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A global credit rating agency says the decision by the Australian banking supervisor to tighten lending rules for new home loans is a positive step for the banking industry’s long-term risk profile. But Fitch Ratings says the revised rules are unlikely to lead to any immediate changes in banks’ credit ratings. The Australian Prudential Regulation Authority has told banks it wants them to assess the ability of new borrowers to repay their loans at an interest rate at least three percentage points higher than the rate on the loan product they they are asking. This compares to the 2.5 percentage point maintenance buffer that has been commonly used. “The measures announced, like similar measures previously, are aimed at preventing new risks from developing and having a significant systemic impact in the event of a severe downturn,” Fitch said in a statement Thursday. Treasurer Josh Frydenberg believes the move is “prudent and targeted”, coming at a time of low interest rates and following a dramatic rise in house prices. APRA’s move came amid the fastest rise in house prices in over 30 years and strong demand for mortgages with interest rates at historically low levels. Shadow Treasurer Jim Chalmers said housing affordability is a major issue for Australians. “Labor supports regulators doing what they can to ensure that the flow of finance for housing is more sustainable and appropriate,” he told AAP. New figures from CoreLogic show that the value of the Australian residential real estate market has now exceeded $ 9 trillion, just five months after reaching $ 8 trillion. CoreLogic’s head of research, Eliza Owen, agreed that affordability is a growing challenge for many segments of the market, but particularly for first-time homebuyers who have not benefited from home ownership. as a source of wealth creation. “APRA’s announcement this week of further tightening of service buffers is a subtle approach to financial stability and much less likely to move the housing market into negative territory,” Ms. Owen said. St George’s chief economist Besa Deda described it as a “light touch” to mitigate housing risks. “We expect the pace of house price growth to slow further, but price declines are unlikely to materialize in the short term from (these) measures alone,” she said. However, Housing Industry Group chief economist Tim Reardon questioned the decision, saying Australia has a strong financial sector. “It has withstood major shocks, such as the global financial crisis and the COVID recession, without the emergence of financial contagion,” he said. “Restricting access to credit for new households seeking to enter the housing market will put further downward pressure on the homeownership rate in Australia.” Property Council of Australia chief executive Ken Morrison said while he understood the rationale for APRA’s decision, its impacts should be monitored in the new year before any further action is considered. “It will be vital for the government and the regulator to closely monitor the situation until 2022, to ensure that their efforts do not undermine market confidence during our economic recovery,” Mr. Morrison said. Australian Associated Press

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