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Will APRA property regulators ever act to cool house prices?


APRA says risky lending, not rising property prices, would prompt a lending crackdown – and it isn't worried right now.

With record-low interest rates and rising house prices, Australians are taking on big debts to enter the market. Regulator APRA is cautious but not alarmed for now.

Speaking at the AFR Banking Summit earlier this week, APRA chairman Wayne Byres said that while household debt and property prices are both rising, current data does not "show major signs of a return to higher risk lending".

Byres also said that "we [APRA] have no mandate to target the level of housing prices, or act to improve housing affordability. For us, housing prices are a risk factor, not a goal."

Byres acknowledged that rising prices and low interest rates could push institutions to take greater risks, such as "looser lending standards, relaxing portfolio limits, or simply not adjusting to market developments".

APRA will act, if it feels it needs to, only if there are clear signs of irresponsible lending and borrowing. House prices figure into this, but rising prices alone won't motivate APRA to curb lending.

What can APRA do to cool the property market?

In 2017, APRA made moves to limit the amount of loans issued to investors and the amount of interest-only loans (loan types that are considered higher risk). These restrictions, and the more cautious lending environment prompted by the Financial Services Royal Commission, led to a fall in property prices.

APRA loosened some of these restrictions in 2019. Prices began to recover before COVID-19 struck in 2020. And now property prices are rising to new peaks.

But unlike 2017, the current price growth is being driven largely by owner occupiers, including first home buyers. Investor activity is down.

Byres said that two other risk factors were debt to income borrowing and loan to value ratio, both of which are increasing. In other words, an increasing number of borrowers taking out big debts on low incomes, and buying expensive properties with deposits below 20%, are signs of a risky lending environment.

This would prompt APRA to bring in restrictions. But "there does not seem cause for immediate alarm. Nor, though, for complacency," said Byres.

Australians are definitely borrowing more. In the most recent ABS lending figures, Australian borrowing for property has risen 48.8% this year. Borrowing reached a record high in January, with a slight fall in February.

But for now, APRA is satisfied this doesn't represent a risk. And the RBA isn't likely to raise interest rates just yet. The federal government wants to make lending even easier with reforms to the National Consumer Credit Protection Act.

Will anything, or anyone, stop Australian property prices from soaring past the sun? Several experts told Finder recently that the market will find a natural equilibrium by 2022 because rates can't fall any further and the market could "run out of steam".

With rising property prices, securing a home loan with a competitive rate matters more than ever. Compare home loan rates or consider refinancing if your current rate is too high.

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