Frydenberg: Get ready for macroprudential mortgage curbs

After successive warnings from the CBA and the IMF, Treasurer Josh Frydenberg has green-lit regulators to implement macroprudential mortgage curbs to cool the property market:

Mr Frydenberg spoke about the issue to the Council of Financial Regulators at its quarterly meeting last Friday…

“A positive feature of this housing cycle compared to that of the last is a higher proportion of first home buyers and owner occupiers entering the market,” he said…

“We must be mindful of the balance between credit and income growth to prevent the build-up of future risks in the financial system.

“Carefully targeted and timely adjustments are sometimes necessary.

“There are a range of tools available to APRA to deliver this outcome”…

The Council of Financial Regulators is due on Wednesday to release its quarterly statement, though it is not expected to announce any macro-prudential measures.

Frydenberg’s acknowledgement is a far cry from his recent attempt to scuttle responsible mortgage lending rules on the basis that access to credit was overly restrictive and would restrict Australia’s economic recovery:

As the Governor of the Reserve Bank of Australia observed recently, what began as responsible lending principles has translated into a practice that has become imbalanced between a lender and its customer, leading to the undesirable consequence of unduly restricting lending.

How wrong Frydenberg was. Mortgage demand rocketed to unprecedented levels – the opposite of restricted lending – forcing Frydenberg to acknowledge that regulatory curbs on mortgage lending are needed.

Mortgages

The sooner APRA cracks down on risky mortgage lending the better. There is no benefit in waiting until the situation deteriorates further. Prevention is always better than cure.

Unconventional Economist

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