RBA mulls lending standards amid credit rebound
In its quarterly monetary policy statement released on Friday (February 4th), the Reserve Bank of Australia (RBA) pointed to increased demand for loans, supported by strong construction activity and demand for housing.
“Housing credit growth has picked up in recent months and new financing commitments have rebounded under the effects of shutdowns in some states,” the statement said.
“Corporate credit growth has picked up significantly, driven by large corporate lending. With interest rates at historic lows, it is important that lending standards are maintained and that borrowers have adequate reserves.
The RBA has been watching the property and home lending markets alongside APRA for some time, warning that maintaining lender standards is imperative in the interests of financial stability.
In October, APRA raised the minimum interest rate buffer that banks must use to assess the creditworthiness of home loans.
But the regulator has hinted it may introduce new loan controls, after outlining potential tools such as debt-to-income loan portfolio limits.
In the new statement, the RBA said it expects housing investment to remain at a high level, highlighting changing preferences for more space in homes in the wake of the pandemic. .
As detailed in the report, overall housing credit growth accelerated to around 8% on a six-month annualized basis – compared to the previous six months to June, which recorded a growth rate of 6 .8%.
Investor credit growth has continued to grow since the middle of 2021, while homeowner credit has fallen and then started to rise in recent months.
Growth in homeowner loans was recorded at 10.1% on a six-month annualized basis, compared to 9% in the previous six months.
However, for the three months ending in December, homeowner credit growth was recorded at 9.8%, down from 10.4% in the September quarter.
For investors, the annualized growth rate for the six months ending in December was 4.2%, compared to 2.6% in the previous six months.
Credit growth continued to accelerate for investors, rising from 3.4% in the September quarter to 4.9% in December over three months.
Similarly, recent ABS data showed that the total value of new home loan commitments in December rose 4.4% to a record high of $32.8 billion for the month. There had also been an increase in loan commitments in November, following declines from August to October.
Homeowner loans led the rise in December, rising 5.3% in the segment to a total value of $22.4 billion. This is the second consecutive monthly increase in homeowner loans, following declines from June 2021 to October 2021.
“Commitments for new home loans are at high levels,” the RBA said.
“Homeowner commitments have rebounded in New South Wales and Victoria in recent months, which may partly reflect the effect of the end of lockdowns on housing turnover. Investor commitments continued to increase throughout the second half of 2021 to reach a historically high level.
House prices rose 22% in 2021, but the Reserve Bank noted that in recent months the pace of price growth has slowed in Sydney, Melbourne and Perth.
Supply and labor shortages in the construction sector could also slow housing investment, the statement warned.
“There is a significant pipeline of residential construction work to be completed, with over 120,000 new homes started in the June and September quarters,” the RBA’s statement said.
“Building approvals have declined from very high levels at the start of 2021, with the Australian government’s HomeBuilder program now complete; however, they remain above pre-pandemic levels.
“Information from the Bank’s Business Liaison Program suggests individual housing projects are taking longer than normal due to shortages of workers and building materials.”
Rising housing and construction prices helped push up inflation, which accelerated faster than expected.
The monetary policy statement noted strong price competition among lenders, for fixed rate loans, resulting from the current record cash rate of 0.1%. But interest rates on fixed-rate loans have drifted higher in recent months.
Notably, net payments to clearing and direct debit accounts declined in the December quarter, after reaching a high level in the September quarter.
“The decline in December quarter payments reflects the end of lockdowns and the associated increase in consumer opportunities,” the RBA’s statement said.
“Since the onset of the pandemic in early 2020, payments from mortgage borrowers on clearing and withdrawal accounts have been substantial, totaling about 3.75% of disposable income (about $98 billion).”
The RBA decided to hold the cash rate at its current level of 0.1% and end its bond buying program at its first monetary policy meeting of the year last week.
Governor Philip Lowe has insisted the bank will not raise the cash rate until inflation is “sustainably in the 2-3% range”.
The central bank updated its forecast for core inflation, forecasting it will hit 3.25% by mid-2022, before moderating to 2.75% in 2023 as pressures on supply dwindles.
He also said that for inflation to stay within its target range sustainably, annual wage growth would need to reach at least 3 percent.
Its central forecast is now that the wage price index will rise 2.75% in 2022, before rising 3% in 2023.
[Related: NSW units drive uptick in dwelling construction approvals]
Sarah Simpkins is the managing editor of Mortgage Business and The Adviser.
Previously, she reported on banking, financial services and wealth management for InvestorDaily and ifa.