SYDNEY (Reuters) – Australia’s banking regulator said on Monday that current rules on how banks assess potential mortgage borrowers remain appropriate given that domestic and global economic conditions have deteriorated.
Australian banks are currently required to assess the ability of new borrowers to meet their loan repayments at an interest rate of at least 3 percentage points above the loan product rate.
Some analysts have suggested that the Australian Prudential Regulation Authority (APRA) should relax the rule as the central bank has hiked its cash rate by a whopping 325 basis points to a 10-year high of 3.35%, causing demand for housing loans to plunge.
“APRA’s view is that the 3 percent level remains prudent given the potential for further interest rate rises, high inflation and risks in the labour market,” Chairperson John Lonsdale said in a statement.
Adelaide Timbrell, senior economist at ANZ, said lack of borrowing capacity would a mean a weak housing market this year, forecasting another 10% decline in prices on top of a fall of 5.3% last year.
“We still got three cash rate hikes to go between now and May – that’s going to reduce borrowing capacity and put a lot more downward pressure on the market,” Timbrell said.
(Reporting by Renju Jose and Stella Qiu; Editing by Edwina Gibbs)
