really worried.
On all counts, mostly what we’ve seen here is a surge in vanilla owner-occupier purchases.
There’s nothing I can see yet that’s going to threaten financial stability.
They’ll have their eye on it. But I think we’re safe for now.