Home loans with high debt levels are going to be in focus, with the Treasurer Josh Frydenberg reportedly telling regulators to focus on home loans to reduce financial risks.
What is happening with home loans?
According to reporting by the Australian Financial Review, the Treasurer Josh Frydenberg has said to regulators that they can try to reduce the financial risks of high-debt home loans.
A key concern is the high debt-to-income ratios with new borrowers. This is being worsened by the really low interest rates that are causing property borrowers to borrow even larger amounts.
Apparently over 20% of property buyers are borrowing more than six times their income. This could be problematic if interest rates rise or there’s a job loss.
In the three months to 30 June 2021, 22% of loans had debt of at least six times income, compared to 16% a year ago.
Mr Frydenberg told the AFR: “We must be mindful of the balance between credit and income growth to prevent the build-up of future risks in the financial system. Carefully targeted and timely adjustments are sometimes necessary. There are a range of tools available to APRA to deliver this outcome.”
However, don’t expect the new lending rules to come in next week. It was reported that the change could be weeks or even months away.
What could this mean for the ASX?
There are a lot of different businesses on the ASX involved with writing loans or enabling people to get home loans.
That includes banks and mortgage brokers like Commonwealth Bank of Australia (ASX: CBA), Australia and New Zealand Banking Group Ltd (ASX: ANZ), National Australia Bank Ltd (ASX: NAB), Westpac Banking Corp (ASX: WBC), Bank of Queensland Limited (ASX: BOQ), Suncorp Group Ltd (ASX: SUN), Bendigo and Adelaide Bank Ltd (ASX: BEN), MyState Limited (ASX: MYS), Macquarie Group Ltd (ASX: MQG), REA Group Limited (ASX: REA) and Australian Finance Group Ltd (ASX: AFG).
Time will tell if this slows down house price growth, or sends prices back a bit. But it’s an interesting sign that even the federal government are wanting to turn things down a bit. Interestingly, the CBA share price is up around 0.8% today.
