RBA’s Housing Concerns Abated

Tighter mortgage underwriting standards have eased the Reserve Bank’s financial stability concerns associated with housing market conditions.

In its semi-annual Financial Stability Review, the RBA has reported that tighter lending standards imposed off the back of scrutiny from both regulators and the Banking Royal Commission have helped alleviate the threat posed by weakening housing market conditions in the major cities.

“Improvements in the quality of banks’ mortgage lending have mitigated the risks that weaker housing market conditions might otherwise pose to household and bank balance sheets,” the RBA says.

“This is especially true for new borrowers ... Changes in lending practices over the past few years mean that new borrowers will, on average, have less risky loans and be in a better financial position than previous cohorts.” The RBA noted that as a result of such measures, loans with an LVR over 90% remain less than 7% of housing loan approvals, while new interest-only lending has fallen to around 16% of total loan approvals and 7% of owner-occupier loan approvals.