APRA (Australian Prudential Regulation Authority) is unlikely to use heavy handed macro-prudential measures such as imposing loan to income rules to subdue property investment.
Wayne Byres, chairman of APRA, told the Standing Committee on Economics in Canberra today that many appeared to believe APRA planned similar measures introduced in other jurisdictions such as loan to valuation caps and loan-to-income limits.
“We are still working through our options but, as I have said elsewhere, those sorts of tools are unlikely to be the ones we reach for first,” Byres told the committee.
The Reserve Bank has said the composition of housing and mortgage markets is becoming unbalanced, with new lending to investors out of proportion to that of owner-occupiers.
However, Byres says APRA continues to encourage banks to reinforce sound lending standards.
“And we have been discussing with other agencies on the Council of Financial Regulators what additional steps we might reasonably take to further assist in this regard,” he says.
APRA recently conducted a comprehensive stress test of the largest banks against a scenario which included a substantial economic slowdown and a significant fall in house prices.
“The good news was that the lenders subject to the test remained above their minimum capital requirements even in the extreme scenario,” he says.
“The caveat to that is that we also concluded more work needs to be done to make sure that, having survived the stress, they would also make a speedy recovery and be able to continue to support their customers through difficult times.”