Powered by MOMENTUM MEDIA
the adviser logo
Borrower

Future credit tightening to be ‘modest’: RBA

by Reporter5 minute read
Reserve Bank of Australia

The central bank has noted the recent fall in home loan approvals, driven by tighter credit conditions, and is expecting further tightening in credit conditions to be “modest”.

In minutes released from the Reserve Bank of Australia (RBA) June board meeting, the central bank made reference to the fall in home loan approvals, as reported by the Australian Bureau of Statistics (ABS).

To continue reading the rest of this article, create a free account
Already have an account? Sign in

The RBA acknowledged that the slowdown in the flow of credit has been driven by tighter income and expense requirements, imposed off the back of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, and predicted that any further tightening would be “modest”.

“Members noted that housing loan approvals had eased in recent months, driven by approvals to investors, although approvals for owner-occupiers had also declined.

Advertisement
Advertisement

“This was consistent with an easing in the demand for credit as well as lenders tightening their lending standards.

“Members noted that banks had recently started to collect more information from loan applicants on living expenses to assess a borrower’s capacity to service a loan based on actual living expenses, rather than relying on a proxy measure of minimum expenses based on survey benchmarks.

“While there may be some further tightening of lending standards affecting housing credit growth in the period ahead, any such tightening was expected to be modest.”

The RBA noted that it remains concerned over the high levels of household debt, but it believes regulatory tightening on credit has eased the associated risks.

“An easing in the demand for credit as well the Australian Prudential Regulation Authority’s supervisory measures and tighter credit standards had been helpful in containing the build-up of risk on household balance sheets, although the level of household debt remained high.”

Further, the RBA noted that it believes recent competition in the mortgage market has helped place downward pressure on interest rates.

“At the same time, lenders had been competing for high-quality borrowers, which had led to a decline of around 15 basis points in the average mortgage interest rate on outstanding loans since August 2017.”

The RBA claimed that “slightly higher funding costs for banks appeared to have had little effect on mortgage rates”.

Moreover, the RBA noted that despite the fall in home values across the country, property prices remain elevated.

“Conditions in the established housing market appeared to have eased further in Sydney and Melbourne. Housing prices had fallen a little in both cities, particularly for more expensive dwellings.

“Members observed that falls in housing prices in Melbourne had been concentrated in inner-city areas, whereas the declines in Sydney had been more widespread.

“Members noted that, nonetheless, housing prices were still 40 per cent higher in Sydney and Melbourne than at the beginning of 2014, while housing prices in Perth had fallen by around 10 per cent over the same period.

“Auction clearance rates in Sydney and Melbourne had fallen to their lowest levels in a number of years.”

[Related: Cash rate stagnation continues]

Future credit tightening to be ‘modest’: RBA
rba   ta
TheAdviser logo
rba   ta

JOIN THE DISCUSSION

You need to be a member to post comments. Register for free today

MORE FROM THE ADVISER

mark pesce futurist ajxjkn

Automation is changing, not replacing, the role of finance brokers

On Thursday (4 August), the Australian Financial Review (AFR) ran a story with the headline: “Finance brokers top...

READ MORE
des hang carbar zaheer jappie carclarity ta qtvnqr

CarClarity confirms partnership with car subscription platform

Established in March 2020, CarClairty is a finance platform that connects car buyers with more than 30 different...

READ MORE
anthony albanese profile ta vtpifc

Further grants confirmed for flood survivors, $47m pledged

According to a statement released by the federal government, the Back Home grant will be made available to impacted...

READ MORE
magazine
Read the latest issue of The Adviser magazine!
The Adviser is the number one magazine for Australia's finance and mortgage brokers. The publications delivers news, analysis, business intelligence, sales and marketing strategies, research and key target reports to an audience of professional mortgage and finance brokers
Read more