28 September 2014

Mortgage lenders get caution note, Aussies concerned over potential asset bubble

  28 September 2014

THE warning that additional steps may be taken to tighten mortgage lending in Australia highlights its concern over any potential asset bubble.

The Reserve Bank of Australia (RBA) is discussing with the Australian Prudential Regulation Authority (APRA), and other members of the Council of Financial Regulators, “additional steps that might be taken to reinforce sound lending practices, particularly for lending to investors,” according to Reuters.

Record low rates and intense competition among banks have fuelled growth in lending for investor housing to the point that it was “noticeably more so than for owner-occupier housing or businesses,’’ said Reuters, quoting the RBA.

After a few years of modest growth, housing credit accelerated to an annualised rate of around 7% in the six months to July, while growth in investor credit grew at nearly 10%, reaching its fastest pace since 2007, the agency said.

There is a risk that this speculative activity may result in financial instability once the housing market takes a sudden dip.

The International Monetary Fund had earlier mentioned a need for controls on risky bank lending and high property prices in Australia.

At the moment, this is more of a note of caution.

Property investors had historically been at least as creditworthy as owner-occupiers, and mortgage lending standards had remained firmer than in the years leading up to the global financial crisis, said Reuters, quoting the RBA.



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