The federal treasurer has given the strongest indication yet that a home loan crackdown is coming, stating that “carefully targeted and timely adjustments” may be necessary to avoid troubled waters. So what could a potential lending crackdown look like?
Lending standards and fast-rising property prices have been hot topics of late.
Interest rates are at record-low levels, and the typical Australian home has seen its value increase more than 18% over the past year – the fastest annual pace of growth since the late 1980s.
It’s a recipe that’s making financial regulators a touch worried that some homebuyers are starting to stretch themselves too thin and borrow more debt than they can safely afford.
So federal treasurer Josh Frydenberg recently met with the Council of Financial Regulators – which includes APRA, ASIC, the Australian Treasury and the RBA – to discuss the state of the housing market.
“We must be mindful of the balance between credit and income growth to prevent the build-up of future risks in the financial system,” Mr Frydenberg said in a statement.
“Carefully targeted and timely adjustments are sometimes necessary. There are a range of tools available to APRA to deliver this outcome.”
What could this possible crackdown look like?
Here’s an interesting stat for you: almost 22% of Australians have a mortgage debt that’s more than six times higher than their annual income, according to the latest data from APRA.
That’s up from 16% just one year ago.
The fact APRA mentions that particular stat gives us a pretty good clue as to what one possible lending crackdown measure could be.
“Most analysts expect that this time, APRA will target debt-to-income ratios, probably by limiting the proportion of loans that can be made above six times an applicant’s household income,” explains the ABC.
It’s also worth noting that Mr Frydenberg and APRA are not the only ones to publicly indicate that change could be on the horizon – the RBA expressed similar concerns about the increase in housing prices and housing debt just days ago, too.
“Even though the banks have strong balance sheets and lending standards are being maintained, there is a risk that in this environment, households will become increasingly indebted,” RBA assistant governor Michele Bullock wrote.
“A high level of debt could pose risks to the economy in the event of a shock to household incomes or a sharp decline in housing prices. Whether or not there is need to consider macro-prudential tools to address these risks is something we are continually assessing.”
Want to know how a potential lending crackdown might affect you?
It’s worth reiterating that we still have very limited information available about what financial regulators have in mind for any potential lending crackdowns.
What we can do, however, is help you assess your potential debt-to-income ratio on any property purchase you currently have in mind. And we can also help you determine your borrowing capacity in the current lending landscape.
So if you’d like to find out more, get in touch today. We’d be more than happy to run you through it all in more detail according to your personal circumstances.