RBA not yet concerned about rise of property investor lending
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The news: Reserve Bank governor Michele Bullock has brushed off concerns about rising investor lending, telling a Senate Estimates hearing on Friday morning she is not yet seeing a "severe" jump in higher loan-to-value ratios (LVRs).
Instead, the central bank governor said the pick-up in property investor lending was taking place in normal and expected ways during this part of the rate cycle.
The context: Investor lending has picked up in recent months and some economists have suggested regulators could soon step in to put speed limits on property investors.
Bullock said there could be financial stability concerns if investor activity produced a surge in borrowing and a shift in LVRs but this was not yet playing out.
Another significant topic raised by senators was the role of the RBA's rate setting and the government's policies on property prices.
Bullock, who has long indicated her support for more housing supply, was pressed on the demand-side of the property market but said this was not her "bailiwick" and she had not undertaken the analysis required to have a position on the myriad policies affecting demand.
Bullock said the government’s 5% home guarantee scheme could result in a short-term uptick in property prices. She said there had been no analysis undertaken by the RBA.
What they said: “The issue on the financial stability side about investors we were trying to highlight is that what investors can do is exacerbate the cycle in the housing market and … in the past there have been concerns that as investors exacerbate the cycle in the housing market that results in people borrowing too much, loan to valuation ratios tend to rise, high debt to income ratios and that introduces vulnerabilities into the system,” Bullock said.
“So that’s the concern. Now we don’t see it manifesting at the moment in a severe way. Certainly we don’t see loan to valuation rations and high debt to income ratios, those sorts of loans rising very substantially. We don’t see that at the moment, so that’s a positive.”
She later noted that these situations could result in higher repayment costs and higher chances at negative equity.
But she said it “needs to be kept an eye on, because it can aggravate these cycles”.
The source: Senate Estimates
