A crackdown on risky lending will limit banks\u2019 capacity to extend highly geared mortgages, as the financial regulator launches a pre-emptive strike against the growing excesses of an overheated property market.<\/p>\n
The Australian Prudential Regulation Authority announced a 20% cap on the share of new lending that banks<\/a> can do at a debt-to-income ratio above six \u2013 a mortgage worth more than six times the borrower\u2019s income.<\/p>\n While Jim Chalmers said the move would \u201chelp with financial resilience and housing affordability\u201d, the Greens immediately criticised it as insufficient and experts said it would not curb the current rapid rise in lending growth and property prices.<\/p>\n Sign up: AU Breaking News email<\/a><\/p>\n The newly announced restriction lands amid a worsening housing crisis, with a recent report highlighting affordability is now at its worst on record and that a typical household needs to dedicate nearly half of its pre-tax pay<\/a> to service the average new mortgage.<\/p>\n An explosion in lending to landlords<\/a> has been of particular concern to regulators. Property investors account for two in five new loans, and the value of investor lending surged by 18% in the September quarter alone.<\/p>\n Investors returning to 2014-era dominance<\/a><\/p>\n The lending restriction will start in February, and Apra\u2019s chair, John Lonsdale, said the regulator was prepared to intervene further.<\/p>\n \u201cWe will consider additional limits, including investor-specific limits, if we see macro-financial risks significantly rising or a deterioration in lending standards,\u201d he said.<\/p>\n It has been a decade since the regulator last intervened to put speed limits on runaway lending, which dragged down home prices.<\/p>\n Analysts said the new cap on new high risk lending would not have the same effect.<\/p>\n \u201cThis is a guardrail for stability, not a handbrake on demand,\u201d said Nicola Powell, Domain\u2019s chief of research and economics.<\/p>\n \u201cIt won\u2019t cool prices or improve affordability \u2013 nor is it meant to. It reins in the riskiest edge of lending.\u201d<\/p>\n Apra data shows only 10% of new loans to investors are made at debt-to-income ratios of six or more, and about 4% of new owner-occupier loans \u2013 well short of the 20% cap.<\/p>\n Jon Mott, a bank analyst at Barrenjoey, said \u201cwhile it is positive to see Apra is focused on the potential build-up of risk in the housing system given very over-leveraged Australian households, this policy is unlikely to be a binding constraint in the short to medium term\u201d.<\/p>\n skip past newsletter promotion<\/a><\/p>\n Sign up to Breaking News Australia<\/p>\n Get the most important news as it breaks<\/p>\n Privacy Notice: Newsletters may contain information about charities, online ads, and content funded by outside parties. If you do not have an account, we will create a guest account for you on theguardian.com<\/a> to send you this newsletter. You can complete full registration at any time. For more information about how we use your data see our Privacy Policy<\/a>. We use Google reCaptcha to protect our website and the Google Privacy Policy<\/a> and Terms of Service<\/a> apply.<\/p>\n after newsletter promotion<\/p>\n Chalmers said the new restrictions were \u201cprudent steps to maintain responsible lending\u201d.<\/p>\n \u201cThese rule changes are an important way for the regulator to reduce risk in our economy, but these efforts will also help when it comes to getting people into homes.\u201d<\/p>\n Eliza Owen, the head of research at property data firm Cotality, said limiting high risk lending was \u201ca good move in an environment where investor concentration in the market was unusually high and back to levels seen in the 2010s\u201d.<\/p>\n \u201cIt\u2019s more likely to have an impact on highly leveraged investors than owner occupiers. It\u2019s more like a preventative measure to stop a blow-out in high debt-to-income lending,\u201d Owen said.<\/p>\n \u201cAt the end of the day, the regulator can only do so much for housing affordability. That\u2019s more for fiscal policy change, like [reforming] the capital gains tax concession.\u201d<\/p>\n Greens senator Barbara Pocock said the move, while a welcome start, did not go far enough and that \u201cfirst home buyers are being priced out by investors at weekend auctions\u201d.<\/p>\n \u201cApra must use all the tools in their toolbox to rein in investor lending that is exacerbating the housing affordability crisis,\u201d Pocock said.<\/p>\n","protected":false},"excerpt":{"rendered":"A crackdown on risky lending will limit banks\u2019 capacity to extend highly geared mortgages, as the financial regulator…\n","protected":false},"author":2,"featured_media":285919,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[84,1294,56,54,55],"class_list":{"0":"post-285918","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-economy","8":"tag-business","9":"tag-economy","10":"tag-uk","11":"tag-united-kingdom","12":"tag-unitedkingdom"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/285918","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/comments?post=285918"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/285918\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media\/285919"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media?parent=285918"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/categories?post=285918"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/tags?post=285918"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}