Australia's banking watchdog said today that authorities can and will take further action if needed to stop a debt-fuelled bubble in the country's red-hot housing market.
Wayne Byres, chairman of the Australian Prudential Regulatory Authority (APRA), said measures announced last week were aimed at promoting prudent lending and borrowing practices, and not to influence housing prices.
Housing has become a political hot potato and have dominated newspaper headlines recently, with prices in Sydney skyrocketing almost 20% a year, having more than doubled since 2008.
In Melbourne, they are racing at nearly 16%.
The feverish pace of price increases prompted APRA to announce measures asking banks to limit new interest-only loans to 30% of total new mortgages, from 40% now.
It also demanded that banks limit investor credit to "comfortably remain below" a previously set cap of 10%annual growth.
"This latest step is a tactical response to current market conditions - we can and will do more, or less, as conditions evolve," he said at an industry conference in Sydney.
"Our role in the current environment is to promote a higher-than-normal degree of prudence - definitely by lenders and, ideally, also borrowers - in both credit decisions and balance sheet strength."
Just this week, Australia's corporate watchdog joined the fray, introducing a new round of industry surveillance to ensure banks and brokers were not recommending overly expensive interest-only loans to customers.
The measures come as regulators grow increasingly worried about a run-up in borrowing at a time when household debt is already at record highs, risking a damaging pullback in home prices.
Australian banks are among the world's most profitable lenders with strong capital levels. They emerged out of the global financial crisis relatively unscathed and regulators want to ensure they remain safe.
Banks have largely welcomed the recent measures.
The Reserve Bank of Australia (RBA) yesterday held interest rates steady at a record low 1.5% for the eighth month in a row.
