AFR Article 9 July 2021. Page 10

The pressure to cool the booming housing market has intensified as the growth in lending to buy a home almost doubled over the past year, and investor loans accelerated by more than 30 per cent in the past three months, ANZ’s economists warn.

With housing credit growth expected to surge further and threaten to outstrip income growth by a significant margin, the Australian Prudential Regulation Authority could be compelled to step in with harder measures by the end of the year, said ANZ senior economist Felicity Emmett.

‘‘I think the rate of growth in overall housing finance is really very strong at the moment, and I think it will accelerate quite sharply in the coming months,’’ she said.

‘‘Once those credit growth numbers start sprinting at these higher rates, I think that the regulators are going to become concerned.’’

While the Reserve Bank of Australia and APRA have pointed out in recent months that they do not target house prices, they were worried about the level of household debt relative to income, Ms Emmett said.

‘‘The May data shows that credit growth is already outpacing income and the gap is likely to widen,’’ she said.

‘‘Our expectation is that credit growth will lift above 7 per cent by the end of 2021 and will grow above household income by a significant margin for the next few years.’’

ANZ’s forecast already assumes house price growth will slow in the coming months as slightly higher mortgage rates feed through and macroprudential policy is implemented by the year’s end.

The bank expects home prices to rise between 15 per cent and 20 per cent in capital cities through 2021.

Ms Emmett said APRA was already using a soft-touch approach to tame the housing market, but harder limits looked likely in the next few months. ‘‘We already know that APRA has written to the banks to question them about their lending standards to make sure they’re lending responsibly.

‘‘This is generally the first step that tells us that APRA has a fairly soft touch approach to start with,’’ she said. ‘‘But I think it’s clear that the regulators are thinking about what sorts of measures they would include. So while they might not be ready to pull the trigger just yet, they are certainly planning for a potential intervention, later this year potentially.’’

RBA governor Philip Lowe on Tuesday flagged measures such as increasing the buffer banks use to calculate the size of home loans people can get from the current 2.5 percentage points above the advertised mortgage rate.

The RBA is also looking at putting a limit on the number of high debt-to-income ratio loans and low-deposit mortgages the banks could write.

Curbs on investor lending and interest-only borrowing were also an option, but probably further down the track, Ms Emmett said.

‘‘The strongest likelihood is that more than one measure is introduced, and the choice will depend on how the data evolves,’’ she said.

‘‘At this stage, I think it’s unlikely the regulators will target investment lending and interest-only loans as they are not at [concerning] levels … but it doesn’t mean in four months’ time they may not use those measures if the rate of investor lending accelerates further.’’