David Murray, who used to be Commonwealth Bank’s Chief Executive, said the 10% restriction on the growth rate of investor lending is no longer sufficient. The comment of the current Chair of Australia’s Financial Inquiry System was related to the efforts in curbing this particular sector’s changing environment. Murray also promoted the utilization of the mortgage insurance of lenders to draw in more clients like consumers who are buying a home for the first time. His strong statements were triggered by the unconstrained loans granted to property investors.
“Speed Limit” No Longer Sufficient
According to the report released by The Australian, the annual “speed limit,” which refer to the aforementioned cap, has been considered by Murray, along with other analysts, as inadequate. All these comments came after the Australian Prudential Regulation Authority Chairman Wayne Byres confirmed the regulator’s commitment to the rate that they have implemented. APRA said that its existing cap has helped a lot in curbing property investor loans. It added that the yearly rate of investor lending until September 2015 increased by over 10%. APRA emphasized that this rate went down to 4.5% in August 2016 after it rolled out the existing limit. It also noted that the year on year rate stood at 6.2%.
Murray and other experts said the claim was untrue and said that the limitation was “too generous,” which actually led to higher rates. Citing the data gathered last December, Murray stressed that the growth rate of investor lending in different parts of the country hovered above the limit, exactly at 10.1%. The rise in rate has spurred concerns especially since household debt has skyrocketed to 187% of income. Murray has called to raise the limits and cited the risk that it poses to the economy as a reason.
IMF And RBA Also Has Concerns
Investor loans accounted for 40% of all lending. Apart from this staggering figure, it is also alarming to note that house prices continue to surge to levels that will no longer be easy to regulate. These trends have caused different groups to express their concerns. The International Monetary Fund expressed its worries about Australia’s soaring household leverage. The Reserve Bank of Australia also expressed its worries with regards to the massive number of new apartments popping up in Sydney and Melbourne. The country’s central bank warned that if this continues, apartment prices could see a stark decline. This would mean heavy losses to active real estate developers in the country.
Another issue was also pointed out in relation to the 10% limit imposed on individual lenders. The problem with this is that investors could simply opt for the service of another bank with a loan rate that is still below the specified cap. Chief Executive of Suncorp Michael Cameron said their company has been presented with a lot of opportunities because investors flock to them in droves. Cameron also added that the restriction could be deemed effective if the loan rate of all the banks is all rising at the same time. The problem is that this is not what is happening because banks are reaching their limits at varying rates. Furthermore, Digital Finance Analytics Martin North noted that the annualized rate of CBA stands more than its reported 7.2% year on year. It is actually at 10.3%.