It’s very much worth watching how the RBNZ’s new macroprudential policies roll out given the increasing likelihood that they’ll end up over here as well. Banking Day reports that the banks have begun their fight against the new regime:
Economists said the changes would have only a small immediate effect on interest rates for high LVR loans, and would be competed away quickly as banks outside the Big Four were free to offer better rates.
…Westpac senior economist Michael Gordon said he did not expect a major impact on the housing market.
“Competitive pressures will limit the extent to which higher funding costs can be passed through to mortgage rates,” Gordon said.
“The impact on lending rates is proportionately small – probably less than a single incremental change in the official cash rate. And, if the price of loans doesn’t change significantly, we shouldn’t expect a significant change in the behaviour of borrowers and lenders, and, therefore, in the housing market,” Gordon said.
I’m not sure how the smaller lenders will compete away the effects. If the measures are effective then you would expect the RMBS market to tighten up as well as lending from the majors eases and the risk of bad loans climbs. Mind you, there’s the government owned Kiwi Bank to consider.
More to the point, the answer to the banks’ objections is obvious. Hike the requirements further and keep doing so until they work.