Treasury, APRA warn banks over low rates

by Julia Corderoy28 Jul 2014
Treasury is concerned interest rates remaining at record lows could have major ramifications on the $1.4 trillion mortgage market.

With banks making moves last week to aggressively slashinterest rates, Treasury has raised concerns the moves are allowing for more and more Aussies to apply for home loans, and to apply for much larger home loans, The Australian Financial Review has reported. Treasury secretary Martin Parkinson has issued a warning that Australia's sustained period of low interest rates could see homeowners struggle to service their mortgages when rates begin to rise,

According to the AFR, Treasury has warned of the need to take the pressure of monetary policy so Australia doesn't repeat the effects of the 2008 crisis, when the official cash rate reached 7.25% causing large amounts of financial stress for many households.

This is also a concern for Australian Prudential Regulation Authority (APRA) chairman Wayne Byres. Speaking to the House of Representatives Standing Committee on Economics, Byres said APRA is keeping close watch on the big four banks after three of the four cut their fixed mortgage rates last week to under 5%.

Byres expressed concern that the competition fuelled by low rates is leading to banks engaging in very risky lending behaviour. APRA released its draft Prudential Practice Guide for Mortgage Lending in May, which addresses these concerns over aggressive lending activities. APRA is now currently taking submissions in response to the guide, and is in talks with the banks about mortgage-related risk.

COMMENTS

  • by Patrick Marion 28/07/2014 10:34:50 AM

    Doesn't APRA know that the banks' qualifying rate to test eligibility is nothing like the rates being offered at present?

    Maybe we should get them to do a Certificate IV in Financial Services!

  • by MCC 28/07/2014 10:37:42 AM

    Couldn't agree more - It is now even more imperative that good credit risk policy is maintained & that we ''credit Advisers'' are doing our jobs to the best of our abilities! Remember WE don't have to chase 'sales targets'!

  • by Allan Faint 28/07/2014 10:48:23 AM

    While rates were droping after the GFC, the bank kept about 2% of the RBA variable rate reduction to boost their profits. Why was treasury not worried about the poor home buyer then? The RBA does not appear to be too concerned, so appears to me as if treasury is trying to put pressure on the RBA. Why? The banks are finaly giving a little back, though I bet they will make another record profit this year. Most other business are just happy to make a profit each year.