The AFR with its usual vested interest drivel:
The head of one of Australia’s largest non-bank lenders has called for so-called home loan serviceability buffers to be reviewed as high interest rates risk leaving borrowers stranded.
…But he said as more borrowers looked to roll over expiring fixed-rate loans, the buffers that were put in place to ensure they could handle a sharp increase in interest rates from their ultra-low levels should be eased.
“We are punishing customers by having a 250 or 300 basis points of buffer when we feel that the market is at its peak with regard to rates,” he told The Australian Financial Review.
Is it really too much to ask to have APRA and the RBA working together instead of at cross-purposes? The RBA is lifting interest rates to produce this very mortgage stress so that demand falls and drags down inflation.
We can argue about the wisdom of doing so given so much of the inflation is supply side but that is its stated goal.
APRA is the second arm of Australian monetary policy. It used to be inside the RBA before being stupidly spun off after the HIH scandal.
As a stand-alone entity, for the better part of a decade, APRA has failed to work in concert with the RBA effectively. It was far too slow to adopt macroprudential tools after 2012 and, so, was materially responsible for Australia’s period of extended lowflation via the RBA having to keep rates and the AUD too high.
Now it is looking at being too fast in easing mortgage buffers which will, of course, lead immediately to bigger loans. This is especially the case in the fixed-rate loan reset space.
One might mount an argument based on fairness that APRA should do this if we see the RBA’s undertakings of low-interest rates until 2024 as some sort of public commitment. But it wasn’t. It never is.
Moreover, APRA easing and larger mortgages will directly lead to higher interest rates, which will only drag down the same freshly refinanced over-extended borrowers.
There is marvelous new technology available to resolve these issues. It’s called a telephone.
Phil Lowe needs to get on it and tell John Londsale to stop listening to the banks.
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Update: sense has prevailed…
The prudential regulator says it will maintain a 3 per cent interest rate buffer to protect banks from an economic downturn, a move that shows it is putting strong lending standards ahead of encouraging credit growth as the Reserve Bank seeks to tame inflation by continuing to lift interest rates.
