Treasurer Scott Morrison is confident APRA’s intervention in the mortgage market “should help” guard against a systemic deterioration in lending standards.
Addressing the Urban Development Institute of Australia (UDIA) in Sydney on Monday, Mr Morrison’s speech opened with the issue of housing affordability and the dangers of abolishing negative gearing.
The treasurer slammed Labor’s “ill-considered proposal” to abolish the controversial tax regime, saying the opposition “sought to demonise property investors, portraying negative gearing as a concession for the rich, rather than the reality of being a long-established tax principle predominantly used by mum and dad wage earning investors, such as nurses, teachers, police and defence force personnel”.
Mr Morrison acknowledged risks in the housing market, but said regulators are experienced in these matters and have shown in the past that they can successfully manage them.
“In fact, the RBA has been calling attention to the risks in its bi-annual Financial Stability Review for some time and the Council of Financial Regulators has been active in tightening prudential supervision,” he said.
“The intensity of prudential regulation of the mortgage sector has increased markedly in recent years, which should help guard against a systemic deterioration in lending standards.
“In particular, you would all be aware that APRA announced in December 2014 that it will further increase its supervisory intensity – increased reporting obligations and on-site visits – and may require banks to hold extra capital if they fail to limit investor growth to 10 per cent, impose minimum standards on a borrower’s capacity to meet higher repayments and wind back on high-risk lending practices such as an excess of interest-only loans or too many loans at high loan-to-income and loan-to-value, or LVR, ratios.”
Mr Morrison said investor credit growth has slowed from 10.8 per cent in May 2015 to 4.6 per cent in August 2016.
“This measured approach by APRA to cool investor activity is a far more calibrated and preferable response, compared to the sledgehammer of abolishing negative gearing,” he said.
“Indicators of the quality of credit being extended in the mortgage market have also improved.”
The proportion of loans made at the highest loan-to-value ratios has declined and low-documentation loans have “dwindled to an insignificant proportion” of bank lending, Mr Morrison said, adding that new interest-only lending to owner-occupiers has declined sharply.
On the same day that APRA announced a revision of its mortgage lending guidelines, with a particular focus on serviceability, the treasurer told the UDIA gathering in Sydney that mortgage serviceability remains better than its 20-year average.
“This is similarly borne out in the REIA affordability index and is also true for new home loans, where repayments today are below the decade long average, falling from over 30 per cent before the GFC to 22.4 per cent today,” he said.
However, Mr Morrison acknowledged that the pressure of servicing a mortgage is greater for some groups than others.
“For younger age groups, the share of median household income spent on mortgage payments has increased by more than half for 25 [to] 34-year-olds between 1981 and 2011, and more than doubled for 35 [to] 44-year-olds, with each paying around 25 per cent or more of median household income on their mortgages.”
Mr Morrison said the proportion of home owners aged over 45 with a mortgage has increased significantly in the past 20 years, suggesting it is taking longer for people to own their homes and be free of their mortgages.
The treasurer warned that this trend has the potential to undermine retirement incomes, with superannuation cashed in on retirement to clear the mortgage or having mortgage costs eating into retirement income or undermining the ability to save more as Australians approach retirement.
“The Productivity Commission noted in 2015 that the most frequent use of superannuation lump sums was to fund housing, including paying down mortgages and renovations,” he said.
Opposition leader Bill Shorten slammed Mr Morrison’s speech and labelling it a “hoax”.
“What makes me frankly so frustrated and angry at the government is that, on one hand, they want to pretend to be a hero, but they’re perpetuating a massive hoax, (and they’re) not going to do anything including sensible negative gearing and GST – capital gains tax reforms,” he said.
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