That said, there is nothing wrong with APRA getting ahead of the curve and firing a shot across the bow of the banking industry.
Previous macroprudential measures, like a 3 per cent serviceability buffer for borrowers, have been highly effective in ensuring that the system has avoided being riddled with bad or delinquent home loans.
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The Australian financial system is one of the most robust in the world because regulation has served it well.
As it stands, the curbs announced by APRA on Thursday limit the proportion of loans made by banks to people whose total debts would be at least six times their income.
From February 1, the new limits will mean no more than 20 per cent of banks’ new mortgage lending will be available to customers borrowing six times their income or more.
While this applies across the board to owner-occupiers and investors, it is investor loans that are the true target of the regulator, given a larger portion of these riskier loans are being given to this cohort of the market.
But currently only 4 per cent of new owner-occupier home loans fall into this category and about 10 per cent of new investor loans.
For example, the country’s second-largest home lender, Westpac, originated 7.6 per cent of loans at or above six times debt-to-income, which was consistent with its numbers over the previous few years.
Thus, APRA gives new meaning to the term “abundance” in abundance of caution.
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APRA probably regards this as an insurance policy against the potential for banks to develop any additional to higher risk lending.
It is clearly concerned about the degree of household debt. In its system risk outlook delivered last week, APRA pointed to the gross debt of Australian households sitting at about 1.8 times their incomes, which makes the system vulnerable to shocks.
Whether APRA’s debt-to-income restrictions will cause collateral damage to those first home owners who the government’s deposit scheme is supporting remains to be seen.
The banks have not provided information on how many of these customers would be captured under APRA’s new curbs.
They could be advantaged if the hot housing bubble deflates, thanks to the possibility that the RBA’s interest rate cutting cycle has come to an end.
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