Lending curbs likely as RBA keeps rates at a record low

Lending curbs that will limit the amount many people can borrow to buy a property are likely to be introduced later this year or early next year, as official interest rates stay at record lows.

The Reserve Bank of Australia board kept the cash rate at 0.1% on Tuesday, while maintaining there will not be a rate rise before 2024.

RBA governor Philip Lowe said regulators have been discussing the risks of a rapid growth in housing credit at a time of record-low interest rates.

“Housing prices are continuing to rise, although turnover in some markets has declined following the virus outbreak,” Mr Lowe said in a statement after the monthly board meeting.

“Housing credit growth has picked up due to stronger demand for credit by both owner occupiers and investors.

“The Council of Financial Regulators has been discussing the medium-term risks to macroeconomic stability of rapid credit growth at a time of historically low interest rates.

“In this environment, it is important that lending standards are maintained and that loan serviceability buffers are appropriate.”

The Council of Financial Regulators, which includes the RBA and Australian Prudential Regulation Authority, has been discussing possible macroprudential policy responses or lending restrictions, with housing credit growth accelerating as property prices surge.

It now appears to be a matter of when, not if, macroprudential controls are reintroduced, according to realestate.com.au economists.

“It seems like a foregone conclusion,” realestate.com.au economist Paul Ryan said.

“They’re likely to go after high-debt borrowers but I would guess that they’re going to tweak serviceability buffers as well.”

The Council of Financial Regulators last week noted commitments for new housing loans remain at a high level, suggesting credit growth is likely to remain relatively strong.

“The council is 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,” it said in its quarterly statement.

APRA plans to outline its framework for implementing macroprudential policy over the next couple of months, the council added.

ANZ and Commonwealth Bank of Australia economists expect a tightening in macroprudential policy by the end of this year or early 2022, while AMP Capital predicts controls will be introduced by the end of 2021.

Mr Ryan said late 2021 or early 2022 seemed likely.

“I would guess by the end of this year but there’s a possibility it will be early next year,” he said.

UBS economists said their base case remained no tightening in the near term, but a period of sustained strong house price and credit growth would be consistent with a policy response, most likely around the June 2022 Council of Financial Regulators meeting.

RBA data on Thursday showed housing credit grew by 6.2% in the year to August.

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