APRA issues lending alert
Australia's banking regulator has raised significant concerns about debt.
“Household indebtedness is high. Perhaps more importantly, the trajectory is clearly for it to rise further,” Australian Prudential Regulation Authority (APRA) chairman Wayne Byres told a business conference in Sydney this week.
“Lenders need to be vigilant to ensure their policies and practices are both prudent and responsible,” he said.
“In short, heightened risk requires heightened prudence by APRA but also — and preferably — by lenders and borrowers themselves.”
Mr Byres said the regulator had seen only “slight moderation” in borrowers being granted loans that represent six times their income.
These loans require borrowers to commit half their after tax earnings to repayments.
“High LTI (loan-to-income lending) in Australia is well north of what has been permitted in other jurisdictions grappling with high house prices and low interest rates such as the UK and Ireland,” Mr Byres said.
Housing loans make up over 60 per cent of lending in the Australian banking sector, so the regulator says it is highly important to restrict loans to investors or risk creating a real estate bubble in Sydney, Melbourne and parts of Brisbane.
Mr Byres housing borrowers need loans they can realistically service.
“We have confirmed there is more to do in this area to improve serviceability measures, particularly in relation to the assessment of living expenses and the identification of a borrower's existing debts,” he said.
“Low net income surplus borrowers are obviously vulnerable to shocks.
“We have been challenging lenders to ensure that their serviceability methodology is robust and that includes adequate conservatism to ensure that borrowers are not unduly exposed if their circumstances were to change.”