APRA to review mortgage lending practices
Authorised deposit-taking institutions' mortgage lending practices will come under the microscope in 2015 as the Australian Prudential Regulation Authority (APRA) seeks to clampdown on risky lending.
APRA chairman, Wayne Byres, said that while ADIs largely operated in line with the regulator's expectations, moves announced yesterday would help guard against any relaxation of lending standards.
While APRA has not proposed any across-the-board increases in capital requirements or caps on particular types of loans to address current risks in the housing sector, it has flagged that it will pay particular attention to specific areas of prudential concern.
The regulator highlighted the strong growth in lending to property investors as one area of concern, while also warning authorised deposit-taking institutions that it would also monitor loan affordability tests for new borrowers and higher risk mortgage lending practices.
"This is a measured and targeted response to emerging pressures in the housing market," Byres said.
"These steps represent a dialling up in the intensity of APRA's supervision, proportionate to the current level of risk and targeted at specific higher risk lending practices in individual authorised deposit-taking institutions."
While the regulator did not propose introducing high loan-to-valuation ratios or serviceability limits, that have been used in other countries, Byres warned APRA would "continue to keep these under review as the market conditions and lending standards evolve".
"There are other steps open to APRA, should risks intensify or lending standards weaken and, in conjunction with other members of the Council of Financial Regulators, we will continue to keep these under active review," he said.
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