New macroprudential curbs upon us

It had to happen, via the AFR:

Regulators are preparing to impose a fresh wave of constraints on the banks to slow investor lending growth, crack down on interest-only loans, and force buyers to stump up more equity on purchases as they scramble to manage a rampant property boom.

Warning that financial and economic risks have grown in recent months, particularly across east coast property markets, the nation’s top financial regulators and Treasurer Scott Morrison unleashed co-ordinated calls for fresh restraint from banks.

“Watch this space,” declared Australian Prudential Regulation Authority chairman Wayne Byres on Monday, speaking just hours after Mr Morrison urged APRA and the Australian Securities and Investments commission to use “the levers that they have”.

…”I don’t use the B-word. I refuse to use the B-word,” Mr Byres said. “We are in it – we are not in it. If we are in it we’re all going to be ruined – if we are not in it we’re going to be right. It’s too simplistic.”

Describing house prices as “high” and “rapidly rising” in Sydney, Mr Byres noted on Monday that banks were under huge competitive pressure to issue mortgages, demand for which has been stoked by historically low interest rates.

“That’s a recipe in which if everyone is not careful the risk in the system is going to rise,” he said.

“We can’t set house prices. We can’t fix affordability or change affordability. Our job is to make sure the banking system is resilient and that lending standards are sensible in an environment of heightened risk.”

Asked what form the looming crackdown on banks would take, Mr Byres referred to his 2014 letter to lenders – when macroprudential tools were first unveiled in Australia. The document identified investment loans, interest-only mortgages and buyers with high loan-to-value-ratio loans as high risk areas.

“They are the things that remain on the radar,” Mr Byres said.

Don;t stuff around, APRA. Cut the investor lending speed limit to 5%. It is a proven policy tool and will be enough for the RBA to cut again as well prevent any big rebound when it does.

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