As house prices continue to rise, banks could be forced to cut back on higher-risk lending, exec says
The head of a major bank has predicted that financial institutions could be forced to cut back on higher-risk mortgage lending at some point as low interest rates drive house prices skyward and regulators fear the market will overheat.
ANZ Bank chief executive Shayne Elliott said that with Australian house prices rebounding from the COVID-19 pandemic, property prices would remain “well supported,” which could eventually force policymakers to take action, as has occurred during previous housing booms.
Elliott told The Sydney Morning Herald that demand in the housing market was strong because of ultra-low interest rates, and the Reserve Bank has made it clear that it intends to keep rates low for some time.
“That will lead to asset price inflation – we’re already starting to see it,” Elliott said in an interview with the Herald and The Age.
Elliott said there would be “some concern” on the part of financial regulators about the risk of banks lending against high-priced assets, and worries about first-home buyers being locked out of the market as prices rise.
Read more: Regulators could put the brakes on home lending as soon as this year – ANZ
New Zealand recently instituted caps on loans with smaller deposits, and Elliott said that Australia may eventually take a similar step.
“Just based on what we know today … you would have to say it’s more likely than not at some point,” he said. “I don’t think it’s immediate. I don’t think it’s going to happen this week. It may not even happen this year.”
Elliott told the Herald that the type of policies that could be implemented included restrictions on loan-to-value ratios, and possibly debt-to-income ratios.
However, Elliott stressed that there were not yet signs of more irresponsible lending by banks. He said he didn’t think the market was in bubble territory, the Herald reported.
