Australian mortgage loans explode, regulators prepare new lending rules
- Home loan in August + 6.2% year-on-year, the fastest since February 2018
- House prices and loan growth outstrip income
- Regulators will soon toughen macroprudential rules
SYDNEY, Sept. 30 (Reuters) – In August, Australian home loans rose at their fastest annual rate since early 2018, as buyers increasingly borrowed to enter a booming market, foreshadowing tighter rules for from regulators concerned about growing risks to financial stability.
Figures from the Reserve Bank of Australia (RBA) on Thursday showed that outstanding mortgage loans rose 0.6% in August from July, bringing annual growth to 6.2%. This is the largest annual increase since February 2018 and double the pace seen a year ago.
Record mortgage rates fueled rising debt, which in turn pushed up house prices. Read more
Annual price growth reached 18.4% in August, the fastest pace since July 1989 and a gain of AU $ 1,990 ($ 1,444) per week for the median property, according to real estate consultant CoreLogic.
With prices rising much faster than incomes, policymakers fear that borrowers are taking on more and more debt, making them vulnerable to an economic downturn.
Annual growth in new home loans reached 68% in July, and investment property loans nearly doubled from the previous year, sounding alarm bells among regulators.
Even the IMF and the OECD have intervened, recommending a tightening of macroprudential rules to limit the worst excesses of the market. Read more
The Australian Prudential Regulation Authority (APRA) said on Wednesday it would issue a background paper on macroprudential policy over the next two months, warning banks that a tightening is near.
Reserve Bank of Australia (RBA) financial stability manager Michelle Bullock recently pointed out possible tools including serviceability and interest rate buffers, debt-to-income ratios and limits loan-to-value ratios.
The central bank has categorically rejected calls to raise interest rates to cool the housing market, arguing that house prices are not a target of monetary policy and that any increase will only slow the economy and put people out of work.
“Raising interest rates is not possible given the weakness and uncertainty in the rest of the economy, and the collapse of the economy to obtain more affordable housing will not help anyone.” said Shane Oliver, head of economics at AMP Capital.
He noted that macroprudential policies had already worked to restrict the market, even though they were a short-term solution to a problem that required longer-term solutions.
These included facilitating the construction of new homes and a tax reform that encouraged real estate speculation, although these often encountered significant political obstacles.
($ 1 = AU $ 1.3778)
Reporting by Wayne Cole; Editing by Christopher Cushing and Lincoln Feast.
Our standards: Thomson Reuters Trust Principles.