APRA talks down Sydney and Melbourne property lending constraints

APRA has played down the case for city-specific restrictions to curb the booming Sydney and Melbourne housing markets. Photo: Michel Bunn APRA chair Wayne Byres has raised concerns over bank lending. Photo: Ben Rushton
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The banking regulator has played down the case for city-specific restrictions to curb the booming Sydney and Melbourne housing markets, in contrast to the approach taken by New Zealand regulators in Auckland.

Wayne Byres, chairman of the Australian Prudential Regulation Authority, also flagged a potential delay in the next wave of bank capital rules, as complex global negotiations take longer than expected.

In a speech on the $1.3 trillion home loan market, Mr Byres on Wednesday signalled risky home lending had been wound back and responded to suggestions that APRA should consider measures specific to Sydney and Melbourne, as this is where the property markets have been hottest.

The Reserve Bank of New Zealand has forced investor buyers in Auckland to have larger deposits than buyers in other parts of the country.

While he did not rule it out, Mr Byres outlined several reasons against this approach, and signalled APRA was keen to first assess the impact of recent moves by banks to tighten lending and raise interest rates for investors.

“Our mandate is to preserve the resilience of the banking system, not target housing prices in a particular region of the country,” Mr Byres said.

He added there were risks in the home loan market in other parts of the country, and ensuring higher lending standards was just as important in areas with weak property markets as those experiencing booms.

“Sound lending standards – prudently estimating borrower income and expenses, and not assuming interest rates will stay low forever – are just as important, and maybe even more so, in an environment where price growth is subdued as they are in markets where prices are rising quickly,” Mr Byres said.

Latest figures from CoreLogic RP Data show Sydney home prices are up 18.4 per cent in the last year and up 11.5 per cent in Melbourne, amid very strong demand from investors.

After National Australia and ANZ Bank recently reclassified billions of loans as investor loans rather than owner-occupier loans, Mr Byres said such changes were “definitely to be avoided in the future”.

APRA is forcing banks to slow growth in their housing investor loan portfolios to less than 10 per cent a year, which has prompted banks to tighten credit and raise interest rates for investor customers.

Mr Byres welcomed moves by banks to test borrowers’ sensitivity to higher interest rates more rigorously, saying they gave “greater comfort” about the quality of new loans being written.

However, he said the moves by the major banks to raise interest rates “may well have limited impact on loan growth given the tendency for competitors to match pricing changes”.

Aside from curbing loan growth, banks are also being forced to hold billions more capital against mortgages, and some analysts have predicted a further increase in their capital requirements due to the next wave of global regulations known as Basel IV.

It had been expected some of these would be finalised by the end of this year, but Mr Byres said this was a “very ambitious” timetable and instead flagged a “a slightly longer period of uncertainty” for banks.