Financial regulators monitor surging house prices

Financial regulators will more actively target credit growth, not house prices, when considering if they need to put the brakes on real estate loans.

At a meeting last Friday, the Council of Financial Regulators discussed credit conditions.

“Commitments for new owner-occupier housing loans have increased strongly in recent months, consistent with most other indicators of housing market activity,” the CFR said.

“There has been some increased availability of mortgage finance recently, though lending standards are generally being maintained at this stage.

“The Council places a high emphasis on lending standards remaining sound, particularly in an environment of rising housing prices and low interest rates.

“It will continue to closely monitor developments and consider possible responses should lending standards deteriorate and financial risks increase.”

The CFR is chaired by Reserve Bank of Australia governor Philip Lowe and attended by the heads of the Australian Prudential Regulation Authority, Australian Securities and Investments Commission and Treasury. The Australian Competition and Consumer Commission and Australian Taxation Office also attended Monday’s meeting.

When the RBA and APRA were alarmed about risky home lending standards in 2014, the regulator tightened the home loan rules for banks for about three years.

APRA introduced several so-called macro-prudential measures, such as caps on investor and interest-only lending, to help the RBA cool surging residential property markets in Sydney and Melbourne.

More recently, housing credit growth is picking up, but was still only a modest 3.5 per cent higher in 2020.

If housing credit growth jumps into double figures, before raising interest rates Australia’s financial regulators would likely more seriously consider putting the brakes on lending.

The RBA’s monthly board statement on Tuesday noted that housing credit growth to owner-occupiers had picked up, but investor and business credit growth remain weak.

“Lending standards remain sound and it is important that they remain so in an environment of rising housing prices and low interest rates,” Dr Lowe said on Tuesday.

Read MoreFinancial regulators monitor surging house prices

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