The inexorable logic of macroprudential is pushing the RBA and APRA forward. When asked on Friday at the Parliamentary Committee about it, Capt’ Glenn replied:
“I said somewhere a few months ago that we had thought about this, we had had some preliminary discussions with APRA, which we had, and we promptly had a flood of FOIs for all the documents….”
“So we have thought about macroprudential tools. My view on them is they are a useful adjunct, but if we do use them we should go into this with a bit of realism.
“Let’s be clear. For a start, if we were to have, say, a loan-to-value cap, who do you think will be most affected by that?
“It will be first-time buyers. I can imagine at the political level you will find that uncomfortable, should we proceed down that track.
“Indeed, I think the New Zealand experience is that, when the central bank announced that [ie, macroprudential policy], the government felt obliged to do some offsetting things. So this is not necessarily straightforward.
“On the work that I have seen the most effective tool could be that when banks test people for an interest rate, so you are supposed to be able to make the payments not just at the current rate but, say, 200 points higher, APRA could insist that the test be made 300 higher, or 400, or whatever, so that people do not get overcommitted. “
That’s a false binary by the captain. Everyone knows MP tools are a temporary fix so the real question is are first home buyers better served by runaway prices that lock them out or stable prices that suppress entry temporarily. It’s an obvious answer.
Phil Lowe added:
“I think the benefit of that type of approach is it allows lower interest rates to feed through into lower servicing costs for both new and existing borrowers.”
“But it does not mean that lower interest rates keep on increasing the size of the loan that people can get access to, because the bank is applying a bigger buffer to the actual interest rate you pay.
“I think there is quite a lot of merit in exploring that. I know APRA is discussing that at various levels with the bank lenders.”
…”Macroprudential tools are very much like the tools we used in the 1970s and we ended up deciding we did not like those very much because you restrict one class of lenders, and the financial system is very flexible and another class of lenders comes up to fill.”
I don’t see anything here to inhibit the runaway investor class that is inflating prices most aggressively. Given most investment properties are bought on 100% finance and are negatively geared for tax breaks I would have thought that they will easily skirt affordability tests. Any MP regime with the aim of limiting financial system risk in today’s climate must crimp investor appetite. Reader input is welcome on this question.
(h/t Banking Day for digging up these quotes)
