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Regulators are considering measures to address the growing risk that household debt exceeds income.
New home loans with debt at least six times greater than income hit a record 22% in the June quarter, down from 16% a year earlier.
Australia’s four financial regulators said in a statement on Wednesday that they were “aware that a period of credit growth significantly outstripping household income growth would increase medium-term risks facing the economy, even if standards loans remain healthy “.
“In this context, the Council discussed possible macroprudential policy responses,” the Board of Financial Regulators said in its quarterly statement.
“(The Australian Prudential Regulation Authority) will continue to consult the board on the implementation of any particular measures.
“Over the next two months, APRA also plans to publish a background paper on its framework for implementing macroprudential policy.”
The board – which includes APRA, the Australian Securities and Investments Commission, the Treasury and the Reserve Bank – said that despite lockdowns from COVID-19 and delays in economic recovery, the financial system has remained strong and was “well positioned to continue to support the economy”.
“Members expect the economy to rebound as vaccination rates rise and restrictions are relaxed, while acknowledging the uncertainties.”
Treasurer Josh Frydenberg, who attended the board meeting last week, said what was being seen in Australia was similar to what was happening around the world.
“Historically low interest rates (fuel) rising house prices,” he told reporters in Melbourne.
He said that while it was good to see first-time homebuyers coming into the market, it was important to be aware of the balance between credit and income growth.
“We also need to be aware of the future risks that build up in the system,†he said.
“This is why (regulators) are taking a very close look at the particular levers they have to ensure that we keep our housing market stable.”
In the past, regulators have looked at sustainability buffers and investor growth as part of the overall loan portfolio.
“They’re deliberating on it internally, but what we do know is that investors or first-time home buyers or whatever that might be affected by this will only be a very small proportion of the overall market,” Mr. Frydenberg.
“What these measures are designed to do – in the past and we will await any final decision from regulators in this case – is designed to prevent the build-up of future risks.
“Doing something now means it will take less later.”
The share of first-time homebuyers in the market has been bolstered by government support programs and bond systems.
Associated Australian Press
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