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Asia Markets
Australia Regulator: Limit Home Loans to Investors
From the Wall Street Journal of Tue, 09 Dec 2014 03:49:16 EST
Australian home prices have risen on average by about 10% in the last year, with Sydney and Melbourne leading the advance.
Australian home prices have risen on average by about 10% in the last year, with Sydney and Melbourne leading the advance. Bloomberg News

SYDNEY—Australia’s bank regulator is urging lenders to limit the growth in home loans to speculators as it ratchets up its monitoring of the mortgage market, but it stopped short of introducing new rules to arrest strong house-price growth.

The Australian Prudential Regulation Authority said Tuesday it will bolster supervision of banks and may introduce penalties when certain lending benchmarks are exceeded. The country’s securities regulator separately said it plans to investigate a surge in interest-only home loans.

Record low interest rates have fanned demand for mortgages and fueled home prices in the last year, particularly in the big cities of Sydney and Melbourne, prompting warnings from APRA and the central bank that the sector might become unstable.

About half of all mortgages are currently being written for housing investors while at the same time interest-only loans hit a record of almost 43% of new housing-loan approvals in September. The Reserve Bank of Australia described the situation midyear as “unbalanced.”

Still, the housing market is one of the few areas of Australia’s economy that is growing as a yearslong boom in mining investment grinds to a halt. Speculation has heightened in recent days the RBA will need to cut its benchmark cash rate in 2015 as falling commodity prices sap export revenue.

APRA Chairman Wayne Byres said the regulator has written to the country’s banks, outlining further steps it plans to “reinforce sound residential mortgage lending practices.”

Included among those steps are reviews of bank lending practices, which could see penalties on individual banks if standards are deemed loose. Any bank with investor loan growth of more than 10% a year would attract the regulator’s attention, he said.

Mr. Byres also said loan affordability tests for new borrowers should include evidence that investors can still repay loans after a 2% rise in rates.

But, for now, APRA doesn’t propose introducing across-the-board increases in capital requirements or caps on particular types of loans to address current risks in the housing sector.

The Australian Securities and Investments Commission said it would investigate the conduct of the banks and other lenders amid concerns about higher-risk lending, particularly interest-only loans.

News of increased oversight by the regulators comes after a sweeping review of Australia’s financial system recommended to the government that the country’s banks need to hold additional capital against the risk of future financial crises.

The review also called for the largest banks to increase risk weights on mortgages, which would level the playing field for smaller and regional lenders that currently are forced to use a higher average risk weight.

Australian home prices have risen on average by about 10% in the last year, with Sydney and Melbourne leading the advance. Sydney prices have risen by closer to 15%. Solid population growth, intensifying competition between banks to win market share, an attractive tax regime for property investment and foreign buying have helped drive prices higher.

But there are signs that housing growth is slowing. Australian capital-city house prices fell 0.3% in November from October, slowing the pace of increase to 8.5% annually, its slowest rate so far in 2014.

Write to James Glynn at and Robb M. Stewart at

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