- The Treasurer has given his support for regulators to crack down on high-debt home loans
- Financial regulators plan to control the increase in high debt-to-income ratios among borrowers
- Economist Dr Wilson said there is no case for interference
Treasurer Josh Frydenberg has given his support for regulators to crack down on high-debt home loans to reduce financial risks from record-low interest rates and surging property prices.
This comes as financial regulators work on plans to control the increase in high debt-to-income ratios among new borrowers thanks to low mortgage rates enabling home buyers to borrow larger amounts.
According to the Australian Prudential Regulation Authority (APRA), more than one in five home buyers are now borrowing more than six times their incomes.
Mr Frydenberg said the low interest rates have allowed strong growth in housing markets in the country and overseas.
“A positive feature of this housing cycle compared to that of the last is a higher proportion of first home buyers and owner-occupiers entering the markets,” he said.
However, he said with Australia’s economy set to recover after the COVID-19 pandemic it is important to assess the appropriateness of Australia’s macro-prudential settings.
“Carefully targeted and timely adjustments are sometimes necessary.”
Josh Frydenberg
“There is a range of tools available to APRA to deliver this outcome,” Mr Frydenberg said.
Investors
Investors have overtaken first home buyers in taking out more home loans in recent months, and they tend to have a higher debt-to-income ratio too.
In July this year, new home loan commitments to investors increased by 1.8% bringing the monthly total to $9.35 billion, according to the Australian Bureau of Statistics.
Economist criticises potential regulations
Consultant economist at Bluestone Home Loans Dr Andrew Wilson said “any action to target investors would only exacerbate the imbalances caused by previous similar interventions, accelerating housing shortages and driving rents even higher.”
“Concerns over possible overborrowing exposing borrowers in a bull market are not supported by current data that reveals continuing low levels of mortgage arrears and defaults despite recent volatile economic conditions, and reflects the maintenance of strict lending conditions by financial institutions.
“Reducing housing demand would also impede economic activity generally during a period of significant economic lockdown stress, impacting state governments particularly through reduced stamp duty collections,” he said.
Dr Wilson said the perception of housing markets overheating is a result of a near-term increase in interest rates and is typically used as a justification for policy interventions.
