Lending for home loans is not slowing down

By Polly Stocks

Housing credit continued to rise in September with lending to investors again the prime mover, adding further fire to the hot debate surrounding regulatory measures and if they are needed to take the heat out of the Australian residential property prices.

New figures from the Reserve Bank of Australia showed growth in the owner-occupier and investor housing sectors. Overall private sector credit also continued to increase in September, rising 0.5 per cent for a 12-month gain of  5.4 per cent – the highest yearly figure since February 2009.

The data will continue to fuel speculation the RBA could be in need of tougher rules governing bank loans – or as they are known macro-prudential tools – to take the heat out of the housing market.

Doing so may keep the housing market from boiling over while at the same time keeping interest rates low to help the rest of the economy.

The housing figures from the RBA’s data today showed:

  • Overall housing credit rose 0.5 per cent in September – the for  August. This pushed the 12-month figure to 6.8 per cent, the highest since February 2011.
  •  Credit for owner-occupier housing rose 0.5 per cent in September, the same for August. This pushed the 12-month figure to 5.5 per cent, the highest since January 2012.
  • Credit for investor housing rose 0.9 per cent in September, compared to 0.8 per cent in August. This pushed the 12-month figure to 9.5 per cent, the highest since March 2008.

Nationally, housing prices have grown at 9.3 per cent over the past year. The RBA figures show that investor housing loans now account for roughly 50% of housing loans (excluding owner-occupier refinancing) – a record high. The data suggests that Investor activity has been particularly popular in New South Wales.

In September, RBA governor Glenn Stevens said macro-prudential tools are limited in use but he was open to considering them.

“I have certain scepticism about macro-prudential tools as a panacea, but I remain open to using them if it seems sensible to do so and that’s the kind of thing we have in mind right now,” he to

ld the Melbourne Economic Forum.

At the same time the RBA’s Financial Stability Review confirmed the central bank was talking with other regulators, including the banking regulator the Australian Prudential Regulation Authority, about steps to crack down on risky lending.

RBA assistant governor Malcolm Edey told a Senate committee there would be more to say about the discussions with regulators in “due course”. He indicated that there might be changes before the end of the year.

The three macro-prudential measures considered most likely to be implemented are;

  • stress tests – a bank would be required to challenge a borrower’s ability to repay a loan if the interest rate rose higher.
  • capital add-ons – require banks to hold more capital against interest-only loans, in the hope that banks would then seek to charge higher-risk borrowers higher interest rates.
  • loan-to-valuation caps – require a customer to put down a minimum level of deposit, as determined by the RBA, before getting a housing loan.

Such caps have been implemented in New Zealand but are considered unlikely to be implemented in Australia.

Source – Kiama Independent , Lake Times, The Sydney Morning Herald

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