The banking supervisor lifts a new credit cushion | Liverpool City Champion
Mortgage interest rates may be near their all-time low, but people applying for a new loan will need to make sure they are able to afford a much higher rate when they inevitably rise in the future. .
Against the backdrop of rising domestic house prices at their fastest pace in more than 30 years and strong demand for mortgages, the banking watchdog has asked the country’s lenders to increase the cushion. minimum interest rate when assessing the usefulness of mortgage loan applications.
The Australian Prudential Regulation Authority has told banks it expects 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 loan product.
This compares to a 2.5 percentage point buffer that is commonly used today.
APRA’s decision reflects the growing financial stability risks associated with residential mortgages and is supported by other members of the Board of Financial Regulators, including the Reserve Bank of Australia, the Treasury and the Australian Securities Commission and investments.
In determining its course of action, APRA also consulted the Australian Competition and Consumer Commission.
APRA President Wayne Byres said it was targeted and thoughtful action designed to strengthen the stability of the financial system.
“By taking action, APRA is working to ensure that the financial system remains secure and that banks lend to borrowers who can afford the level of debt they take on – both now and in the future. ‘future,’ Mr Wednesday said.
“While the banking system is well capitalized and lending standards have been broadly maintained, the increase in the share of heavily indebted borrowers and indebtedness in the household sector in general means that medium-term risks for the financial stability accumulate. “
He said more than one in five new loans approved in the June quarter was more than six times the income of borrowers.
And at the aggregate level, growth in housing credit is expected to outpace that of household income over the coming period.
“With the economy set to rebound as blockages begin to be lifted across the country, the balance of risks is such that higher service standards are warranted,” Byres said.
He said regulators would continue to closely monitor residential mortgage risks and take further action if necessary.
Associated Australian Press