Australian home lending in August expanded at its fastest annual pace since early 2018 as buyers borrowed ever more to get into a red-hot market, foreshadowing tougher rules from regulators concerned at the mounting risks to financial stability.
Figures from the Reserve Bank of Australia (RBA) on Thursday showed outstanding home loans rose 0.6% in August, from July, lifting annual growth to 6.2%. That was the biggest annual rise since February 2018 and double the pace seen a year ago.
Record-low mortgage rates have fuelled the surge in debt, which in turn has inflated house prices.
Annual price growth hit an eye-watering 18.4% in August, the fastest pace since July 1989 and a gain of A$1,990 ($1,444) per week for the median property, according to property consultant CoreLogic.
With prices rising far faster than incomes, policy makers are concerned borrowers are taking on ever-larger amounts of debt, leaving them vulnerable to an economic downturn.
Annual growth in new home loans reached 68% in July and lending for investment properties almost doubled from a year earlier, ringing alarm bells among regulators.
Even the IMF and the OECD have chimed in, recommending a tightening of macroprudential rules to limit the worst excesses of the market.
The Australian Prudential Regulation Authority (APRA) on Wednesday signalled it would release an information paper on macroprudential policy in the next couple of months, putting banks on notice that a tightening was near.
The Reserve Bank of Australia’s (RBA) head of financial stability, Michelle Bullock, recently flagged possible tools included serviceability and interest rate buffers, debt to income ratios and limits on loan to value ratios.
The central bank has flatly rejected calls to raise interest rates to cool the housing market, arguing that house prices were not a target of monetary policy and any hike would only slow the economy and put people out of jobs.
“Raising interest rates is not possible given the weakness and uncertainty hanging over the rest of the economy, and crashing the economy to get more affordable housing will help no one,” says Shane Oliver, head of economics at AMP Capital.
He noted macroprudential policies had worked before to restrain the market, though they were a short-term fix for a problem that needed longer-term solutions.
These included making it easier to build new homes and reform of taxes that favoured speculation in housing, though these often face high political hurdles.
($1 = 1.3778 Australian dollars)