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Despite housing boom, Reserve says lending standards still high

Business

The Reserve Bank continues to monitor developments in Australia’s booming housing market, but at this stage it is comfortable that lending standards have not dropped.

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House prices rose further in May and now stand over 10 per cent higher than a year earlier.

“We pay attention to the rise in house prices, definitely, but it is more the growth in lending,” RBA’s deputy governor Guy Debelle told a Senate hearing on Wednesday evening.

RBA assistant governor Michelle Bullock said the central bank was working closely with the banking regulator, the Australian Prudential Regulation Authority, in monitoring the housing market.

“At the moment, our view is that the lending standards are not being relaxed,” she said.

“Housing credit is growing, but we are not seeing an increase in credit, a relaxation in lending standards. Because interest rates are low it is easier for people to service their loans.”

The hearing was told the increase in housing lending is mainly for owner occupiers, and largely first home buyers, but loans to investors have started to pick up from a very low level.

Dr Debelle said the supply in housing is picking up, which can help to restrain house prices.

Building approvals for detached housing struck another record in April.

“Housing construction for detached housing is growing really strongly at the moment. There is going to be strong growth over the rest of the year,” Debelle said.

“More supply does constrain the rise in prices.”

Earlier, APRA chairman Wayne Byres told the hearing the last time the regulator intervened in the market, investor interest-only loans were running at 40 per cent of all loans being granted, but that was quickly halved.

But he said there is no intention of intervening at the moment.

“There is little value on us stomping on first home buyers trying to get into the market,” he told senators.

Asked if there is a threshold where APRA would intervene, Byres said no because you have to look at the context of the environment at the time.

“I have always resisted having a simple rule because I think it sets you up to make bad choices,” he said.

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