Opening statement to Senate Inquiry into Financial Regulatory Framework & Home Ownership

Good morning, Chair and members of the committee.

Australian banks are committed to responsible lending rules, APRA requirements, and the Banking Code of Practice to protect consumers purchasing a home.

Owning a home is central to the Australian way of life, and banks are committed to supporting first home buyers.

In the last five years, banks have provided $298 billion of loans to over 683,000 customers to buy their first home. This is a 41% increase in customers over the previous five-year period.

But with rising house prices and a lack of affordable new homes, the dream of home ownership is becoming harder to achieve.

Our submission to this inquiry covers three key areas that I will briefly speak to.

Supply side factors

First, building more homes— and building them quickly—is essential.

New housing supply is at a decade low, with only 172,000 homes completed last year, while house prices have surged over 40% since COVID-19.

To create more opportunities for young Australians, we need to build more homes.

The best way to increase affordable housing is by implementing policies that increase supply.

Serviceability buffer and income assessment

Second, without needing to make any changes to law, there are some minor updates that could be made to regulatory guidance that would help more first home buyers safely access credit.

Today, APRA requires a 3% serviceability buffer above the loan rate to ensure borrowers can manage higher repayments if rates rise or their circumstances change.

APRA’s buffer could be more flexible for first home buyers, adjusted for a borrower’s circumstances and market conditions.

This could give many buyers a leg-up when it comes to purchasing their first home.

Consumer protections and responsible lending obligations

Third, banks support responsible lending rules to protect borrowers and ensure they can repay their loans.

However, current obligations for assessing first home buyers’ serviceability don’t account for their stronger income growth potential compared to other borrowers. First home buyers are assessed on their ability to repay a 30-year loan based solely on their first-year income.

Existing regulatory guidance could allow more flexibility for lenders to consider a borrower’s future income growth, where it is prudent to do so.

There is no silver bullet to address the housing affordability crisis. But increasing housing supply and sensibly balancing policy and regulatory measures to improve credit access could help making home ownership a reality for more Australians.

I am happy to take any questions.

Ends

Banking CodeRegulation & Policy