Domestic Financial Conditions: Low Interest Rates on Business Loans

Topic: Domestic Financial Conditions
Subtopic: Interest rates on business loans are low
Author: The Reserve Bank of Australia (RBA)
Publication: February 2019
URL: https://www.rba.gov.au/publications/smp/2019/feb/domestic-financial-
conditions.html

Australia banks’ regulator attempted to ensure that that there was a decline on borrowers. This
was due to a high number of borrowers not honoring their agreement of paying their agreed
principals on the mortgage debt. The regulator ensured that the risk was covered by introducing
and providing tight regulations on all home loan lenders. The regulator limited the interest
proportion by ensuring that interest of lending would be 30% of all new mortgages.
In the following years both in Sydney and Melbourne there were a rapid growth on price of the
houses. The increase on the use of interest lending increased lenders risk and also on the
economy of Australia were the price of the houses were projected that they would suddenly
decline.
The fall in price and a high debt on mortgage would make the potential borrowers to experience
negative equity, and this would not be realistic considering large scale.
After the introduction of the restriction it took nine month for a positive feedback to be realized.
The Westpac Bank chart above shows the share of both the existing and new interest on loans as
a cumulative percentage of housing loans. It can be seen that on the final 3 months there was a
sharp decline.
The new loan shares declined to 15.2% and on stock loan it declined to 32.7% in the quarters. As
per Westpac senior Economist Mathew Hassan disclosed that one year ago the loans were close
to 40%.
The meeting that was held by RBA board noted and appreciated the Australia banks’ regulator
restriction. They all agreed that the measures were helpful to curb the household balance sheet
risks, even though the debt of the household was still high.

TOPIC: ANZ PROFIT SLIPS ON SLOWING HOUSING MARKET
Business reporter: Stephen Letts
Updated: 01 May 2019
URL: https://www.abc.net.au/news/2019-05-01/anz-first-half-result-2019/11059066
The property sector of Australia expects a gradual growth on the price and construction of
houses across its market in future. Development of housing market presents its challenges in the
Australian economy 2018.
That was the investigation which came out with thoughts of price increase from the latest
quarterly ANZ-Property Council survey but the residential construction fell rapidly in the quarter
season.
David Cannington and Cherelle Murphy who were the members of ANZ’s economic group said
that, during that time the sharp decline in housing market confidence was offset by both a solid
pipeline of planned work for property business in 2018 and an optimistic outlook for commercial
property.
The housing market confidence fell to a three-year low during the quarter as shown in the chart
below.