Risks associated with the downturn in the property market have “abated”, according to Australia’s financial regulators.
The Council of Financial Regulators (CFR) – which consists of the Australian Prudential Regulation Authority (APRA), the Australian Securities and Investments Commission (ASIC) and Treasury – has released its latest quarterly statement on financial stability.
The CFR noted recent developments in the Australian housing market, stating that while the flow of housing credit remained “subdued”, property prices had improved in the major capitals, easing the threat to financial stability.
The improvement is reflected in the latest data from property research group CoreLogic, which revealed that national home values increased 0.8 per cent in August, the first monthly increase since the downturn commenced.
The national uptick was driven by improvements in Sydney and Melbourne, where, over the past few months, home values have risen by a cumulative 1.9 per cent and 1.8 per cent, respectively.
However, some observers, including CoreLogic research analyst Cameron Kusher, have warned that a sharper than anticipated housing recovery could spark a new wave of macro-prudential curbs from APRA.
APRA introduced a range of reforms that commenced in 2014, designed to improve credit quality, with such reforms including a cap on investor and interest-only lending, and the introduction of a 7 per cent interest rate floor for mortgage serviceability assessments.
The prudential regulator has since scrapped the curbs, a move in which analysts have partly attributed to the bounce in housing sentiment.
However, Mr Kusher said that prospective lending curbs would not resemble APRA’s previous measures and touted the possibility of lending caps for borrowers with high debt-to-income ratios.
The analyst said he expects macro-prudential policy to continue to play a role in the lending space, noting that the “effectiveness” of previous curbs has set a precedent for future regulatory action.