RBA: Australian Housing Risk has Increased

The Reserve Bank warns lending controls on banks to reduce the heat in Australia’s property market could just drive buyers elsewhere for their loans.  Risky lending into an inflated market has been a consistent worry for the Reserve Bank’s rates strategy, though not enough to deter this month’s rate cut to a record low of 2 per cent.

Last week the rhetoric from regulators went to a new level when the head of the Australian Securities and Investments Commission (ASIC), Greg Medcraft, used the term “bubble” in describing the Sydney and Melbourne markets.  However, today, RBA deputy governor Philip Lowe said recent measures from banking regulator the Australian Prudential Regulation Authority (APRA) were having a “positive, albeit modest, effect”.

“In the past couple of weeks you’ve seen a number of banks say they’re requiring larger deposits for investor loans, they’re offering smaller discounts on interest rates and smaller rebates, they’re requiring higher serviceability levels,” Dr Lowe said at a Thomson Reuters regulatory summit in Sydney.  But he added that the use of lending controls, also called macroprudential tools, can only be pushed so far.  “This is an issue that’s very clearly on our radar screen. How far can you push the tighter regulation of the banking system without causing the same volume of loans to be made but just through a different financial intermediary,” Dr Lowe said.