Ex-Commonwealth Bank Exec Urges RBA And APRA To Limit Investor Lending

In a report by The Australian, the former chief executive of Commonwealth Bank, David Murray, expressed his concern over the 10% cap on investor loan growth. The current chair of Australia’s Financial System Inquiry argued that the current limit has been deemed as insufficient in curbing the rapidly changing environment of investor lending. He also encouraged the use of lenders’ mortgage insurance to attract more clients, particularly first-time home buyers and homeowners. Murray’s comments came after the RBC carried out two interest rate cuts last year. It triggered uncontrolled lending to property investors.

Insufficient “Speed Limit”

Murray and other analysts strongly believe that the annual “speed limit” is insufficient although the Australian Prudential Regulation Authority chairman Wayne Byres confirmed that APRA would stick to its imposed rate. APRA said the current restriction helped in curbing lending to property investors. The annual rate of investor lending rose by more than 10% until September 2015. It slowed down to 4.5% in August 2016 with the help of APRA’s crackdown. Its report also showed that it has reached 6.2% year on year.

However, Murray and other industry experts contradicted the claim and said investor lending has increased because of the rate, which they described as “too generous.”Murray also stressed that the growth in investor lending across the nation, based on last December’s data, hit an annual rate of 10.1%, a growth that could very well be above the limit. The increasing rate triggered concerns especially since household debt has soared to 187% of income. He added that it presents a huge risk to the country’s economy, which is why Murray is calling for higher limits. Murray stated that more investors in a soft market would lead to forced sales and instability.

IMF And RBA Express Concerns

About 40% of all lending has been attributed to investor loan. In addition to that, house prices continue to reach levels that would be difficult to regulate. Murray and industry analysts were not the only ones that expressed their concerns. The IMF has warned about the country’s growing household leverage. Meanwhile, the Reserve Bank of Australia also voiced out its worries over the extremely high concentrations of new apartments in Sydney and Melbourne. The central bank said the flood of new high-rise apartments could drive prices down and lead to heavy losses for developers.

Another problem that was cited with the limit of 10% for individual lenders was that investors could easily turn to another bank with a growth that is still below the specified limit. According to Michael Cameron, Chief Executive of Suncorp, more opportunities were offered to the company since a lot of investors reach out to them. He added that the limit is effective if the loans have been filling up all the banks. However, it would prove ineffective if banks reach the limit one at a time. In addition to that, Digital Finance Analytics Martin North said that CBA annualized rate stands at 10.3%, much higher than its reported 7.2% year on year.