What tighter APRA lender policies will mean for you
Earlier this year APRA - the prudential regulator - directed banks to increase mortgage lending rates to residential investors.
This policy initiative was implemented to reduce the level of growth of lending to investors which at recent levels was perceived by APRA to be increasing risk and raising the prospect of instability in the banking system.
The obvious catalyst for increasing risk for banks would be falling house prices creating a sell-off mentality particularly from investors that would become self-perpetuating.
Although APRA has indicated that sharply higher house prices in some markets have been a motivating factor for its recent policy initiatives, it also indicates that its agenda is pursued regardless of the path of house prices, interest rates and broader economic activity.
Surely the key drivers of the health of Australian banks are fundamentally the direction of house prices reflecting broad supply and demand dynamics and monetary policy, and the significant influence this has on economic activity generally.
APRA policies have also resulted in higher interest rates for owner-occupiers with Westpac recently announcing an increase in mortgage rates to its customers to offset the impact to its profitability from directions to hold higher levels of capital reserves.
Housing markets are generally highly sensitive to interest rate movements and this sensitivity has been clearly revealed in steep falls in investor lending in recent months and sharply lower home auction clearance rates.
House price growth levels are now falling sharply in the previously strong Melbourne and Sydney markets and remain recessed in most other capitals.
Perhaps the recent actions by APRA increasing mortgage rates will encourage the Reserve Bank to cut official rates as an early Christmas present to retailers and help resuscitate a continuing dormant economy.
Australian capital city housing markets typically produce orderly growth and correction phases through the cycles that principally reflect the inherent risk aversion of established mortgage lending practices. T
his remains a significant force in maintaining local housing market resilience and confidence over the longer-term.
Hopefully recent actions by regulators interfering in market dynamics against the broader macroeconomic environment with a one-size-fits-all model won't be throwing out the baby with the bath water by exacerbating the very risks these policies were designed to mitigate against.