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In minutes released from its April board meeting, the Reserve Bank of Australia (RBA) noted the reductions in interest rates offered on interest-only (IO) and investor home loans.
According to the RBA, banks had “comfortably met” IO and investor lending caps imposed by the Australian Prudential Regulation Authority (APRA), suggesting that lenders have since sought to re-stimulate demand for such offerings by discounting rates.
The minutes from the board meeting read: “Growth in housing credit had stabilised in 2018, having slowed over the course of 2017, and the data on loan approvals suggested that banks had comfortably met the requirements of the Australian Prudential Regulation Authority (APRA) in relation to interest-only lending.
“Members noted that there had been a number of reductions in banks’ advertised interest rates on investor and interest-only mortgages over the preceding month.”
The RBA later noted that “the share of interest-only loans in new lending had fallen sharply and the share of loans with high loan-to-valuation ratios had also declined since the regulatory measures were implemented by APRA, which had further tightened lending standards”.
The central bank also reiterated its view that APRA’s lending curbs had “been helpful in containing the build-up of risk on household balance sheets”, but it warned that household debt remains high and continues to “pose an element of uncertainty for the outlook for consumption growth”.
According to the minutes, members noted that household debt had “outpaced” income growth in the past few years, but that household net wealth had continued to grow.
It added: “[Household] net wealth had continued to grow and, in aggregate, households’ housing and financial assets far exceeded their borrowing.
“Members noted, however, that this was not reflective of the financial positions of all individual households. Nevertheless, measures of household financial stress did not indicate a high level of financial stress at present.”
Further, the Reserve Bank board claimed that sharper falls in the values of “expensive properties” suggest that APRA’s lending curbs were not the “sole driver” of price softening.
“Price falls had been larger for more expensive properties, suggesting that the regulatory measures, which would have had a greater impact on investors and therefore prices of apartments and cheaper dwellings, had not been the sole drivers of the slowdown,” the minutes read.
Moreover, the central bank again noted that “it is more likely that the next move in the cash rate would be up”.
The RBA also stated that there was “not a strong case for a near-time adjustment in monetary policy”, as “progress in lowering unemployment and having inflation return to the midpoint of the target was expected to be only gradual”.