Australian banks could soon face lending restraints as the Reserve Bank considers measures to control a boom in investor finance.
In a speech to the Melbourne Economic Forum last week, RBA governor Glenn Stevens said he sees little downside of introducing tools other than changes to the official cash rate to curb the rapid growth for investor finance, particularly in Sydney and Melbourne.
Mr Stevens said investor finance is growing at double-digit rates and is now almost half the flow of new approvals.
“A lot of this is interest-only lending in an environment of rising house prices, especially in Sydney and Melbourne,” he said.
“I think it is perfectly sound and sensible to ask ourselves whether there are tools that might, at least, lean on that a bit.
“I see not much downside risk of doing so; the worst that could happen is it doesn’t have that big an effect, but if it had some, and that helped us to square in some small way all the conflicting things that we have going on, that is worth a try.”
While these comments are at odds with previous remarks by the governor, who voiced his scepticism for macroprudential tools as an untested way of reining in booming house prices, he now says he is open to using them.
Mr Stevens said that he does not believe macropudential tools – such as LVR limits and increased loan serviceability buffers – are a “panacea or permanent solution”, but is confident they can be useful for a period.
His comments come after the release of the central bank’s Financial Stability Review last Wednesday, which highlighted the disproportionate surge in investor home loans as a potential risk to Australia’s financial stability.
Macroprudential tools were put to use in the UK earlier in the year, and have been in place in New Zealand for the last 12 months.
In New Zealand, the restrictions prohibit banks from issuing more than 10 per cent of new residential loans to customers who have an LVR of more than 80 per cent.
Back in May the Reserve Bank stated that if it were to introduce non-interest rate measures, LVR limits would not be its preferred method.
“The RBA has already run through its views on seven or eight different macroprudential policies,” JP Morgan banking analyst Scott Manning said.
“They came up with the view that the best one with the least adverse outcomes is increasing interest rate buffers,” he said.