Bubble worry brings APRA back to the fray
Weeks of guesswork ended on Friday, with APRA dictating a long list of new macroprudential policy measures.The professional worrywarts at the Australian Prudential Regulation Authority did not mess around in stating their rationale, citing "the resilience of lenders, as well as on the household sector more broadly."The context: "increased scrutiny of housing lending has been in response to an environment of heightened risks, which necessitates that lending standards across the ADI sector remain prudent and are adjusted, as needed, to changing conditions."The "changing conditions" and "heightened risks" received guarded elaboration, with the significance of metrics on property price growth, debt to income ratios and now four months of "out of cycle" home loan rate rises all assumed.APRA chief Wayne Byres did fold one curious perspective into a letter to all banks on Friday.APRA "has concluded that the ten per cent growth benchmark continues to provide an appropriate constraint in the current environment," Byres said, as he built up to an observation centred on animating lending for investors rather than reining it in, as all APRA's other measures aim to do.The existing growth benchmark, Byres added, was maintained to "balance the need to continue to moderate new investor lending with the increasing supply of newly completed construction which must be absorbed in the year ahead."The new measures are variations on the theme of APRA's debut macroprudential policy measure around 18 months ago. This was its already influential "speed limit" (a cap of ten per cent on growth in investment lending at any one ADI) buttressed by long standing work on lending standards overall.In a letter to all banks on Friday, APRA chief Wayne Byres explained the regulator "continues to monitor the prevalence of higher-risk mortgage lending more generally. "This includes lending at high loan-to-income ratios, lending at high LVRs, and lending at very long terms or with long interest-only periods (such as beyond five years)," Byres said. A limit on the flow of new interest-only lending to 30 per cent of new residential mortgage lending is the principal measure, one expected to inspire another round of interest rate rises, a drastic pull-back from the current supply, much of it for property investors. The prescribed proportion is about three quarters of that recorded recently, On top of this, banks must place "strict internal limits on the volume of interest-only lending at loan-to-valuation ratios above 80 per cent," APRA said.In an environment already coloured by intense regulator scrutiny of each bank's mortgage funding, activities, APRA warned of even more intrusion.For ADIs currently above this benchmark, APRA said it would be "discussing their plans to bring the share of interest-only lending down as quickly as possible."It said that "at an aggregate level [interest-only lending] creates additional vulnerabilities to 'payment shock'."The rest of APRA's and Byres' lecture to banks was more of the same, such as "review and ensure that serviceability metrics, including interest rate and net income buffers, are set at appropriate levels for current conditions."