Home Loan Slump Prompts Attack On Reserve Bank

Another slump in home lending during June has buried fears about overheating in the housing industry - and prompted strong criticism of the decision by the Reserve Bank to increase official interest rates.

Housing industry groups and the coalition yesterday accused the bank of acting hastily in pushing up rates and trying to curb low-deposit home loans when there was clear evidence that the housing boom was over.

But the latest Westpac-Melbourne Institute's leading indicator of economic activity for June showed that the economy was likely to continue growing very strongly into 1995.

There was still no reaction from the banks yesterday to the 0.75 per cent rise in official cash rates announced on Wednesday, but the first move could come today.

Commentators are expecting the banks to pass on most - but not all - of the increase to variable housing and business loans. The National Australia Bank is expected to take the lead, possibly later today after its weekly strategy meeting. A spokesman for ANZ said the bank could opt for a rate increase today or early next week.

Regional banks, including St George and the Advance Bank, yesterday homed in on the Reserve Bank's move to double the capital backing banks are required to hold against home loans where the deposit is less than 20 per cent.

They said the increased cost of such loans would force many banks to stop lending on these terms, which would hit many struggling home buyers who could not afford to put up the full 20 per cent deposit.

Banking analysts said those first-home buyers who were hoping to borrow most of the cost of their homes from the banks would probably look to the non-bank sector, which at this stage is not subject to any loan to property valuation restrictions.

But the Australian Financial Institutions Commission, the Reserve Bank equivalent for the non-bank sector, is soon expected to amend its own lending guidelines in line with those announced by the Reserve.

According to Bureau of Statistics figures, the number of home loans dropped by 6.6 per cent in June, after adjusting for seasonal factors.

It was the second monthly fall in a row, and accelerated a downward trend which started in March after a slowdown earlier in the year.

Master Builders Australia said the figures showed that the Reserve Bank had moved too early and its actions could escalate the downturn in housing activity. There was no evidence of any cost pressures in the housing industry, with many businesses still operating below capacity, MBA's executive director, Mr John Murray, said.

The Real Estate Institute of Australia said the move to put controls on home lending were ``hasty and untimely".

The shadow Treasurer, Mr Costello, said the figures confirmed that the the Federal Government had got it wrong. ``Home buyers will pay for the consequences of their misguided policy," he said.

The federal Housing Minister, Mr Howe, said the home lending figures suggested that housing activity was starting to fall to sustainable levels and that there would be no inflationary pressures coming from the industry.

There was other good economic news yesterday for the prospects of the long-awaited revival in business investment: Company profits continued at record levels during the June quarter - $6.115 billion after adjusting for seasonal factors - after three years of continuous underlying improvement.

Imports of machinery and transport equipment jumped by 12 per cent .