Australia’s Home Loan Guidelines Stay Tight as Job Market Slows

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Australia's banking regulator, the Australian Prudential Regulation Authority (APRA), announced on Monday that it would maintain a 3% serviceability buffer for home loan lending due to high household debt, ongoing cost-of-living pressures, rising credit growth, and a weakening job market.

APRA explained that while inflation had moderated and the risk of further interest rate hikes had diminished, there were still potential "shocks to household incomes" due to a slowing labor market. The regulator also noted that high household debt posed a vulnerability in the event of adverse economic conditions, and non-performing loans had increased, with the possibility of further rises, especially if unemployment grows. APRA Chair John Lonsdale highlighted that while the risk of financial shocks had remained, the sources of economic uncertainty had evolved, prompting the decision to keep current macroprudential policies in place.

Under the home loan guidelines, Australia's primary lenders are required to assess new borrowers' ability to repay loans at an interest rate at least 3 percentage points higher than the current home loan rate.

Despite a slowdown in employment growth in October, the jobless rate has remained low, and underlying trends are stable, suggesting there is no immediate need to cut interest rates. Additionally, the countercyclical capital buffer will stay at 1.0% of risk-weighted assets, ensuring that banks maintain an extra capital cushion for potential stress scenarios.

Paraphrasing text from "Reuters" all rights reserved by the original author.