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‘Nervous’ economists predict more lending curbs

Two leading economists believe that APRA’s lending curbs are here to stay and have flagged a strong possibility that more macro-prudential measures will be introduced this year.

Speaking on a panel at The Adviser’s Better Business Summit in Sydney last week, NAB chief economist Alan Oster told brokers that macro-prudential measures are “here to stay”.

“I don’t see them winding back at all. In some ways, APRA is being the new Reserve Bank. As an economist, I think they will do something else. It might have to do with incomes or costs,” Mr Oster said.

However, the economist revealed that he has “always been nervous” about macro-prudential tools as he believes they have “unintended consequences”.

“NAB writes half of its home loans through its business bank, rather than its personal bank, and at least 60 per cent of them are interest-only. I’m guessing that a lot of them are small business loans. You need to be a bit careful about that,” Mr Oster said.

Until recently, APRA chairman Wayne Byres has given little indication of how long caps on investor and interest-only lending will remain in place. However, earlier this month he told a Senate committee in Canberra that the 10 per cent cap on investor mortgage growth was “probably reaching the end of its useful life”.

“It’s interesting that APRA’s talk about maybe relaxing some of them started to happen when the Productivity Commission started to criticise the rules as hindering competition,” ANZ’s head of economics, David Plank, noted at The Adviser’s Better Business Summit last week. “There is always a trade-off between competition and stability.”

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Mr Plank believes that if rates stay as low as they are, the current slowdown in housing and debt we have seen will be temporary.

“I don’t mean we go back to the boom times of 18 months ago,” Mr Plank added. “But if you took off the macro-prudential controls, you would see a surge in borrowing. When the price of debt is as low as it is, you really don’t have any choice but to keep the regulation.

“If anything, we are likely to see more macro-prudential rather than less over the course of the year.”

Mr Plank noted that in other jurisdictions such as New Zealand and Canada, where macro-prudential measures have also been used, regulators have been forced to continue upping the ante as the market grows accustomed to lending limits.

“We have seen this pattern in all the countries that have introduced macro-prudential controls: after the initial round, people adjust to them,” the ANZ economist explained.

“The global experience is that, it’s not that people get around them, but they adjust to the circumstances and figure out what’s needed to fit the new criteria and then things start to take off again.”

[Related: ‘IO loans have always been safer’, says NAB chief economist]

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