A surging housing market could be severely undercut if lenders lower their credit standards to woo consumers.
RP Data head of corporate affairs Craig Mackenzie has told Australian Broker that regulators will be keeping a close eye on any erosion of credit standards as interest rates remain low. Mackenzie pointed to last week's APRA Insights release, wherein the banking regulator warned that low interest rate environments could lead to rising household leverage. In spite of this, APRA said credit growth remains sluggish, and warned banks not to relax their standards to spur demand.
"This article was a very public statement by APRA to the market and regulated institutions that they are keeping a close eye on ADIs to ensure they do not inappropriately relax lending standards so as to counter this slow credit growth environment. APRA typically communicates this message to ADIs behind closed doors," Mackenzie said.
With lenders ramping up competition for home loans and the housing market beginning to heat up, Mackenzie argued that APRA will be particularly vigilant.
"There is no doubt that APRA will, in the coming months, keep a close eye on overall credit growth and the level and composition of new lending activity at each ADI, so as to ensure that sound lending practices are maintained and that Australia does not produce a credit fuelled housing bubble. It seems a logical conclusion to draw from the article that there currently exists a level of exuberance in the residential lending market that APRA is not entirely comfortable with at present," he said.