APRA’s latest consultative paper also raises the need to resolve future flash points for the property sector, such as payment of commissions by lenders to mortgage brokers and on-site versus desktop property valuations.
According to an APRA spokesperson, the consultative paper is an attempt to fill potential gaps and increase awareness of problems that might be created by changing market conditions, particularly in Melbourne and Sydney.
The spokesperson warned of a significant gap in APRA’s ability to monitor risks and lending practices because of a more than three-fold increase in the number of lending institutions since APRA’s guidelines were originally introduced eight years ago.
APRA also repeated recent warnings about the need to probe buyers about their ability to pay the principal on long-term, interest-only loans due to concerns that changing buyer circumstances or rising interest rates could impact buyers’ ability to repay.
Other recommendations include encouraging lenders to toughen lending criteria (particularly serviceability), and relying less on the Henderson Poverty Index. While the index is adjusted for inflation, it does not necessarily capture the borrower’s income and expenditure.
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