Addressing questions at the House of Representatives Standing Committee on Economics in Melbourne on 11 August, RBA governor Philip Lowe said that he was happy with the way the current lending curbs have played out in the market.
APRA's limits on investor and interest-only lending have created ongoing pricing and policy changes in the home loan market, with most lenders hiking rates in an effort to cool demand. This strategy has been met with mixed emotions by brokers and industry professionals. Lenders that have repriced their interest-only and investor back books have faced heavy criticism.
Mr Lowe said that, based on RBA figures, he is confident that Australian banks are within APRA’s 10 per cent cap on investor lending and 30 per cent limit of new interest-only mortgages as a proportion of total lending.
However, he stressed that he has “long thought that it was problematic in Australia that at times more than 40 per cent of mortgages did not require the repayment of one dollar of principle on a regular basis”.
Mr Lowe highlighted that many other countries prohibit interest-only loans or have constraints on them.
“We didn’t have any constraints on them,” the RBA governor said. “My hope was that banks would constrain themselves and not offer that product, but for whatever reason they didn’t and we had a very heavy dependence on interest-only lending. I thought it was appropriate through the support of APRA and the Council of Financial Regulators to address that issue.”
APRA’s 30 per cent cap on new interest-only lending volumes was introduced in March.
The Reserve Bank is now seeing a change in behaviour, with Mr Lowe noting that the system is adjusting and credit is still available.
“Are more measure likely? I would hope not,” he said. “Housing credit growth is running at 6 or 7 per cent. It doesn’t look like it is picking up. Banks are paying more attention to credit assessment and the lending standards have improved. We have done enough for the time being.”