CBA: Lift loan buffers now to avoid problems later

CBA chief executive Matt Comyn has expressed concern about the speed at which property prices are rising and argued that banks should act now to cool the market before it becomes a much bigger problem.

“We think it would be important to take some modest steps sooner rather than later to take some of the heat out of the housing market,” Mr Comyn said.

The boss of Australia’s biggest bank was speaking on Thursday before a House of Representatives Economics Committee hearing on the four major banks, where he appeared with CBA’s deputy CEO David Cohen.

Mr Comyn said he wasn’t worried about mortgage stress or the levels of indebtedness by home buyers today.

“If we look at the simple numbers and the relative growth rate of housing over the last 12 months I am not concerned about the period just gone. But in terms of increasing housing debt and increasing house prices we are increasingly concerned,” Mr Comyn said.

The bank said it was seeing an elevated number of loan applications despite the lockdowns in Sydney and Melbourne and these combined with the trajectory of house prices signalled problems ahead.

“We have put up our benchmark floor rate to 5.25 per cent which is well above the rate customers would pay,” Mr Comyn said.

Mr Comyn said raising the serviceability floor was the preferred method of cooling housing market activity, rather than more blunt instruments used during other cycles. CBA moved the buffer to 5.25 per cent from 5.1 per cent in June.

“With caps around loan to valuation ratios, one of the disadvantages of that is some of those measures impact particular cohorts of buyers more than others such as first home buyers,” Mr Comyn said.

“If you are asking us what our preferred measure of implementation is, I would say the floor rate,” Mr Comyn said.

The floor rate or serviceability rate tests a prospective borrowers’ capacity to repay a loan at a higher rate.

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