* APRA limits new interest-only lending to 30 pct vs 40
* Banks to limit investor lending to "comfortably below" 10
* More steps needed to combat housing mania - analysts
* Quality of bank lending "high" - ABA
(Adds details, background)
By Wayne Cole and Swati Pandey
SYDNEY, March 31 Australia's banking watchdog on
Friday launched a new salvo in its battle against speculative
home lending and explosive house prices, though analysts were
far from convinced the war was yet won.
The Australian Prudential Regulatory Authority (APRA) asked
banks to limit new interest-only lending to 30 percent of total
new residential mortgage lending, from 40 percent now. It also
demanded that banks limit investor credit to "comfortably remain
below" a previously-set cap of 10 percent annual growth.
The measures come as regulators grow increasingly worried
about a run-up in borrowing at a time when household debt is
already at record highs and could weigh on consumer spending
power - risking a damaging pullback in home prices.
But industry players say more stringent measures are needed
to cool the red-hot market.
"This is not a hard change to the target as had been mooted
recently in the press (with) some suggesting the 10 percent
limit could be as much as halved," said Bill Evans, chief
economist at Westpac Banking Corp.
Westpac is Australia's No.2 mortgage lender after
"Looking ahead, the Reserve Bank of Australia's (RBA)
Stability Review on April 13 may provide more clarity on the
macro prudential policy outlook and potential triggers for
further action," Evans noted.
Behind-the-scenes pressure from the regulators has already
prompted the major banks to lift borrowing costs on a range of
home loans for investors, and even owner-occupiers.
"Another potential area would be to lower that investor
lending growth rate. Ten percent is still a fairly high clip,"
said Phil Miall, head of credit research and strategy at
Brisbane-based QIC, which has A$74 billion of assets under
"If they want to get more aggressive they could look at risk
weights...and that would force banks to hold more capital
against those particular loan types."
Home prices have surged in Sydney and Melbourne in recent
months, with annual growth reaching almost 20 percent in Sydney
according to property consultant CoreLogic.
Mortgage lending is a staple for Australia's "Big Four"
banks which depend on home loans for 40-60 percent of their
The Australian Bankers' Association said the quality of bank
lending was high. Borrowing with loan-to-value ratio (LVR) of 90
percent or more was at record low levels while the proportion of
new interest-only home loans had "declined significantly" over
the past two years, it said.
Interest-only loans were singled out for special attention
because they are favoured by speculators for their tax
"APRA views a higher proportion of interest-only lending in
the current environment to be indicative of a higher risk
profile," APRA Chair Wayne Byres said in Friday's statement.
The watchdog said it might impose added restrictions on
banks should the proportion of new interest-only mortgages
exceed 30 percent of total new home-loan lending.
Analysts noted APRA's latest steps were not as bold as in
New Zealand where regulators slapped strict LVR limits on banks
in an attempt to cool prices in the largest city of Auckland.
"Overall, we see the measures as erring to the softer end of
expectations," said Michael Turner, a fixed income strategist at
RBC Capital Markets.
"Relative to the earlier measures, we doubt that the impact
will be as large, although it is still reasonable to expect some
slowing in investor activity through 2017 given declining rental
yields, increasing mortgaging rates, and oncoming supply."
(Additional reporting by Jamie Freed and Cecile Lefort; Editing
by Eric Meijer)