The Reserve Bank could cap LVR or work with APRA to change capital requirements on residential mortgages.
A leading financial service researcher believes the central bank could resort to levers other than the official cash rate to control property concerns and address banks’ overexposure to the market.
The news comes after the RBA minutes this week forecast that rates will remain at a record-low 2.5 per cent for at least another year.
“I think the RBA is more likely to do what has been done in New Zealand and use more than just the interest rate as a lever,” Rice Warner chief executive Michael Warner told Mortgage Business.
Last year, New Zealand’s central bank implemented restrictions prohibiting lenders from issuing more than 10 per cent of new residential loans to customers who have an LVR of more than 80 per cent.
“So they could look at the amount of mortgage deposits for example as a guideline,” Mr Warner said. “Another thing they could do is change the Tier 1 capital requirements on residential mortgages, which would make the banks hold more capital,” he said.
“If they did that, then the banks themselves would seek to securitise some of these mortgages and get them off their own balance sheet – that could be the first driver.”
With the Murray Inquiry’s interim report raising a number of proposals to increase the amount of capital held by the majors, coupled with APRA and the RBA’s regular commentary on lending standards, property prices and capital requirements, Mr Rice sees a lever being pulled soon.
“The regulators talk about it all the time as if it is a problem, so sooner or later they will do something,” he said.