The Australian Prudential Regulation Authority (APRA) will maintain its current macroprudential policy settings, including the 3% mortgage serviceability buffer, following its latest review of domestic and global financial risks.
The decision comes as household debt remains high, credit growth accelerates, and interest rates are expected to decline – a combination that could elevate systemic risk if not managed carefully.
FBAA managing director Peter White said the change would allow more buyers to enter or stay in the market – particularly those blocked despite being able to service loans in real-world conditions.
APRA chair John Lonsdale (pictured top right) confirmed the key macroprudential settings will stay unchanged for now:
“Over recent months, we have seen credit continuing to flow to different borrower segments, including to first-home buyers,” Lonsdale said in a media release. “Declines in inflation and interest rates have eased financial pressures on borrowers and increased borrowing capacity for new borrowers, and lending standards remain sound.”
However, he warned that lower rates could eventually reignite riskier lending behaviour.
“Should interest rates fall significantly further while labour markets remain robust, that has historically led to higher credit growth and leverage, higher house prices and often more risky lending, such as high debt-to-income and investor lending,” Lonsdale said.
While APRA views current lending conditions as stable, it is preparing to consult regulated entities on the technical aspects of other macroprudential tools – including potential limits on high debt-to-income lending or investor loans.
“To ensure such tools can be activated in a timely manner if needed, we will shortly begin engaging with regulated entities on implementation aspects,” Lonsdale said.
He added that Australia’s elevated household debt remains a “key vulnerability,” given the financial system’s heavy exposure to residential mortgages.
Lonsdale reiterated that macroprudential policy must remain forward-looking.
“Although lending standards are currently sound, it’s important to be prepared for potential risks at future points in the financial cycle,” he said.
Mortgage brokers are encouraged to stay alert to emerging changes in credit conditions, lending standards and interest rate movements, particularly as APRA and the Council of Financial Regulators step up monitoring of systemic risk.
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