Regulators eye stretched home borrowers

Regulators are looking at measures to deal with the growing risk of household debt outpacing incomes.

New home loans where debt is at least six times greater than income rose to a record 22 per cent in the June quarter - up from 16 per cent a year earlier.

Australia’s four financial regulators said in a statement on Wednesday they were “mindful that a period of credit growth materially outpacing growth in household income would add to the medium-term risks facing the economy, notwithstanding that lending standards remain sound”.

“Against this background, the council discussed possible macroprudential policy responses,” the Council of Financial Regulators said in their quarterly statement.

“(The Australian Prudential Regulation Authority) will continue to consult with the council 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 council - which includes APRA, the Australian Securities and Investments Commission, Treasury and the Reserve Bank - said despite COVID-19 lockdowns and delays in the economy recovery, the financial system remained strong and was “well placed to continue to support the economy”.

“Members expect the economy to rebound as vaccination rates increase and restrictions are eased, although acknowledged the uncertainties.”

Treasurer Josh Frydenberg, who attended last week’s meeting of the council, said what was being seen in Australia was similar to what was happening around the world.

“Historically low interest rates (are) fuelling higher house prices,” he told reporters in Melbourne.

He said while it was good to see first-home buyers coming into the market, it was important to be conscious of the balance between credit and income growth.

“We’ve also got to be conscious of future risks building up in the system,” he said.

“That is why (the regulators) are looking very closely at what particular levers they have at their disposal to ensure we maintain stability in our housing market.”

In the past, regulators had looked at serviceability buffers and investor growth as part of the overall lending book.

“They are deliberating that internally, but what we do know is that the investors or the first home buyers or others who may be affected by this will be a very small proportion of the overall market,” Mr Frydenberg said.

“What these measures are designed to do - in the past and we will wait for any final decision by the regulators in this case - is designed to prevent the build up of future risk.

“To do something now means less is required later.”

The share of first-home buyers in the market has been bolstered by government support programs and deposit schemes.