A little regulation now is better than a lot later, big bank chief says
Commonwealth Bank has called for the implementation of “modest” measures to cool the red-hot housing market, saying it is “increasingly concerned” about rising mortgage stress.
Speaking to the House economics committee on Thursday, CBA chief executive Matt Comyn said he wasn’t too concerned about the current state of the housing market, The Australian reported. However, Comyn said it would be wise to take proactive regulatory action “sooner rather than later” to avoid more stringent measures down the road.
“If we look at the simple numbers and the relative growth rate of housing over the last 12 months, I am not concerned per se about the period just gone,” Comyn said. “But in terms of increasing housing debt and increasing house prices, we are increasingly concerned. We think it would be important to take some modest steps sooner rather than later to take some heat out of the housing market.”
ANZ chief executive Shayne Elliott told the committee that his bank was also concerned about the level of household debt, The Australian reported. However, Elliott said it was important to understand “with a high degree of clarity” the exact problem that any macroprudential measures would be designed to address.
CBA is the first of the major banks to call for macroprudential measures to cool the booming market, with prices expected to spike by about 20% this year before moderating in 2022, The Australian reported. The bank’s central worry was the likelihood of housing credit growth outstripping the outlook for wages growth. Comyn said that it was much harder to act when the market was accelerating.
With interest rates at record lows, borrowers could acquire too much debt – creating elevated stress levels if rates were to rise, The Australian reported. Any associated impact on consumption levels could be bad news for the economy as a whole.
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Comyn told the committee that the strength of the market was different from the investor-led and interest-only housing booms that led to regulatory crackdowns in 2014 and 2017. The most appropriate regulatory action this time, he said, would be to limit borrowing capacity by raising the banks’ serviceability floor, which measures a customer’s ability to make repayments in a higher interest-rate environment.
Comyn said that ability was the key concern, because there was no evidence of a widespread decline in lending standards, according to The Australian.
“The bigger concern is the resilience of borrowers in a much higher interest-rate environment,” he said. “An increase in the [floor servicing rate] is very easy to implement and could apply to non-banks as well as banks. From a policy perspective, it affects all borrowers equally. It does affect people at the maximum of their borrowing capacity, but I don’t think there is a perfect policy measure – otherwise we would have deployed it.”