Australia’s Financial Regulator Isn’t Easing Home Lending Rules
The Australian Prudential Regulation Authority (APRA) said it is not going to ease home loan lending rules as the financial system remains a matter of concern.
APRA said it will continue with its tight home loan lending rules as the overall risk to the country’s financial system remains high. The regulator highlighted that there are several factors behind its decision, such as:
• Geopolitical tensions
• Uncertain interest rates
• High levels of household deb
• Inflation rate lying outside the central bank's target range
• Higher cost of living
APRA noted that the quality of new housing lending remains sound. As of now:
• The countercyclical capital buffer will remain at 1% of risk-weighted assets
• The mortgage serviceability buffer will be kept at 3%
• Lending limits have not been applied
The latest announcement means that Australia’s banks need to keep a 1% capital buffer so that they can remain resilient in the face of losses during a potentially turbulent market period. It also means that Australia’s lenders first need to check if a home loan borrower has the financial capacity to repay the loan at an interest rate that is at least 3% above the current home loan rates.
APRA Chair John Lonsdale said that business credit is rising above historical averages. However, commercial property prices continue to fall due to weakness in the office and retail sectors. Though the level of non-performing loans remains relatively low across both residential and commercial verticals, it has been trending upwards recently.
What the Market Indices Say
The S&P/ASX 200 index is a market-capitalisation-weighted and float-adjusted stock market index of stocks listed on the Australian Securities Exchange. The best-performing stocks belonged to the technology, finance, real estate, and energy sectors. Additionally:
• The interest rate in Australia stood at 4.25%
• The monthly Consumer Price Index (CPI) rose 4% year-on-year (YoY) in May, way above the Reserve Bank of Australia’s (RBA) target range of 2-3%
• Australia’s stock market has been doing rather well of late. The S&P/ASX 200 index closed 0.86% higher at 7,986.6 points on 29 July
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