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Prudential regulation has “swung too far in favour of risk aversion”, senator Andrew Bragg has said following the first round of hearings from the home ownership inquiry.
On Wednesday (16 October), the Senate inquiry into the financial regulatory framework and home ownership was held by the economics references committee – chaired by Senator Bragg – to hear evidence from those who had provided submissions to the inquiry.
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After questioning several members of the broking industry about their thoughts on how serviceability buffers were impacting mortgage lending and home buying in Australia, Senator Bragg released a statement excoriating the prudential regulator.
The chair of the economics references committee said: “The first public hearing of the Senate Economics Committee’s Inquiry into home lending reveals the mortgage rules are damaging first home ownership prospects.
“This has occurred through the Australian Prudential Regulation Authority’s (APRA) narrow mandate, which hasn’t been revised in many years, and the blunt instrumentality of serviceability buffers in particular.
“It is well understood that the supply challenge is supreme, but the hearings have demonstrated the potential for complementary reforms to support first home ownership.”
Senator Bragg said that some evidence provided to the inquiry – such as that by the Housing Industry Association – suggested APRA’s rules “are not appropriate in balancing public good, which is not just reducing risk, but also improving home ownership”.
Bragg said: “It was also revealed that the serviceability buffer is a blunt tool that can lock people into mortgage prisons.”
The Liberal senator (who is also the shadow assistant minister for home ownership) said that the Finance Brokers Association of Australasia (FBAA) had highlighted that the buffer disproportionately affects first home buyers and said the REA Group had suggested that the buffer could also be damaging supply.
Bragg said: “While we want strong and stable banks, the Reserve Bank stated that ‘it is not an aim of prudential regulation to completely eliminate risk’.
“The object of prudential regulation is to balance risk against all other objectives. At the moment it appears the pendulum has swung too far in favour of risk aversion. This is clearly damaging home ownership prospects.”
He said that the committee would continue to “probe core issues with APRA’s mandate and its blunt approach” at the next public hearing, which is scheduled for Thursday (24 October).
The final report for the Senate inquiry is due by 5 December.
Read the full recommendations put forward by the FBAA, the MFAA, and several brokers to find out what the industry suggested to the inquiry.
You can find out more about the inquiry and its process in the full interview with senator Andrew Bragg on The Adviser’s In Focus podcast here:
[Related: Broking industry leaders tell Senate why buffers should change]
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