Tougher lending regulations are working, says RBA

by Julia Corderoy09 Nov 2015
The Reserve Bank has said the tighter lending regulations are having a beneficial effect on slipping lending standards.

Speaking at the Australian Property Institute's Queensland Property Conference in the Gold Coast on Friday, Reserve Bank assistant governor Malcolm Edey said investigations revealed that lending standards have slipped following the recovery from the Global Financial Crisis.

“As a general proposition, mortgage lending standards in the post-crisis period have been relatively tight, at least more so than before the crisis,” he said.

“Nonetheless, investigations by APRA and ASIC have shown that there was some slipping in lending standards and that they were inadequate in some important respects to the current risk environment.”

Specifically, Edey pointed to the over-optimistic serviceability and borrowers' living expenses assessments and the failure to take future rate rises into consideration. He also said the level of investor activity in the housing market was “in fact higher than previously thought”. 

However, Edey said the Reserve Bank was pleased to find that tougher regulations imposed by APRA – including stricter serviceability assessments and restrictions on investment lending – coupled with the major banks’ decision to increase mortgage rates was correcting the lax lending standards. 

“It will take time for the full impact of these measures, and of the more recently announced increases in bank lending rates, to become apparent. Nonetheless, the indications to date are that the supervisory measures are having a beneficial effect on lending standards and are assisting in restraining new investor finance.”

He also said these measures were showing signs of cooling the heated Sydney and Melbourne property markets.  

“There is also some tentative evidence that sentiment may now be turning in the housing markets in the two largest cities. But it is much too early to be definitive about that,” he said.

“What we can say is that the risks in that sector are now being more prudently managed than they were a year or so ago.”
 

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