APRA has warned the Albanian government of ‘increased’ housing risks with rising interest rates

The banking regulator has warned Albania’s new government that it will face “increased” risks in the housing market as interest rates rise.

The warning came in the new government package prepared for the new Labor government when it took office in May, and was made public following a freedom of information request by the Australian Financial Review.

The 48-page document set out a range of issues that APRA was examining in the banking, insurance and pensions sectors it regulates, but housing came to the fore.

“Risks in housing markets are heightened,” the report warns.

“A prolonged period of historically low interest rates has led to strong house price growth in recent years, which has been high compared to advanced economies around the world. Levels of household debt relative to income are also high, both historically and internationally.”

Even though interest rates had only just started to rise in May when the report was written, APRA warned that more expensive mortgages would put some borrowers in financial difficulty.

“The faster-than-expected emergence of inflationary pressures and a rising interest rate environment is likely to strain household balance sheets and put a number of households in financial difficulty,” he said. he noted.

“Low interest rates have, on the whole, helped borrowers build up substantial mortgage repayment cushions. Nevertheless, a number will experience loan repayment shocks [particularly those on very low fixed rates] as interest rates rise.

“More generally, high interest rates will reduce borrowing capacity, increasing the likelihood of falling house prices in Australia.”

The following sentence was removed from the FOI because it was either an opinion, recommendation or advice, or because it was part of a deliberative process.

Soaring interest rates ‘risk causing housing market to plummet’

APRA warned that high interest rates would reduce borrowing capacity, increasing the likelihood of falling house prices.(ABC News: John Gunn)

Recent figures from CoreLogic show house prices in Sydney have fallen nearly 2% over the past month, with prices in Melbourne also falling sharply and slowdowns emerging in other major cities.

Many economists, including those at big banks, are now predicting more than 15% falls in house prices nationwide, with some warnings about the risk of much larger falls.

AMP Chief Economist Shane Oliver said house prices in Sydney are now falling at their fastest monthly rate since the mid-1980s after a 1.25 percentage point rise in interest rates interest from the Reserve Bank since early May.

“That, combined with falling real incomes, will dampen consumer spending going forward,” he recently warned.

“The rise in the cash rate to the level of around 3.5% expected by the money market risks collapsing the real estate market and therefore the economy.

“So we remain of the view that rates won’t be that high.”

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