SYDNEY (Reuters) – Australian regulators said on Tuesday that they would take a tougher line on risky mortgage lending, seeking to pre-empt the threat of a housing bubble and targeting a key plank of growth for the country’s major banks.
The moves, aimed predominantly at housing investors, followed warnings from the central bank about the growing risk posed by rapidly rising house prices in Australia’s major cities – already among the world’s most expensive.
But they fell short of the widespread macro prudential measures that some market watchers had feared, setting targets that most banks were already meeting.
The Australian Prudential Regulation Authority (APRA) told banks to limit growth in loans to investors to 10 per cent per year. Banks should add a two per cent interest rate buffer on mortgages and have an interest rate floor of seven per cent while assessing borrowers’ ability to repay their loans, it added.
“These steps represent a dialling-up in the intensity of APRA’s supervision, proportionate to the current level of risk and targeted at specific higher risk lending practices in individual (banks),” APRA Chairman Wayne Byres said in a statement.
The Australian Securities & Investment Commission (ASIC), in a separate statement, said it was ramping up surveillance into interest-only loans, a favourite with housing investors who enjoy big tax benefits with highly geared properties.