RBA keeps mortgage rates cheap ahead of proposed lending crackdown
Here's why it may soon be harder to get a home loan even though low interest rates aren't going anywhere.
The Reserve Bank of Australia once again held the official cash rate at 0.10% at its meeting today. Every expert in Finder's cash rate survey predicted this one, and the RBA itself has been very clear that interest rates will remain low for some time yet.
Only 23% of the experts Finder surveyed expect the bank to lift rates in 2022.
The RBA's decision comes as property prices continue to soar across most of Australia. CoreLogic's latest home values figures show Australian property prices have risen 20.3% in the last 12 months.
Historically low home-loan interest rates have fuelled this growth. But now regulators are hinting that rising prices may need to be curbed through tighter lending rules.
Last week, the Council of Financial Regulators, a body that includes the APRA, the RBA and the Australian treasury, said that it had "discussed possible macroprudential policy responses" to the strong growth in mortgage lending.
What would a lending crackdown look like?
The Reserve Bank sets interest rates and has kept rates incredibly low over the last 2 years. This has helped keep the economy afloat but has also resulted in rising house prices. But keeping house prices in check is not really the RBA's job.
The Australian Prudential Regulatory Authority (APRA) supervises the banks, and part of its remit is lending standards. In the past, when the APRA judged that lending standards were too risky, it imposed caps on certain riskier loan types (investor loans and interest-only loans). Property prices began to rise in 2018 when these restrictions were lifted.
It's worth noting that property investors have returned to the property market in large numbers and are now driving a lot of price growth.
But the APRA has other options. One of these is lending benchmarks. In 2019, the APRA actually made it easier to get a home loan by adjusting its serviceability assessment guidelines. Now, the APRA could move to tighten these rules, encouraging lenders to assess potential borrowers more strictly.
According to the ABC, many analysts expect the APRA will limit debt-to-income ratios this time. This could put a harder limit on how much you can borrow, based on your current income. Borrowers may not be able to borrow more than, say, 6 times their income.
Will tougher lending rules cause prices to plunge?
This is difficult to say. Cheap, easily available credit (a good description of the current home loan environment) tends to fuel property prices like nothing else. In the past, property prices have risen even during recessions, while they've fallen when tougher lending rules are introduced.
But even if the APRA brings in new rules, the RBA maintains that rates will remain very low for the foreseeable future. In remarks accompanying the cash rate decision today, RBA governor Philip Lowe said that a rate rise was unlikely "before 2024".
And next year will presumably bring a busier property market as lockdowns ease and experts expect more properties to come onto the market (supply is very low at the moment).