![]() ![]() One thing Frydenberg could do that would benefit borrowers is abandon his quest to kill the responsible lending laws and ask the Australian Securities and Investments Commission to vigorously enforce the standards. Its role is to protect banks from collapsing, and by extension the Australian economy. Unfortunately, Apra’s not there to protect individual borrowers at risk of drowning in a sea of debt. The CFR discussed possible macroprudential responses last week and said Apra will publish a paper on what it might do “over the next couple of months”. Apra has a lot of power, so there are various ways it can accomplish this, but previous measures have included making it more expensive for banks to make interest-only or investor loans, and simply telling banks to tighten their standards. The regulator can use what are called “macroprudential” measures to reduce the amount banks can lend. What can Apra do to rein in the housing market? The move, which contradicted the recommendations of the banking royal commission, was publicly supported by the RBA, despite the bank’s staff fearing that “looser lending standards” and “optimistic assessments of risk” could entice Australians to take on too much debt when coupled with record low rates and booming house prices.Īt the time, Frydenberg said the Australian Prudential Regulation Authority had powers to tighten lending standards if things got out of hand – a theme to which he has returned in recent days after regulators flagged there was a problem. ![]() In September last year, he announced he wanted to get rid of responsible lending laws designed to stop banks lending customers more money than they can cope with repaying. Until recently, the treasurer Josh Frydenberg thought letting credit rip was a good way to power the economy out of the Covid-19 recession. This in turn could result in reduced spending, both directly as a result of a decline in turnover and through the wealth effect.” What is the federal government doing? “Second, if rapid price rises ultimately prove to be unsustainable they could lead to sharp declines in price and turnover in the future. ![]() “First, rapid price rises can increase the likelihood that some new borrowers will over-stretch their financial capacity in order to obtain a new loan, making them more likely to reduce their consumption in response to a shock to their incomes,” she said. The statement came after a speech from the RBA’s assistant governor Michele Bullock, who last week said the bank was closely watching the buying and borrowing boom.īullock said bulging mortgage debt could make an economic downturn worse in two ways. Translated from regulator-speak, this means the CFR is concerned people are borrowing much more despite wage growth in Australia being stuck in the extremely sluggish to non-existent state it’s been in for years. The Council of Financial Regulators met last week and on Wednesday issued a statement saying it was mindful that “a period of credit growth materially outpacing growth in household income would add to the medium-term risks facing the economy, notwithstanding that lending standards remain sound”. ![]() Are there risks and are experts concerned? As a result, the average home loan rate is about 2.3% – well below inflation, which is currently at 3.8%.Īlso fuelling the boom has been an increase in household savings, caused by people who are working from home during the pandemic, reducing their spending. ![]()
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