The Housing Market Is Overburdened With Debt, Leaving Apra Little Leeway

Must Read

In recent months, the Australian Prudential Regulation Authority (APRA) and the Reserve Bank of Australia (RBA) have grappled with the difficult challenge of supporting a rapidly increasing debt-laden housing market while managing the ever-growing financial pressures on households.

The review of macroprudential policy published Monday morning by the Australian Prudential Regulation Authority (APRA) suggests that new chairman John Lonsdale is focused on providing relief to households increasingly feeling the financial strain of the rapidly rising debt-laden housing market.

APRA’s review says, “According to a few key economic indicators, the economy is not in a position where this would be necessary.”

“Historical and international standards indicate that Australian households have a high level of debt.,” the review says.

“Households with high levels of debt are less resilient to future shocks, such as rising interest rates, higher living expenses, or a reduction in income, so lending standards must be prudent.”

The serviceability buffer, introduced in December 2014 and raised from 2.5 per cent to 3 per cent in October 2021, is working effectively to ease household financial pressures. This serviceability buffer requires lenders to assess borrowers’ ability to repay loans when factoring in an additional 2.5-3% buffer rate above the loan’s listed interest rate.

These initiatives are having a positive effect, with housing loans with a loan-to-value ratio above 90 per cent falling from above 10 per cent in late 2021 to around 6 per cent on September 30, below long-term averages. This is partly due to the proactive approach taken by APRA and RBA.

While this decreased debt burden benefits households, it leaves APRA and RBA with little room for movement when tackling the increasingly complex problem of managing debt levels across multiple sectors in an ever-changing economic environment.

Overall, APRA’s measures have stabilised the Australian housing market and are helping alleviate some financial pressures households face due to increased debt levels.

- Advertisement -spot_img
Latest News
- Advertisement -spot_img

More Articles Like This

- Advertisement -spot_img