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  • The banking sector has been put on notice by the Reserve Bank of Australia (RBA) as it keeps a close eye on rising house prices
  • The RBA will “carefully” monitor lending standards while keeping interest rates at a record low of 0.1 per cent
  • The RBA said it won’t increase the cash rate until actual inflation is sustainably within the two to three per cent target range
  • For this to happen, RBA said we will need to see significant gains in employment and wage growth, with the market not expected to reach these conditions until 2024 at the earliest
  • Meanwhile, the Australian Prudential Regulation Authority has also said it’s keeping an eye on credit standards

The banking sector has been put on notice by the Reserve Bank of Australia (RBA) as it keeps a close eye on rising house prices.

The RBA will “carefully” monitor lending standards while it keeps interest rates at a record low of 0.1 per cent.

“Housing markets have strengthened further, with prices rising in most markets,” RBA Governor Phillip Lowe said.

“Housing credit growth to owner-occupiers has picked up, with strong demand from first-home buyers. In contrast, investor credit growth remains subdued.”

“Given the environment of rising housing prices and low interest rates, the Bank will be monitoring trends in housing borrowing carefully and it is important that lending standards are maintained,” he continued.

The RBA said it won’t increase the cash rate until actual inflation is sustainably within the two to three per cent target range.

For this to happen, RBA said we will need to see significant gains in employment and wage growth, with the market not expected to reach these conditions until 2024 at the earliest.

The Australian Prudential Regulation Authority (APRA) has said it’s also keeping an eye on credit standards.

“We don’t want to see credit standards, particularly in the area of housing lending, weakened,” APRA Chair Wayne Byres said in a speech at the 2021 AFR Banking Summit.

“The goal is to sustain a balance that allows good quality customers to obtain a sensible amount of credit in a timely manner.”

According to Byres, APRA has no mandate to target housing price levels or improve housing affordability — instead noting that, for them, housing prices are a risk factor, not a goal.

“Household debt levels are undeniably high but have declined relative to income recently,” he said.

“Serviceability of that debt is also being supported by historically low interest rates.

“On the radar, however, are signs that housing credit growth is picking up, and likely to outpace income growth for the foreseeable future.”

Byres warned against complacency, as at an aggregate level, lending statistics do not show major signs of returning to higher risk lending.

Low mortgage rates have helped the housing market boom across the nation, with CoreLogic Research Director Tim Lawless saying the most likely factor that will slow housing conditions is a new round of credit tightening along with housing affordability becoming more of a challenge, especially for first home buyers.

“While a new round of macroprudential policies is looking increasingly a matter of when not if, the catalyst for such a policy intervention is more likely to be based on a worsening in the quality of lending standards or increase in mortgage related household debt, rather than as a response to heat in the housing market,” he said.

“Tighter credit conditions would probably have an immediate dampening effect on housing market activity, while continuing to let record low interest rates support the ongoing economic recovery.”

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