Regulators considering how to clamp down on Australia’s ‘risky’ housing market urged not to ‘stomp’

Financial regulators considering what measures can be taken to clamp down on Australia’s “risky” housing market are being urged not to “stomp” on first home buyers and small banks.

The Council of Financial Regulators – made up of the Australian Prudential Regulation Authority, the Reserve Bank, the Australian Securities and Investments Commission and Treasury – met on Friday, with an appearance from Treasurer Josh Frydenberg to discuss housing market risks.

Housing credit conditions and limiting risks caused by historically low interest rates, increasing demand and surging property prices formed a major part of the dialogue.

It comes as new figures reveal as many as 20 per cent of home buyers are borrowing more than six times their income.

In the June quarter, the number of new residential mortgages where debt was at least six times greater than income jumped to 21.9 per cent, up from 16 per cent in the same quarter last year.

Regulators have been given the go ahead by Mr Frydenberg to consider “macroprudential policies” - such as imposing limits on particular types of lending or tightening income-to-loan ratios - to clamp down on high-debt mortgages and minimise risks.

Mr Frydenberg said earlier this week there needed to be a “mindful balance” between credit and income growth “to prevent the build up of future risks in the financial system”.

“There are a range of tools available to APRA to deliver this outcome,” he said.

In its quarterly statement, the CFR said APRA would continue to consult with it on the implementation of any particular measure.

“Over the next couple of months, APRA also plans to publish an information paper on its framework for implementing macroprudential policy,” the statement said.

While no decision on what the measures might look like has been confirmed, the Customer Owned Banking Association is urging regulators to “carefully target a clearly identified problem so they do not disadvantage smaller banks and first home buyers”.

Chief executive Michael Lawrence said there needed to be “adequate consultation” prior to any intervention, in order to “reduce the risk of unintended consequences on smaller banks from any macroprudential measures”.

“We also note comments by the Treasurer that ‘carefully targeted and timely adjustments are sometimes necessary’,” Mr Lawrence said.

“However, the Treasurer also noted that ‘a positive feature of this housing cycle compared to that of the last is a higher proportion of first home buyers and owner occupiers entering the market’.

“Our sector’s focus on owner-occupiers and first-home buyers is illustrated by our higher than system share of high LVR (loan-to-value ratio) owner-occupier loans as a percentage of new loans, and our sector’s 20 lenders on the First Home Loan Deposit Scheme panel.

“Our sector’s prudent approach is highlighted by the non-performing loans ratio, where we are tracking at around the third of the system rate.

“We look forward to seeing the forthcoming information paper from APRA setting out APRA’s framework for the use of macroprudential policy tools.”