• APRA Chairman Wayne Byres spoke before Australian lawmakers today.
• Byres defended the introduction of tighter macroprudential measures in 2014 and 2017, suggesting it has improved lending standards and may have prevented interest rate increases from the RBA.
• Byres provided no indication that recent measures on interest-only lending would be unwound anytime soon.

Australian Prudential Regulatory Authority (APRA) Chairman Wayne Byres has defended the banking regulators’ actions to reduce what were perceived to be growing risks in Australia’s housing market, telling lawmakers in Canberra that without the introduction of tighter macroprudential measures it may have led to interest rate increases from the Reserve Bank of Australia (RBA) and a further deterioration in lending standards.

Facing questioning from the House of Representatives’ Economics Committee, Byres pushed back against claims from Labor MP Matt Thistlewaite that moves to limit investor credit growth and interest-only lending had pushed up the cost of living for every family with a mortgage.

“It is more nuanced and more complex than saying that 30% benchmark led to those interest rate increases” Byres said, according to the Australian Financial Review.

Following the introduction of a 30% limit on interest-only lending as a proportion of total new mortgage loans last year, interest rates for fixed-rate loans increased for many borrowers as lenders looked to encourage customers to switch to principal and interest repayments.

Some borrowers who have been unable to rollover their fixed-rate facilities upon expiry due to APRA’s intervention have also seen their mortgage repayments increase as they were forced to switch to amortising loans.

However, Byres stood by the regulators actions, noting the change had helped reduce financial stability risks that were building as a result of fierce competition at the lower end of the housing market.

“That competition in our view was detrimental to the health of the financial systems and detrimental to the community … we had too many borrowers that just didn’t pay back a cent on their loans and that is unhealthy in the long run” he said.

Byres said its intervention stopped the erosion of lending standards and that it had a positive impact on competition, according to the AFR, adding that without the move the RBA may have been forced to raise interest rates for every borrower.

In early March last year, just before APRA’s intervention, the RBA said there had been a “build-up of risks associated with the housing market”, noting that “borrowing for housing by investors had picked up over recent months and growth in household debt had been faster than that in household income”.

Fast forward a year, the RBA said earlier this month that tighter credit standards had “been helpful in containing the build-up of risk on household balance sheets”, adding that “housing credit growth had eased, particularly for investors”.

Byres, fitting with the change in tone from the RBA, told the committee its interventions had achieved their purpose with the quality of new lending improving markedly, although he admitted that more work needed to be done to “make sure the improvements in policies are truly embedded into ongoing practices”.

Byres said that when its macroprudential measures are eventually reduced, the 10% limit in annual investor credit growth announced in December 2014 would likely to be the first measure to be unwound, fitting with the view he presented to the committee in February.

However, he said the 30% cap on interest-only lending announced March last year in March was unlikely to change anytime soon.

There’s more here.

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