A major crackdown on home loans is being considered to end a growing problem caused by historically low interest rates and soaring house prices.
More than one in five buyers borrows more than six times their income, prompting the treasurer to consider intervening to crack down on home loans.
Josh Frydenberg met with financial regulators to discuss the boiling housing market and gave them the green light to consider curtailing heavily indebted home loans to minimize risks caused by historically low interest rates and soaring prices of real estate.
Regulators could announce new limits on heavily indebted loans in the coming weeks or months, as concerns about the amount of debt taken on by lenders increase.
In the June quarter, the number of new residential mortgages with debt at least six times greater than income jumped to 21.9% from 16% in the same quarter last year.
The jump has raised concerns that some borrowers will fail to repay their loans if interest rates rise or if they lose their jobs.
Financial regulators are now considering plans to potentially curb the rising rates of high debt-to-income ratio borrowers, but must find a way to do so without hurting first-time homebuyers.
It is expected that any crackdown would affect investors, as they are the group most likely to take on more debt.
Mr Frydenberg said that a positive feature of this real estate boom over the previous one was a higher proportion of first-time buyers and owner-occupiers entering the market, but the risk assessment needed to be continuous.
“With the Australian economy well positioned to recover strongly as restrictions ease, it is important to continually assess the adequacy of our macroprudential metrics,” he said.
“Last Friday, I joined the Board of Financial Regulators to discuss a range of issues, including the state of the housing market, with particular focus on the Australian Prudential Regulation Authority and the RBA.
“We need to be mindful of the balance between credit growth and income growth to avoid the build-up of future risks in the financial system.
“Sometimes carefully targeted and timely adjustments are needed.
“There are a range of tools available to APRA to achieve this result. “
The Board of Financial Regulators will publish its next quarterly statement on Wednesday.