APRA warning on housing credit growth
The Australian Prudential Regulation Authority (APRA) has cautioned Australia's major banks and lending institutions against letting housing credit growth get out of hand in the current low interest rate environment.
Utilising its quarterly Insight publication, the regulator said that while housing credit growth was currently low by historical standards, "recent international experience indicates that a prolonged period of low interest rates can lead to rising household leverage and housing market pressures, with potential flow-on impacts on the credit quality of housing loan portfolios".
It said this reinforced the importance of banks and other lenders "adopting sustainable lending growth targets and prudent lending strategies, including in relation to high loan to value ratio (LVR) lending and loan serviceability standards.
APRA said it was currently developing a Prudential Practice Guide which would provide guidance to the industry on good practice in housing credit risk management.
"A sustained low interest rate environment poses further risks to lending standards. It is important for Australian Deposit-taking Institutions (ADIs) to ensure that new borrowers are able to service debt and afford higher repayments when interest rates rise from current record low levels," it said.
"APRA expects ADIs' serviceability assessments to test borrowers' capacity to meet higher repayments through adequate interest rate buffers and floors, applied to new and existing loan commitments, APRA said.
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