APRA readies to drop hammer on mortgage market

For months we have been warning that the Australian Prudential Regulatory Authority (APRA) would impose macro-prudential mortgage restrictions to cool the market by the end of the year or early next, such as loan-to-value ratio (LVR) restrictions, debt-to-income (DTI) restrictions, increased mortgage buffers, or restrictions on interest-only lending.

These types of restrictions were imposed by APRA in December 2014 and March 2017 and quickly reduced credit growth in the targeted mortgage products.

Today, The Australian reports that APRA is becoming increasingly concerned about the frenzied pace of mortgage lending and has written to banks to put them on notice:

The letter from the head of the Australian Prudential and Regulation Commission sent to the boards of the biggest banks warns lenders to be “especially vigilant in managing the risks within their residential mortgage portfolios in the current environment”.

The letter, released under freedom of information rules, also gave bank boards just weeks to sign off on assurances that lending growth across the sector wasn’t reckless…

APRA chairman Wayne Byres told the banks in the letter, dated April 23, that the lending growth was coming in a backdrop of “extraordinarily low interest rates, high household indebtedness and accelerating housing prices”…

While borrowers were expected to have serviceability buffers in place it was important that “excessive debt levels are not being incurred by customers during a period of exceptionally low interest rates,” Mr Byres said.

The chair of the Council of Financial Regulators, Reserve Bank of Australia (RBA) governor Phil Lowe, also told a parliamentary committee on Friday that he couldn’t “rule out regulators taking action to curb excessive household credit growth over the coming year… APRA at some point would be preparing interventions”.

Australian new mortgages

Growth in investor mortgage commitments, in particular, has surged. 

So, with the RBA even less likely now to raise interest rates given the nation’s various lockdowns, and house prices and mortgages continuing to grow at a swift pace, the odds of APRA intervening with macro-prudential mortgage restrictions have increased.

The latest Delta lockdowns have pushed back the date for tightening a little, with Phil Lowe last week also suggesting that it would not happen this year.

That will take us into the question of whether regulators will pull the trigger before next year’s federal election, due in May.

Either way, macroprudential tightening is visible and approaching.

Unconventional Economist
Latest posts by Unconventional Economist (see all)


    • If too much money lent out APRA will get upset and relax lending standards to ensure house prices don’t fall.

  1. One of those little pinky fluffy hammers, that tickles a little bit but mostly feels quite nice. Oh hit me big Wayne, hit me as hard as you can!

  2. “Either way, macroprudential tightening is visible and approaching.”

    Just bought a house – this is so badly needed.
    I see people stretching budgets hugely. The pattern seems to go:
    – find out how much I can borrow
    – add my deposit
    – spend that much

    Very few spend under their budget – mostly because they think it’s a one way bet.

    I would have waited, but the changes in price were negligible in my scenario – the lifestyle/family benefits outweighted the financial gain.

    • “– find out how much I can borrow
      – add my deposit
      – spend that much”

      Exactly. Prices are set by availability of credit, therefore there’ll be no effort to disrupt its flow.

    • For most of the popular markets, people aren’t borrowing to their maximum lending capacity because they want to, If you are not a beneficiary of skyrocketing household equity then you are most likely doing so because you have to.

  3. They won’t even need to worry about MPLOL

    10 year US bond yields are going up to 3%, looks they have found a bottom

    Home loan interest rates will follow bond yields up into end of year

    Think we will see some nice rises into Xmas

    Fixed rates up 3.50 to 4% variable not sure but higher, probably same

    What are we 2.20% to 2.50% type of range

    3.50 to 4.0% is enough to hurt & scare many

    The financial markets are going to take care of this for them

  4. Martin Van Buren

    120% of new mortgages – from a normal base of 20-30%

    Population CRASH of negative NET 100,000 people

    Yeah – this is completely normal market activity.

    And yet 12 months ago the RBA was claiming a total collapse of the housing market was imminent – so handed banks $200 Billion in free fund to deal with it.

    I wonder why houses are sitting on the market in Northcote, Ivanhoe, Alphignton, Geelong, Eaglemont, Fairfield, Brunwick and many other places for months and months and months??

    There is literally nothing I believe about this data – absolutely nothing at all.

    ! bedroom Apartments are listed for sale in St Kilda, Carlton CBD in Melbourne for approx $100k – 2 years ago these were $400k

    Make on offer of $80-$90k and they will jump on it.

    Boom times.

    • What applies to sh!tty little apartments in bumf^ck nowhere doesn’t apply to the broader market. I watch Sydney closelyand have done for ~2 years. It is off the chain.

  5. How can these so called regulators not react when the current peak is double the last 4 peaks over the last 20 years???
    Utterly corrupt.

  6. Reus's large MEMBER

    Wet lettuce leaf hammer to flap out a lot of MPLOL ….

    Just a whole lot of seen to be saying something and actually do what they have done for the last however long and do SFA.

    The day they do any MP is they day I step outside with my camera to film a herd of flying pigs (actual pigs not Scummo in his plane) in formation doing aerobatics

  7. I hate to say it but we aren’t quite at the ridiculous levels like NZ or the Nordic countries.
    We are at silly levels no doubt, but it can get crazier and go on far longer than you think.