David Murray Says Investor Lending Must Be Controlled Further By RBA And APRA
Former Chief Executive of the Commonwealth Bank David Murray said the investor lending growth rate cap of 10% is no longer enough. Murray, who is no now the Chairman of Australia’s Financial Inquiry System, made the comments as he noticed the unconstrained granting of loans to property investors and in relation to the efforts in regulating the industry’s changing environment. Murray also suggested using the mortgage insurance of lenders as a way to entice more clients like first time home buyers.
In a report by The Australian, Murray was quoted as saying that the “speed limit” on investor loans were inadequate. Other analysts also felt the same thing when they were interviewed. Murray’s sentiments were made public after the Australian Prudential Regulation Authority asserted their commitment to their implemented rate of 10%. APRA said the current cap aided in lowering property investor loans. APRA said that in the past, the annual rate of investor loans until September 2015 hovered well above 10%. This rate was lowered to 4.5% in August 2016 and the year on year rate was at 6.2% thanks to their newly implemented cap.
However, these claims were denied by Murray and other industry experts. They described the gap as too generous. They presented the data that were gathered last December. They noted that investor loans across the country did not decrease. They were all above the 10% mark. The increase triggered other concerns because they also noted a rise in household debt to 187% of income. All these led Murray and other experts to call for a higher limit because the current conditions pose a great risk to the country’s economy.
About 40% of all lending was attributed to investor loans. This staggering figure was accompanied by an increase in house prices to levels that will eventually be difficult to regulate. Because of these, many industry observers have started to express their worries. The International Monetary Fund said it was concerned about the country’s rising household leverage. The Reserve Bank also made its concerns known and they were related to the increasing volumes of new apartments in Sydney and Melbourne. The central bank warned that if this trend goes on, there would eventually be a drop in apartment prices.
It pointed out another issue that was also related to the 10% limit on individual lenders. It would have been a good way to regulate loans. However, investors have found a way around this limit by seeking the service of other banks with rates that are still lower than the imposed cap. Suncorp Chief Executive Michael Cameroon said they came across a lot of opportunities because of this trend wherein investors came to them in massive numbers. Cameron added that the cap would have been more effective if all of the banks’ loan rates were rising at the same time. Investors would have no choice if that were the case. The problem is that banks reach their limits in varying rates and that is why investors still have other options if their current bank has reached its cap. Martin North, the Digital Finance Analyst, also said the annualized rate of CBA was at 10.3%, much higher than its reported 7.2% year on year.