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The prudential regulator populated our headlines more than any other organisation in 2015. The lending changes provided a constant stream of news, and then reaction, followed by bank action, followed by even more reaction.
With an ongoing discussion about APRA’s regulatory regime dominating the mortgage industry, it’s easy to get a touch of tunnel vision and think that we are the only country feeling the heat.
But the truth is that APRA’s approach, particularly around capital and responsible lending, is part of a broader effort by many nations to maintain financial stability.
The global financial crises has created an international push towards greater regulation in financial services.
We are all familiar with the regulatory action taken in Australia, but as we enter a new year we thought we’d review what has happened overseas from a regulatory perspective.
Back in October 2013, New Zealand’s central bank introduced macroprudential measures when it placed LVR restrictions on lenders. Under the measures, banks were not allowed to issue more than 10 per cent of new residential loans to customers who had an LVR of more than 80 per cent.
In May 2015, the Reserve Bank of New Zealand (RBNZ) took a more targeted approach when it announced that residential property investors in the Auckland Council area will need deposits of at least 30 per cent from 1 October.
The move came as a response to the growing housing market risk in Auckland, although, at the time of the announcement, the RBNZ noted that the nation’s financial system remained sound.
A few weeks later, the central bank announced that lenders will need to hold more capital against investment loans.
Hong Kong property prices increased by 13 per cent over 2014, which led the Hong Kong Monetary Authority (HKMA) to tighten mortgage rules in an effort to cool the market.
In February 2015, the HKMA announced that LVRs for owner-occupied residential properties valued under HK$7 million (AU$1.3 million) would be lowered to 60 per cent.
However, the biggest curbs came to investors, or those with a second home, who had their maximum debt servicing ratio (the monthly repayment as a percentage of monthly income) cut from 50 per cent to 40 per cent.
In June 2013, the Monetary Authority of Singapore (MAS) announced a new framework for mortgage lending as property prices in the Asian city continued to soar.
A debt servicing ratio of 60 per cent was implemented. The new rules followed modest increases in stamp duty announced in January 2013.
However, the rules were nothing new for local homeowners. Singapore has been implementing lending curbs for more than five years.
In June 2014 the Bank of England introduced limits on high LVR lending and imposed stress testing on prospective homebuyers.
In an effort to cool the UK’s overheating housing market, the BoE’s Financial Policy Committee (FPC) announced that lenders must ensure no more than 15 per cent of new mortgages are given to people borrowing more than four and a half times their income.
British banks have also been made to stress test borrowers’ ability to repay loans in the event of a three per cent rate hike.
The biggest regulatory change to effect the UK home loan market was the Mortgage Market Review (MMR), which started with a discussion paper in 2009 and culminated in a policy statement and final rules in October 2012.
The majority of the MMR changes came into effect in April 2014. They were comprehensive and wide ranging, with different policies for banks and brokers.
Over a year later, greater regulation in the UK has seen broker market share surpass 70 per cent, before recently slipping back into the mid-60s.
More regulation is on the way. The Mortgage Credit Directive (MCD) comes into force on 21 March 2016 and introduces an EU-wide framework of conduct rules for mortgage firms.