Under these conditions, it is not surprising APRA and other members of the Council of Financial Regulators (CFR) are concerned. As ANZ Research expected, APRA has started the process with a soft-touch approach.
The CFR quarterly statement noted, “APRA has written to the largest Authorised Deposit-taking Institutions (ADIs) to seek assurances that they are proactively managing risks within their housing loan portfolios, and will maintain a strong focus on lending standards and lenders' risk appetites”.
More than one measure is likely
The CFR has also been discussing potential policy options to address the risks in the housing market. RBA Governor Phil Lowe noted these options include increasing the buffer on the mortgage rate (currently at 2.5 per cent) to determine serviceability, targeting high LVR or high DTI loans.
Other options he recently suggested include restrictions on investor lending and interest-only lending. Although at present these are running well below historical shares.
With credit growth set to accelerate over the coming months, ANZ Research expects APRA will announce hard macroprudential controls by the end of the year.
The strongest likelihood is more than one measure is introduced and the choice will depend on how the data evolves over the next couple of months.
Fine tuning a gentle slowdown in the housing market will be a challenge. The regulators will want to avoid triggering a sharp turnaround in house prices, so ANZ Research expects they will go lightly in the first instance.
Felicity Emmett is Senior Economist and Adelaide Timbrell is Economist at ANZ