Regulators not concerned as home lending hits new record in April

Financial regulators are on alert as homebuyers take on more debt to keep up with rising property prices, but for now, they say there’s still no cause for concern.

In its quarterly statement, released Thursday, the Council of Financial Regulators said it had sought assurances from Australia’s largest banks that they are managing risks within their home loan portfolios and not taking on riskier loans.

The group, made up of the RBA, Treasury, APRA and ASIC met last week to discuss the recent pickup in household borrowing.

“There have been signs of some increased risk taking recently, but overall lending standards in Australia remain sound,” the statement said.

Addressing a conference in Toowoomba on the same day, RBA Governor Philip Lowe said the group had discussed possible policy responses, such as restrictions on debt-to-income loans.

“But we’re not at the point where we’re actively considering it,” Mr Lowe said.

Record loan commitments in April

The latest lending data from the Australian Bureau of Statistics showed new home loan commitments rose 3.7% in April to a new record high, with $31 billion of new loans approved during the month.

The growth was dominated by NSW and Victoria, which together accounted for the majority of the rise in owner-occupier housing loan commitments across Australia.

Nationally, owner-occupiers continued to take on the bulk of new loans issued as buyers take advantage of record low interest rates, borrowing $23 billion in the month.

“The rise in owner occupier lending was driven by increased loan commitments for existing dwellings, which rose 9.2%,” ABS head of finance and wealth Katherine Keenan said.

Investors are also returning to the market with approvals for mortgages hitting a four-year high.

“New loan commitments for investors rose 2.1% to $8.1 billion, which was the highest level since mid-2017,” Ms Keenan said.

While the total value of loans rose in April, the number of loans issued dipped by 0.6%, implying people are taking on larger mortgages.

Westpac economist Matthew Hassan said some of this will be compositional, with ‘upgraders’ becoming more active than first-home buyers.

“But some of this is also a reflection of the need to increase loan sizes to keep up with sharply rising prices,” he said.

Lending for the construction of new homes fell for a second straight month, as the federal government’s HomeBuilder grant came to an end.

“Loan commitments to owner occupiers for the construction of new dwellings fell by 11.4%, following a fall of 14.8% in March,” Ms Keenan said.

“These were the first monthly declines since the HomeBuilder grant was introduced in June 2020. However, the value of construction commitments remained at a high level.”

HomeBuilder was reduced from $25,000 to $15,000 in January this year and was closed to new applications from mid-April.

Lending standards remain intact

Home lending has now reached a new record for the sixth consecutive month, raising concerns that regulators could be forced to implement restrictions on lenders in order to cool the overheated housing market.

But in a Senate estimates hearing on Wednesday evening, RBA assistant governor Michele Bullock said so far they haven’t seen signs of deteriorating lending standards.

“APRA works very closely with the banks. And we liaise with the banks, with APRA as well, to understand. At the moment, our view is that the lending standards are not being relaxed,” Ms Bullock said.

“There’s still enough credit there, and we’re seeing that in that housing credit is growing. But we’re not seeing that in increasing credit, that there is a relaxation in lending standards,” she said.

Data released by the RBA showed credit for housing rose 0.5% in April to be 4.4% higher than the same month a year ago.

Credit growth calculates the change in home loan balances, which is influenced by both the amount households borrow and how much is being repaid.

In the past, the banking regulator APRA introduced limits on investor loans and interest-only lending.

But economists at CBA said they don’t expect financial regulators to reintroduce restrictions on lending this year.

“We do not expect APRA to reintroduce macro‑prudential measures in 2021 to cool the housing market largely because we do not think the stock of housing credit will rise fast enough for the regulator to act,” CBA economist Gareth Aird said.

“In addition, the flow of interest-only loans remains low relative to the recent past,” he said.

Mr Aird said regulators may be more likely to act if first-home buyers are priced out of the market.

“The early evidence indicates the baton has now been passed from first-home buyers to investors. This means that investors will play a more dominant role as the driver of further home price rises and that may cause APRA some discomfort,” Mr Aird said.

Lending to first-home buyers has now fallen for three straight months.

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