Think Big: More macro-pru could be on the way if Australia’s housing market ‘fails to cool’
Link copied to
Regulators took efforts to tap the brakes on Australia’s booming property market this week, with the latest round of macro-prudential lending restrictions.
Instead of assessing mortgage applications by testing serviceability if rates were 2.5% higher, applicants will now have to show they can service the loan if rates were 3% higher.
The move follows recent data from the RBA which showed a material uptick on the number of new loans being issued at debt-to-income ratios of 6x or more.
But don’t expect a reversal of the booming FY20 gains anytime soon.
Analysts at both UBS and CBA still expect house prices to rise steadily next year.
In that context, CBA economists Gareth Aird and Kristina Clifton note perused the RBA’s latest Financial Stability Review (FSR) — released on Friday — for any new/extra housing market content.
They noted that while the central bank has flagged a possible build-up of credit risk in the housing market for some time, that rhetoric has been ratcheted up again in more recent communication.
In its FSR on Friday, the central bank devoted an entire section to ‘mortgage macro-prudential policies’.
It is now “crystal clear that the RBA will seek to have any concerns around an overheated housing market addressed through more macro-prudential policies from APRA”, Aird and Clifton said.
In other words, the central bank will not factor booming house prices into the outlook for interest rates.
Instead, markets should be on the lookout for more intervention by the banking regulator.
From a policy standpoint, the RBA’s standing on interest rates will be solely guided by the outlook for inflation and full employment, CBA said.
And that marks a notable shift from its communication in years past, Aird and Clifton noted.
Back in 2017 — RBA governor Philip Lowe’s first full year in the top job — regularly referenced risks in the housing market as part of the rationale for not dropping interest rates further.
More broadly though, this week’s macro-pru update may not be the last time regulators look to tap the brakes on house prices.
“Overall the FSR today paints the picture of a central bank that will be playing very close attention to the housing market and the dynamics around new lending, debt repayment and leverage,” CBA said.