APRA chief hoses down housing intervention

Australian Prudential Regulatory Authority (APRA) chairman, Wayne Byers, has hosed down speculation that the regulator would take action to cool Australia’s rapidly rising property market:

“Risk for the financial system occurs when lending standards are poor or weak,” Mr Byres told a Committee for the Economic Development of Australia event.

“We don’t see that up to now – banks have done a pretty good job in holding lending standards up.”

The APRA chief also said that regulatory settings were “broadly right”, given that the agency’s mandate was broader than stability of the financial system at all costs.

This stance is no surprise. Wayne Byers’ APRA was found missing-in-action by the Hayne Royal Commission, yet he was reappointed by the Morrison Government. So why would Byers tighten before next year’s election? He owes his mate Josh Frydenberg.

That said, it is also more difficult to implement macro-prudential tightening this time around, given:

  1. The mortgage/property boom is being driven by owner-occupiers (especially first home buyers), rather than investors.
  2. The ratio of mortgage debt-to-income has actually fallen, due to rapid repayments by existing mortgage holders.
  3. Loan repayments (both principal and interest) are tracking at their lowest level in 18 years.
  4. Households have paid down debt and/or built up substantial liquidity buffers.
  5. The percentage of mortgages in negative equity has cratered.
  6. The share of high LVR lending remains low by historical standards.

In summary, financial stability risks have not yet increased sufficiently to warrant APRA imposing macroprudential tightening, especially given its deleterious impacts on first home buyers.

The situation could rapidly change, however, if investors take control and begin to crowd-out first home buyers, as occurred in prior cycles. Then APRA would be more likely emulate the RBNZ and introduce LVR caps on investor mortgages.

APRA should also consider getting ahead of the curve by reversing what did in 2019, and lifting the mortgage lending buffers back up. This would be an easier fix than tinkering with LVR changes.

Unconventional Economist


    • +1
      The system is doing what APRA wants, shoring up the collateral value of the bank balance sheets through higher house prices. Plus, the banks have probably promised to be good behind the scenes, I have noticed a shift in the bank driven propaganda in the last few weeks… ie Westpac saying price growth will cool etc…

      • happy valleyMEMBER

        Byers will be even happier if the price of his Pymble, Sydney home gets to the moon. Good news for Byers – a Killara home (dilapidated) sold for $2.05m in October 2018 and resold last weekend 2.5 years later, without a cent having been spent on it, for $4.325m (for basically a 1,230 sqm block of dirt) – buyer: Chinese.

  1. The median house price in Sydney I heard today was 1.3M. How are people servicing these loans?

  2. Even StevenMEMBER

    APRA previously (before 2019) required banks to calculate a borrower’s ability to afford a loan on the premise that interest rates should rise to 2.5% margin higher than current, and no less than a minimum of 7.25% (I might be slightly off on the numbers). The changes in 2019 dispensed with the 7.25% requirement, but retained (or lifted?) the 2.5% margin requirement.

    The 7.25% requirement has been around for eons (pre-dates my time in financial services) and was set at a time when interest rates were far higher and such levels were plausible for mortgage rates. In today’s lowflation, zero interest rate world, it seems reasonable to me that it should be at least reviewed. Whether dispensing with it entirely is appropriate – no idea.

  3. Australia leads the world again. Thank goodness it’s taken so very little time, to get back to million-dollar median house prices in Sydney and Melbourne. A triumph for aspirational public policy. And all done, without the usual tidal wave of migrants. Byers, Lowe, and Kennedy, how did you do it, you all deserve big Christmas bonuses.

  4. So you now need Minimum 1-2 years additional to “pay” off your shelter in 3 months,
    laissez-faire for asset hyperinflation, Crap your pants socialism if prices might go down because the “prudentially regulated” banking sector cant take it due to the over concentration on housing assets (in the banking sense).
    Great job Wayne. Give him life tenure.

  5. Ha Ha, lending standards aren’t weak until everyone’s house price goes down as this is where they are massively and mostly singularly leveraged. Beat that for circular sophistry! THe fault line running under absolutlely every single economic Australian activity and enterprise. Massive complex and totally unquantifed sytematic risk with undocumented spider web linkages everywhere. Australian housing is the free lunch that just keeps on giving to the central bank and the US seems to be catching on too now. Boom times ahead!

      • The logic is exactly as follow:

        I have 0% risk of catching herpes because I already have it. No worries.

        Byers has a throbing red rash from his balls right up to his chin.

    • This is why those fvkrs will burn this country down before letting the banks fail. Bank failure would expose the sham that is the Australian economy.

    • Jumping jack flash

      For sure.
      There was no need to lower lending standards this time, the government essentially handed everyone up to 40K to top up their deposits and then leverage it all at 95% LVR.
      Reducing lending standards would have helped of course, and Joshy boy certainly did try, but it wasn’t necessary.

  6. Jumping jack flash

    Nothing to worry about. APRA is right. The banks also know.
    If this “boom” is still going by the end of the year I’ll be very surprised.