Yahoo Finance Frydenberg to clamp down on soaring home loan debt
Treasurer Josh Frydenberg plans to crackdown on growing levels of household debt which have come as a result of Australia’s soaring property market.
Frydenberg said he discussed issues surrounding Australia’s growing property market with the Council of Financial Regulators on Friday last week.
The Council comprises APRA, the Australian Securities and Investments Commission (ASIC), the Reserve Bank of Australia (RBA) and Treasury.
Also read: ‘Too big to fail’: Why the Aussie property market won’t go down
Also read: Lockdowns, incentives: Where the property market is headed in 2022
“Off the back of historically low interest rates Australia’s housing market has seen strong growth. It is a development replicated in many other countries,” Frydenberg said.
“A positive feature of this housing cycle compared to that of the last is a higher proportion of first home buyers and owner occupiers entering the market.”
However, there have been growing concerns around young Aussies, and particularly first home buyers, stretching themselves too thin with a large income to debt ratio building.
Around 22 per cent of Australians have a mortgage debt that is over six times higher than their income, according to the latest data from the Australian Prudential Regulation Authority (APRA).
“We must be mindful of the balance between credit and income growth to prevent the build-up of future risks in the financial system,” Frydenberg said.
“Carefully targeted and timely adjustments are sometimes necessary.”
Frydenberg said that Australia's economy is expected to strongly recover as COVID-19 restrictions ease, and with that it is important to carefully assess the growing property trend.
The high levels of debt to income could potentially lead many Australians to default on their loans if they were to experience an income shock.
RBA considers tools to ease property prices
This comes after the RBA backflipped on its previous stance that rising property prices were not it’s concern.
RBA governor Philip Lowe had previously indicated that it was the duty of the Government to introduce measures to slow the heating market.
However, assistant governor Michele Bullock revealed that it was assessing "tools" that "could be employed in Australia" to manage the risks associated with house prices.
The ever-growing property market, and any potential house price crashes, poses a potential “financial stability risk”, Bullock said.
“The prospect of large declines in property prices presents significant balance sheet risks for households, businesses and lenders,” she said in a speech last week.
Follow Yahoo Finance on Facebook, LinkedIn, Instagram and Twitter, and subscribe to the free Fully Briefed daily newsletter.
