Financial regulators have confirmed they are moving to clamp down on housing market risks and are preparing to release lending restriction options within two months.
Ultra-low interest rates, strong demand for housing and soaring prices are stretching more borrowers into higher debt-to-income brackets.
The Council of Financial Regulators said on Wednesday that it was mindful that a period of credit growth materially outpacing growth in household income would “add to the medium-term risks facing the economy, notwithstanding that lending standards remain sound.”
“Against this background, the council discussed possible macroprudential policy responses,” the council said in a statement following its quarterly meeting on Friday.
“APRA will continue to consult with the council on the implementation of any particular measure.
“Over the next couple of months, APRA also plans to publish an information paper on its framework for implementing macroprudential policy.”
The council is chaired by Reserve Bank of Australia governor Philip Lowe, and its other members are Australian Prudential Regulation Authority head Wayne Byres, Australian Securities and Investments Commission boss Joseph Longo and Treasury secretary Steven Kennedy.
The confirmation comes after the The Australian Financial Review revealed on Tuesday that Treasurer Josh Frydenberg had backed ongoing work by independent financial regulators to potentially clamp down on rising debt-to-income ratios.
Mr Frydenberg and the Australian Competition and Consumer Commission attended part of the council’s meeting last week.
While regulators will not target house prices or affordability, debt-to-income is a key benchmark they are scrutinising and could apply so-called macro-prudential tools to.
More than one in five home buyers are now borrowing more than six times their incomes, a risk that could be felt if interest rates jump or people lose their jobs.
New residential mortgage loans where debt is at least six times greater than income jumped to a record-high 22 per cent in the June quarter, from 16 per cent a year earlier, according to APRA data.
Tightening debt-to-income mortgage rules to cool the property market would mainly hit investors, but some first home buyers in expensive Sydney and Melbourne could be caught unless there are concessions, analysts said.
In the quarterly meeting statement, the council said it had continued its dialogue on housing credit conditions and associated risks.
“Housing credit growth picked up over the first half of the year among both owner-occupiers and investors.
“The recent lockdowns have reduced transactions and new listings, but prices are still rising briskly in most markets.
“Commitments for new housing loans remain at a high level, suggesting that credit growth is likely to remain relatively strong.”
Housing credit has been growing at an annualised pace of about 7 per cent in recent months, more than double the rate of income growth, a trend the RBA has noted.