With an estimated 20% of Australia's population under mortgage stress, regulators may be forced to take measures to cool the market
Loan stress may soon trigger a response from Australian regulators, according to a new report from Moody’s analytics.
The report warns of an environment in which credit growth is outstripping income growth. Moody’s warned such an environment is ultimately unsustainable and will likely trigger a response from financial regulators, according to a report by Zenger.news.
Moody’s Analytics estimated that 20% of Australia’s population is under mortgage stress – defined as paying 30% or more of household income in mortgage payments. That’s an issue when lending rates are at historic lows, Moody’s warned.
“An underlying concern is that when interest rates do eventually rise, highly leveraged households need to be able to continue servicing their loans, even if rate increases are forecast to be gradual,” Katrina Ell, senior economist at Moody’s Analytics, told Zenger.news.
Ell believes that the Australian Prudential Regulation Authority is on the verge of stepping in to cool the red-hot housing market. APRA has previously intervened to calm investor demand for housing.
“Macroprudential tools are particularly useful with sustained low interest rates because they can target pockets of concern,” Ell said.
The Reserve Bank of Australia has repeatedly insisted that it will not raise the cash rate until 2024 at the earliest. However, there is growing believe among experts that a cash-rate hike will come in 2023 or earlier.
A meeting of the Council of Financial Regulators last month agreed that overall lending standards remain sound, according to Zenger.news. However, APRA has written to the major banks warning that it has seen signs of increased risk-taking as buyers rush to gain a foothold in the red-hot market.