Treasurer Josh Frydenberg predicts 'pick-up' in home loan lending

By Tom McIlroy
03 Jan 2019 — 11:00 PM
The Australian Financial Review

A month ahead of the final report from the banking royal commission, Treasurer Josh Frydenberg expects home loan lending to pick up following an easing of restrictions from regulator APRA.

Maintaining his attacks on Labor's planned changes to negative gearing rules, the deputy Liberal leader said the Australian Prudential Regulation Authority's moves to lift some lending restrictions was helping build resilience, coming amid falling property prices in some capital cities.
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With growing expectations the Hayne royal commission could call for higher lending standards from the banks, property analysts are concerned at falling house prices of as much as 11 per cent in Sydney and 9 per cent in Melbourne.


Treasurer Josh Frydenberg implored the banks to keep their lending books open, part of what he called their social and economic responsibility to make housing affordable and accessible. Alex Ellinghausen / Fairfax Media

Mr Frydenberg implored the banks to keep their lending books open, part of what he called their social and economic responsibility to make housing affordable and accessible.

"Now that APRA have lifted some of their restrictions on investor lending, we should see a pick-up," he said.

"served their purpose of moderating higher-risk lending, and supporting a gradual strengthening of lending standards across the industry over a number of years".

Co-ordinated action
APRA's unwinding of its lending restrictions is part of a co-ordinated action by the prudential regulator, the central bank and the government.

On Thursday, the latest CoreLogic Hedonic Home Value Index showed national dwelling values fell 2.3 per cent over the December quarter – the worst quarterly decline since 2008.

Most regions of Australia recorded a weaker performance as national values dropped 4.8 per cent in total in 2018.

Shadow treasurer Chris Bowen called out Mr Frydenberg for "cherry-picking housing market data as it suits him".

"Well, he needs to take responsibility for everything that's happened in the housing market," Mr Bowen said.

"The main question for the Treasurer is, what modelling was done on the impact that APRA's macroprudential measures would have on house prices?

"Mr Frydenberg has some hide demanding banks open their lending books after he and Scott Morrison spent years backing measures that saw less investor lending."

 

All rot.

Would not believe hardly any words hardly any politician sprouts, as the election cycle never ends now.

And we know better....IO restrictions not needed cause hardly anyone can take it up.....duh,,,,

 

Sounds like the plot to a movie i once saw:

 

It's called jawboning.

 

Until the Royal Commission hands down its final report its just really a lot of chest beating by Josh.
It also misses the really obvious point that as house prices kept on rising and rising in our two most expensive cities, just as wage growth stalled, so the "pool" of available buyers(with the money) would get smaller and smaller,any crackdown on wealthy foreigners and investors(who were already in the market) ,just made a bad problem even worse.

 

As strange as it is, his not important enough for it to be too meaningful. His likely not in power long and is just jawboning a bit given increasing regulatory fear about housing conditions and its growing impact on the economy.

RBA or APRA saying this and meaning it would be big though. They have tools to incentivise change pretty quickly.

One more quarter like the last quarter and action will be pretty swift I think. So far we’ve have; Growth data very soft, unemployment trend moving the other way, inflation soft, a 4% Qtr decline in the biggest housing market and soft retail/consumption figures. If it continues, it will be more than relatively insignificant jawboning that happens.

 

Just a bit of grandstanding. The sequence of events over the next few months (year or two?) doesn't take a masters in economics to figure out...

At this point lenders will still be analysing every statement made in the Royal Commission hearings, going over every document they can lay their hands on. They're adjusting policies to try to pre-empt the report which is due in Feb.

In Feb they get the RC report and their legal and risk teams go over every word. They further adjust policies to address as much as they can.

All this is done to be able to say to the government that the banks have addressed the problems and let's get back to business. Keep in mind that the RC can't actually affect changes, it only makes recommendations. Changes come from a combination of voluntary actions, enforceable undertakings via regulatory oversight and legislation.

Once something becomes legislation it's difficult to unwind. Lenders don't want this so they're going to do as much as they can to avoid it and part of that is demonstrating that they're responsible corporate citizens and have changed their ways. Undoubtedly in their efforts to do this, they'll take the conservative view on anything they address. Credit gets tighter as a result.

Then we have an election. Labor is elected and they've stated they'll implement the recommendations from the RC report. The banks will lobby hard, as well other industry participants (that's already occurring) but in an effort to look like they're doing something, there will be quite a lot of legislation introduced, passed and applied. Banks will then interpret this legislation and further adjust policies to implement it. When in doubt (and there will be a lot of doubt), they'll go for the conservative interpretation.

In all of this, APRA comments don't really factor into any real implementation of bank policies. Overall I'd say that APRA lost their relevance about 12 months ago, before the Royal Commission hearings started.


Eventually after much testing of the updated rules, lenders will figure out where they can and can't be flexible and policies will relax somewhat. Don't expect that for at least another year or so. In the meantime expect the default behaviour of banks to err on the side of regulatory and legal caution.

 

The RC’s focus is at a higher level than lending policies and bank flows. They don’t really care whether credit growth is at 1% or 10%, they’ve spent very little attention on the macro environment of credit growth. They’re really looking into behaviours and cultures of market participants. Their recommendations will likely focus on this, not so much on lending policies. They may try and talk about HEM to appease themselves, but they’re relatively clueless on macro credit impacts and causing change here. They are fuelling negative sentiment though.

APRAs potential impact on home lending in the short term is still far greater than most others (including the RC). Only the RBA can do more. It’s simply because they can directly control it.

APRA can come out later this year and drive home lending again;

- lending verification quality is amazing now - great work banks!

- given your increased rigour, there’s no need for a floor assessment rate of 7%, a 2-2.5% buffer on all debts above existing debts must remain.

- assessment rates across most banks fall to 6%

- borrowing capacities shoot up 10-20% across the board.

That would be a bigger driver than the RC to credit growth in the short term. APRA are the only ones with the power to do it. The Treasurer, etc all rely on APRA here. The RBA can drive demand for credit too by adjusting its price.

 

I think this is spot on.

Banks will always find a way, lets hope the likely new mob do not induce free fall while spending like drunken sailors.

 

Wanna take bets?

 

Nah, prob not, I just "hope".