Banks are being ordered to approve fewer risky loans as the Australian property market continues to heat up, with regulators taking a pre-emptive strike against the growing excesses of an overheated market. The Australian Prudential Regulation Authority (APRA) has announced a 20% cap on the share of new lending that banks can do at a debt-to-income ratio above six, effectively limiting mortgages worth more than six times the borrower's income. While the move is intended to "help with financial resilience and housing affordability," according to Jim Chalmers, the Greens have criticized it as insufficient. The announcement comes amid breakneck growth in property prices and credit, with a recent report showing that a typical household needs to dedicate nearly half of its pre-tax pay to service the average new mortgage. An explosion in lending to landlords has been of particular concern to regulators, with property investors accounting for two in five new loans and the value of investor lending surging by 18% in the September quarter alone. The lending restriction will start in February, and APRA's chair, John Lonsdale, has stated that the regulator is prepared to intervene further if necessary. However, the effectiveness of the latest move is uncertain, as APRA data shows that only one in 10 new loans to investors are made at debt-to-income ratios of six or more, and one in 25 owner-occupier loans. Critics argue that the new restrictions are not enough to address the housing affordability crisis, with first-home buyers being priced out by investors at weekend auctions. The Greens' senator, Barbara Pocock, has called for APRA to use all available tools to rein in investor lending, which is exacerbating the housing affordability crisis.
