Banking regulator APRA’s increase of 50 basis points to the 2.5 percentage point buffer over which lenders are required assess an applicant’s ability to repay their loans likely reduced maximum borrowing capacity by 5 per cent in some cases, APRA’s executive director for policy and advice Renee Roberts said.
“We expect that that reduces the maximum borrowing capacity of someone who is at the limit by approximately 5 per cent,” Ms Roberts told the Parliamentary inquiry into housing supply and affordability.
“We see that the impact will [be] larger for investors than owner occupiers because investors tend to move more highly leveraged and … but it does impact all borrowers, particularly if you are at that margin.”
Inquiry panel member MP Matt Thistlethwaite asked Ms Roberts if APRA had avoided measures such as controls in interest-only loans because of criticisms that the regulator’s previous measures affected the ability of smaller lenders more than the big four banks to keep lending.
Ms Roberts replied the regulator sought for “competitive neutrality” with all its measures but said this latest round of measures reflected a different situation from the last time.
“Last it was about lending standards … we were worried about that higher-risk end of the market. This time it is about what we saw as the credit growth and higher deb to income,” she said.
“This one was targeted very much at serviceability as opposed to what we did last time, which was around high LVR investor and interest-only lending.“
Separately, Ms Roberts said APRA’s Basel III capital package – which it would release next week – would not increase the overall level of capital banks were required to hold in case of systemic shocks.
“But we do we do believe the Basel III package will improve flexibility and the strength and stability of the financial system,” she said.
APRA’s general manager for policy, Gideon Holland, said Australian lenders were already in the global top quartile for buffers and the new package did not require these to be raised further.
“But what they do is strengthen minimum requirements and buffers to make sure that level of capital is locked in for the future,” Mr Holland said.