From Credit Suisse via the AFR, perhaps I’ve been too hasty about regulator capitulation on macroprudential tools:
The most effective and potentially palatable form of non-monetary intervention in the overheating housing market would be to force lenders to incorporate larger interest rate buffers when assessing the ability of a borrower to service a loan, say analysts at Credit Suisse.
…While the RBA has dismissed the idea of imposing limits on LVRs – based on the fact that it would disproportionately affect first-home buyers, who it does not see as the portion of the market where the greatest systemic risks lie – the central bank “appears to view a [macro prudential tool related to debt serviceability] as relatively well targeted, while also involving the fewest drawbacks,” say Credit Suisse analysts.
For example, the Australian Prudential Regulation Authority could require that the debt serviceability ratio (DSR) calculation include something more like a 300-point or 400-point buffer.
…Increasing the standard variable loan rate from 5.25 per cent to 7.25 per cent would increase the proportion of take-home pay devoted to repayments to 42 per cent on nationwide averages, and 51 per cent in NSW. Applying a rate of 9.25 would drive those figures to an “eye-watering” 53 per cent and 65 per cent, respectively.
Let’s hope so.
