Housing and tackling responsible lending backlash top regulatory agenda

  • By Christine St Anne

The outlook for housing, a dip in SME lending and clarification on ASIC’s approach to responsible lending were among the key issues canvassed at a recent meeting of the Council of Financial Regulators. 

In its in early July meeting, – APRA, ASIC, the Reserve Bank of Australia and Federal Treasury discussed a number of key issues including systemic risks and regulatory issues. 

Council members were also updated on ASIC’s public consultation on its responsible lending guidance

Submissions to ASIC’s consultation on responsible lending have highlighted concerns particularly from the big banks that over an overly prescriptive approach to the framework could have wider implications such as pushing consumers to unregulated lenders such as those in the buy now pay later sector. 

It was acknowledged at the council meeting, that the responsible provision of credit is a cornerstone of consumer protection and is important to the Australian economy. 

It was a theme that ASIC commissioner Sean Hughes already highlighted in the mainstream press on Monday. 

"ASIC will continue to apply the existing laws to ensure a fair, strong and efficient financial system for all Australians. As an independent regulator, that is our role," he wrote. 

In a statement summarising the council meeting, it was noted that: “the consultation is not about increasing requirements; but rather, clarifying and updating guidance on existing requirements”. 

For example, ASIC may further clarify areas where the law does not require responsible lending requirements to be applied for example in small business lending. 

Other issues relating to the housing sector were also discussed including the credit outlook and business credit growth. 

The regulators believe that housing credit growth has stabilised at a relatively low level, with lending to investors remaining weak, particularly from the major banks. 

Demand for housing credit has been subdued, though there has also been some tightening in credit supply. 

The regulators also acknowledged that lending to small businesses has fallen over the past year in part driven by greater bank scrutiny and the house prices. 

“Lenders are themselves applying stricter verification of expenses and income to small businesses, and lending may be affected by declining collateral values as housing prices decline,” the statement said. 

The regulators also discussed the signs of stabilisation in the Sydney and Melbourne housing markets, evident in both housing prices and auction clearance rates. 

While they acknowledged that the house prices have fallen over the past two years across Australia, the “risk to lenders from housing price falls have to date been limited by the strength of the labour market, low interest rates and the improvement in lending standards in recent year”. 

It was also noted that housing loan arrears have continued to edge higher, but with significant variation between regions.

The four agencies will continue to closely monitor developments in financing and the housing market.