Increased mortgage competition might actually harm borrowers in the long run, according to the Reserve Bank of Australia.
The Reserve Bank argued in its second submission to the federal government’s Financial System Inquiry that there is already an “ample” supply of mortgage finance in Australia.
“Therefore, any proposed policies that could further increase that supply should be subject to rigorous analysis of their costs, benefits to consumers and risks to financial stability,” it said.
“Relevant considerations include whether the policy change might accelerate household borrowing, and the associated implications for systemic risk and the available funding for Australian businesses.
“As noted in the bank’s initial submission, housing is generally not a particularly risky asset, but because of its size, importance to the real economy and interconnectedness with the financial system it poses systemic risk.”
The Reserve Bank also warned of the dangers of the federal government offering permanent support for the residential mortgage-backed securities market.
Government support “can expose taxpayers to large contingent liabilities and foster imprudent risk-taking”, it said.
The submission also argued that any changes to the capital requirements of banks “should not come at the expense of greater risk”.
[Related: Reserve Bank forecasts more property growth]