Investor lending restraints announced by year end

RBA assistant governor Malcolm Edey and head of financial stability Luci Ellis appeared before the senate yesterday, where they said measures to curb investor lending are expected to be announced before the end of the year.

In his opening statement, Mr Edey reiterated the central bank’s concern over investor home loans, which he said now account for half of all new settlements.

Mr Edey stressed that macroprudential tools will be set by APRA, and that the RBA is in ongoing discussions with the prudential regulator about the best measures to restrain the “problematic” investor lending segment.

“Something will be done, I am confident of that,” Mr Edey said.

“LVRs are not a realistic option. I am not ruling anything out at the moment, but that is unlikely to be a measure we will focus on because it is targeted at the wrong segment of the market.”

Rather, the RBA has alluded to the use of increased serviceability buffers as a way of targeting investors.

“The tools we are talking about will need to be carefully targeted,” Mr Edey said.

“When we’ve talked about the nature of the problem what we have said is we think there is an imbalance in the form of excessive activity by investors in the market that is out of proportion to their normal share in the housing market,” he said.

“One thing I can definitely say is that the tools that are implemented will be targeted at the imbalance.

“They will be targeted at a high risk and problematic area of housing market activity and the prime candidate for that is investor housing activity.”

Labor senator Sam Dastyari questioned why the Reserve Bank had changed its view on macroprudential tools, remarking that what had initially been labelled an “international fad” by RBA governor Glenn Stevens is now becoming a real possibility.

Ms Ellis said the bank has consistently spoken out about the risks associated with speculative housing investment.

“We were warning about it a year ago,” she said, before expounding on the type of measures likely to be introduced.

“The kind of measures that APRA has in mind are incentive based and in its existing framework, rather than setting these ceilings,” she said.

“Serviceability is likely to be more binding to an investor than LVR.

“Typically, investors have a reasonable amount of equity in their property and are not the high LVR borrowers.”

Ms Ellis said investors are more likely to “push the serviceability” of home loans to maximise tax benefits.

However the measure will also hit owner-occupiers, she added.