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Highlights
- APRA maintains the mortgage buffer amid rising borrower stress.
- Debate intensifies over the impact on first-home buyers.
- Split opinions among the big four banks in Australia.
The Australian Prudential Regulation Authority (APRA) has reaffirmed its stance on maintaining the mortgage buffer, a stress-testing rule designed to shield the economy from financial risks. Despite rising household mortgage stress and calls for change, APRA chair John Lonsdale highlighted that unemployment now poses a greater risk than inflation or interest rates. Approximately 35,000 households, representing $23 billion in bank lending, are currently facing significant financial challenges.
The buffer requires lenders to evaluate if borrowers can handle loan repayments at an interest rate three percentage points above the current rate. For example, a borrower applying at an average mortgage rate of 6.3 percent must demonstrate the ability to repay the loan at 9.3 percent. APRA argues that this precaution provides a contingency against unexpected financial downturns, such as unemployment or economic shocks.
The policy has sparked a debate among policymakers and financial institutions. Critics argue that the rule creates barriers for first-time homebuyers. This division is evident among Australia's largest banks. While (ASX:ANZ) and (ASX:NAB) have pushed for the buffer to be reduced, (ASX:CBA) and (ASX:WBC) emphasize its importance in mitigating financial risks.
John Lonsdale defended the buffer, citing its critical role in protecting the broader economy. He pointed out that the proportion of households experiencing mortgage stress has doubled compared to 2016 and continues to rise. He also warned that geopolitical uncertainties, such as international trade tensions, could exacerbate risks in the labor market, potentially keeping interest rates elevated longer than anticipated.
Banking leaders have expressed mixed reactions. (ASX:CBA) CEO Matt Comyn voiced support for the regulator’s current measures, emphasizing that they minimize financial vulnerabilities. On the other hand, (ASX:ANZ) argued that the buffer, combined with soaring house prices, restricts lending predominantly to wealthier individuals.
The ongoing debate has caught the attention of policymakers, with a Senate inquiry now examining whether APRA's authority over lending practices should be re-evaluated. The inquiry will consider whether parts of APRA’s responsibilities should be transferred to parliament or subjected to greater legislative oversight.
APRA remains steadfast in its position, asserting that the buffer is a necessary safeguard against economic uncertainty, ensuring stability within Australia's financial system.
