The analysis of 28 banks shows that they have reduced the growth in new lending to the targeted loans by around 20 to 40 percentage points within one year.

To dampen lending, interest rate spreads on investor and interest-only mortgage products widened by 0.1 to 0.3 percentage points. Banks' mortgage interest income rose.

The big four banks' home loans did not slow as they shifted customers to mortgage products that were not affected by the restrictions, such as amortization and interest loans, the RBA economists found.

Financial regulators are closely monitoring the recovery in home loans and returns from property investors.

Other banks' mortgage sales declined and the restrictions had some anti-competitive effect – a result that is in line with previous conclusions of the Australian Competition and Consumers Commission on Mortgage Prices.

"For example, when financial institutions cut lending only with interest, large banks increased their capital and interest borrowings, while medium-sized banks did not," noted RBA economists Nicholas Garvin, Alex Kearney and Corrine Rosé.

"The guidelines also had some impact on competition among the 28 banks we analyzed, although the impact was short-lived."

Over the past few months, RBA Governor Philip Lowe and APRA Chairman Wayne Byres have stated that one of the factors they will be considering for reintervention in the home loan market is the extent to which home loan growth outpaces income growth .

Macroprudential policy options that APRA and the RBA are considering include debt-to-income / loan-to-value restrictions, as well as stricter rules on interest-only and investor-only loans like between 2014 and 2018.

"We are not yet at the point where we are actively considering taking initiatives in this area, but we are preparing for what could happen, what we could do if credit growth accelerates," said Dr. Lowe June 17th.

"I don't think it's in the country's interest to have an extended period of time where credit growth is way ahead of income growth, especially given the high level of debt."

Financial regulators are closely monitoring the rise in home loans and the return of property investors, urging large banks' boards of directors to commit to lending standards and provide data to demonstrate their responsibility.

The council of financial regulators – which includes the RBA, APRA, the Australian Securities and Investments Commission and the Treasury Department – said last month that it is paying attention to high household indebtedness and "policy options" that could be used, to address these risks.

During the economic shock of COVID-19 last year, investors withdrew from the real estate market and owner-occupied buyers increased their purchases.

But in recent months, investors have returned, buoyed by soaring prices and extremely low interest rates.

Owner-user loan growth rose 0.7 percent and investor lending rose 0.4 percent in May, but the gap between the two cohorts of borrowers is narrowing.

On an annual basis, owner-occupier credit growth was 6.6 percent and investor credit growth rose to 1.6 percent.

Previous restrictions on residential lending ended in 2018 after property prices fell in Sydney and Melbourne and investors pulled out of the market.

Perhaps on the positive side, the RBA was discovering signs that corporate lending may have tightened slightly in response to restrictions on home lending.

"There is evidence of a pickup in corporate credit growth during investor policy.

"This result is consistent with a substitution of corporate loans by banks, which compensate fewer mortgages from investors."

source https://seapointrealtors.com/2021/07/26/loan-limits-cool-the-property-market-but-help-the-big-banks/

 This free site is ad-supported. Learn more
​