When APRA announced last week that it wanted lenders to raise their mortgage serviceability buffers, it left the door open for more intervention if it sees the need. The emerging consensus is that it will do more.
A panel of mortgage industry representatives at the Citi Investment Conference was unanimous in saying the regulator was likely to take further steps to tighten the mortgage market.
Tim Lawless, Asia Pacific research director at CoreLogic said what APRA had done so far was “tinkering” and it could do more.
“The ongoing issue for the regulators is low income growth. If credit growth keeps increasing we may see more credit tightening.”
APRA directed ADIs to increase their serviceability buffers from 2.5 to 3 per cent, saying the change would reduce the maximum borrowing capacity for the typical borrower by around 5 per cent.
It acknowledged that its projected outcome included an assumption that mortgage applicants borrow up to their capacity, and commentators have been quick to point out the problem with its assumption.
Gareth Aird, head of Australian economics, Commonwealth Bank, said that over the first half of this year, just 8 per cent of home loan applicants at Commonwealth Bank borrowed at capacity.
Another panellist at the Citi conference, AFG chief executive David Bailey, said loan applications coming through its brokers during the September quarter were for loan amounts 17 per cent higher than the same period last year, but at the same time the average loan-to-valuation ratio fell.
Bailey said this implies that the average loan applicant has unused capacity and would be largely unaffected by APRA’s measure. He said this suggests the regulator will do more.
Nerida Conisbee, chief economist at real estate group Ray White, said that compared with what regulators have done to slow housing credit growth in other markets, such as New Zealand, APRA’s measure is “much more low key”.
The chief executive of Liberty Financial, James Boyle said the change to the serviceability buffer was “a little tap on the brakes”. He said APRA may do more but he was confident it would not impose any requirements on non-bank mortgage lenders.
“We will be allowed to play the role of a safety valve,” Boyle said.
Bailey said that, to the extent the higher buffer does have an impact, it will affect people who borrow on high LVRs. These include first home buyers and people borrowing to build new dwellings.
He said the upgraders, who currently make up about 40 per cent of the market, would not be affected.
Lawless said APRA was not trying to put a lid on house price growth but one factor that would influence its decision to take further action would be the direction of house prices.
He said CoreLogic expects the national market to finish the year 20 to 25 per cent higher and then for growth to taper in 2022 to around 7 to 10 per cent.
“We don’t see house prices falling until interest rates rise but the combination of worsening affordability, the withdrawal of COVID stimulus and the higher buffer will cause growth to