RBA eyes limits on housing investment

02 October 2014

A senior official from the Reserve Bank has said the RBA ‘will do something’ this year to dampen lending to property investors.

The central bank is concerned about an imbalance in the housing market which is currently investor dominated. 

RBA assistant governor Malcolm Edey told the Senate Economics Committee that something will be done to limit risky lending to housing investors, and that we can expect at least a preliminary announcement before the end of the year. 

In its financial stability review last week, the RBA said it was in discussions with the banking regulator the Australian Prudential Regulation Authority (APRA), and they were focused on potential new rules to limit more risky investor lending. 

Dr Edey said that APRA had already taken some steps to limit low-deposit lending and other risky practices, and that the tools being discussed mainly focussed on the investor side of things. 

“These are APRA’s tools, not the Reserve Bank’s tools,” he said. 

One of the options being discussed in the media has been the prospect of limiting high loan-to-value ratio lending – which New Zealand has implemented – but Mr Edey doubts they’ll be used.

“LVR limits are unlikely to be one of the measures that we would focus on because it’s targeted at the wrong segment of the market,” he said. 

One of the problems of limits to low deposit loans is they can disadvantage first home buyers who generally have less savings and need to borrow a larger proportion of the value of their house. 

Instead of such measures, it looks more and more likely that APRA will opt for increasing the ‘risk weighting’ of investor loans.

This option would mean banks need to hold back more money in reserve to cover potential losses on property investor loans than they currently do, ultimately leading to slightly higher interest rates and possibly reduced availability.


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