Why tax breaks for retirees could be key to shaking up supply
Is a significant real estate bottleneck being caused by older Australians hanging on to their properties, rather than li...
The regulator believes it can successfully cool house prices and contain risk without relying on countercyclical buffers.
Speaking at the Actuaries Institute Banking Seminar in Sydney on Thursday (7 December), APRA’s executive general manager - policy and advice division, Pat Brennan, said that the countercyclical buffer could still be used if lending standards deteriorate and credit growth becomes excessive.
APRA has not yet used the countercyclical capital buffer in response to risks within the banking system.
“That does not mean we would never plan to do so,” Mr Brennan said. “In short, the countercyclical capital buffer provides a tool that can be used to raise banking sector capital requirements in periods of excess credit growth associated with the build-up of systemic risk. This additional buffer can then be released during periods of stress to reduce the risk of the supply of credit being hindered by regulatory capital requirements.”
The buffer came into effect from January 2016 as part of Basel III, but APRA has chosen to use other tools, such as limits on investor and interest-only mortgage lending, to control risks in the system.
The buffer can be set between zero and a maximum of 2.5 per cent of risk-weighted assets. APRA set it at 0 per cent at the end of 2015 and this remains unchanged.
APRA has chosen nine core indicators that provide a signal of systemic risk, including house price growth and commercial property growth.
Interestingly, APRA chairman Wayne Byres has repeatedly stressed that “housing prices are not within the control, nor the mandate, of the prudential regulator”.
Nevertheless, Mr Brennan this week warned that trends in property prices have been signalling heightened risks “for some time”.
“On their own, however, they do not suggest the need to institute the countercyclical buffer at this point,” the executive said. “Rather, APRA has chosen to tackle these risks with other tools. In housing lending, this includes our benchmarks on investor and interest-only lending as well as substantial supervisory work to improve serviceability standards.
Mr Brennan said that the countercyclical capital buffer is designed to reinforce the resilience of the banking system in response to excessive credit growth.
“Certainly, credit growth has been a key factor in our supervisory concerns in relation to housing,” Mr Brennan added.
APRA’s decision not to use the countercyclical buffer and instead resort to lending curbs has led to tightened policies and higher rates for borrowers.
The regulator expects growth in credit to be supported in the near term by, among other things, the settlement of a significant supply of apartments due to hit the market in the eastern capital cities in the coming months.
“However, working in the other direction is the impact of higher home loan rates and tighter lending standards, which may see some marginal borrowers finding it more difficult to access credit, particularly for investor and interest-only products,” Mr Brennan said.
Interest is the amount of money charged by a lender or financial institution for a loan, which is calculated as the percentage of the principal amount paid over the loan term.
Property refers to either a tangible or intangible item that an individual or business has legal rights or ownership of, such as houses, cars, stocks or bond certificates.