APRA has made its long expected changes to home lending conditions, tightening regulations on banks and lenders in an attempt to constrain Australia’s runaway housing market.
Writing to ADIs, the regulator said that its expectations are now that they will judge borrowers at 3.0 points above the product rate, up from 2.5.
This has been foreshadowed for several months: CBA changed its assessment rate as long ago as June, while Treasurer Josh Frydenberg signalled last week that he would ask APRA to update regulations.
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“In taking action, APRA is focused on ensuring the financial system remains safe, and that banks are lending to borrowers who can afford the level of debt they are taking on – both today and into the future,” said APRA chair Wayne Byres.
“While the banking system is well capitalised and lending standards overall have held up, increases in the share of heavily indebted borrowers, and leverage in the household sector more broadly, mean that medium-term risks to financial stability are building.
“More than one in five new loans approved in the June quarter were at more than six times the borrowers’ income, and at an aggregate level the expectation is that housing credit growth will run ahead of household income growth in the period ahead. With the economy expected to bounce back as lockdowns begin to be lifted around the country, the balance of risks is such that stronger serviceability standards are warranted,”