APRA issues fresh warning to banks

In a letter to all authorised deposit-taking institutions on Friday, APRA stressed that the classification of investment and owner-occupied housing loans is used by the RBA to calculate financial aggregates, assess the transmission of monetary policy through the financial system, assess potential risks to financial stability and meet international statistical standards and reporting obligations.

APRA noted that several ADIs have recently reported "significant changes" in housing loan purpose between investment and owner-occupied.

“This letter provides guidance to assist authorised deposit taking institutions (ADIs) report these data to APRA consistently and accurately,” it said.

“These data are used in public policy decisions, prudential supervision and statistical publications. Where the change in loan purpose is not reported correctly (i.e. from the period that the change occurred), APRA, the Reserve Bank of Australia (RBA) and the Australian Bureau of Statistics (ABS) are impeded in accurately ascertaining the underlying movements in housing loans.

“Reporting of fixed-term housing loans must reflect the current purpose of the loan because the split by housing loan purpose is important for monetary policy and financial stability considerations.”

APRA’s latest warning comes after last year’s pricing and policy changes led to the RBA voicing its concern over the accuracy of bank mortgage data.

Speaking at the Finsia Regulators Panel in November, RBA deputy governor Philip Lowe said that recent problems with the data relating to banks' owner occupier and investor housing loans have complicated the central bank’s understanding of what is going on in the housing market.

“These data problems have emerged as lenders have taken a closer look at their housing loans following increased supervisory scrutiny,” Mr Lowe said. “As lenders have looked more closely, what they have found has surprised and, to some extent, concerned us.”

Mr Lowe highlighted that banks had underestimated the value of investor loans by $50 billion, an error that led Domain Group senior economist Andrew Wilson to question APRA’s lending curbs.

“If we have to question the integrity of the data, really, doesn’t that question the whole nature of the policy as it has been introduced?” Mr Wilson told Mortgage Business.

“We are not just looking at the outcomes of the macro-prudential policy but the nature of the recording of the particular data.”

The Reserve Bank’s financial aggregate figures for January noted that a number of borrowers have changed the purpose of their existing loan following the introduction of two-tiered pricing in mid-2015.

“The net value of switching of loan purpose from investor to owner occupier is estimated to have been $35.3 billion over the period of July 2015 to January 2016, of which $1.4 billion occurred in January,” the RBA noted.

[Related: APRA has 'opened a can of worms', says economist]