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RBA looks to tighten screws on home loans
Topic Started: 24 Sep 2014, 01:20 PM (3,597 Views)
Drgonzo
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RBA looks to tighten screws on home loans

RBA Governor Glenn Stevens: The central bank is questioning whether lending is "conservative enough" amid low interest rates, strong housing price growth and higher household debt.

The Reserve Bank of Australia's concerns about overheating property markets are growing deeper, with the central bank declaring it is in discussions with other regulators about "further steps" to tighten bank lending standards which would reduce the amount of credit made available to buy houses.

"The composition of housing and mortgage markets is becoming unbalanced," the RBA said in its twice-yearly Financial Stability Review, released on Wednesday.

With house prices in Sydney and Melbourne continuing to gallop ahead in recent months, the central bank said bank lending standards did not appear to have eased but "a crucial question for both macroeconomic and financial stability is whether lending practices across the banking industry are conservative enough for the current combination of low interest rates, strong housing price growth and higher household indebtedness than in past decades."

The stability review highlighted a pick-up in the debt-to-income ratio of households, which is currently at a historically high level of 150 per cent. The RBA said it was currently talking to the Australian Prudential Regulation Authority and other members of the Council of Financial Regulators about "further steps that might be taken to reinforce sound lending practices, particularly for lending to investors".

With Treasurer Joe Hockey last week suggesting the RBA was considering so-called "macroprudential" tools to curb hot demand for housing, the review suggest that loan-to-valuation limits on bank lending are not being considered, given the share of bank loans approved with an LVR of more than 90 per cent has fallen over the past year. The review notes that it is investors rather than first home buyers who are driving prices, and investors typically have higher levels of equity and hence relatively low LVR loans.

But the RBA suggested it and APRA are considering alternative macroprudential policies. The central bank did not specify in the review details about the further steps, but they could potentially include a tightening of "interest rate buffer" guidelines, under which banks apply an interest rate add-on to current mortgage rates when assessing a borrower's capacity to service their loans. RBA governor Glenn Stevens said requiring banks to hold a bigger buffer was a promising potential macroprudential response to rising house prices when he appeared before a parliamentary committee in March.

It is understood most banks currently add a 2 per cent buffer to prevailing rates. The RBA on Wednesday suggested a higher buffer might be necessary, because the combination of a low interest rate environment, rising house prices and price competition in the mortgage market meant "there is some risk that households may attempt to take out loans that they would not be able to service comfortably if interest rates were to rise".

"It will be important for banks' own risk management and, in turn, financial stability that they do not respond to revenue pressures by loosening lending standards, or making ill-considered moves into new markets or products," the RBA said.

Read more: http://www.smh.com.au/business/the-economy/rba-looks-to-tighten-screws-on-home-loans-20140924-10l9eb.html#ixzz3ECCOnnxG
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Ex BP Golly
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The old plausible deniability ploy.

This is almost as bad as pretending you were afraid of being called racists, and that why you let gun running, drug pushing child sex trafficing rapists get out of control.

lmao.
WHAT WOULD EDDIE DO? MAAAATE!
Share a cot with Milton?
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peter fraser
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Ex BP Golly
24 Sep 2014, 02:02 PM
The old plausible deniability ploy.

This is almost as bad as pretending you were afraid of being called racists, and that why you let gun running, drug pushing child sex trafficing rapists get out of control.

lmao.
A few minor changes, a little window dressing, and voila.....
Any expressed market opinion is my own and is not to be taken as financial advice
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newjez
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what slows Sydney will kill the other states.
Whenever you have an argument with someone, there comes a moment where you must ask yourself, whatever your political persuasion, 'am I the Nazi?'
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Perthite
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:re:
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Foxy
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Zero is coming...

Are the super intelligence's
now wanting to nip this tulip mania in the bud?? :D

You just can't make this shit up.

Peter
http://www.afr.com/content/dam/images/g/n/2/1/u/8/image.imgtype.afrArticleInline.620x0.png/1456285515560.png
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goldbug
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The members of the RBA will do what they are told by the big banks or when they leave they won't get cush jobs on the boards of billion dollar corporations.

He was Governor of the Reserve Bank of Australia (RBA) from 1996 until 2006. ... Mr Macfarlane was appointed a Director of Woolworths Limited in January 2007.
Further appointments were given on the board of the ANZ and as an international advisor to investment bank Goldman Sachs ...

Shadow was hopelessly wrong about the Gold Bull Market.
What else is he wrong about?
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economist
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newjez
24 Sep 2014, 04:27 PM
what slows Sydney will kill the other states.
+1

This story has legs and significant intrest at the RBA.

Just as an aside a regional bias for government aid would not be out of the question this is one of many discussions on this issue.

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peter fraser
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economist
25 Sep 2014, 12:38 AM
+1

This story has legs and significant intrest at the RBA.

Just as an aside a regional bias for government aid would not be out of the question this is one of many discussions on this issue.
I could see them formalising what is already in place with a little tweaking to curb investors, but why would they destroy jobs in construction and the spin off industries when jobs are being lost elsewhere?

I can't justify that.
Any expressed market opinion is my own and is not to be taken as financial advice
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Lef-tee
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Perhaps they've concluded that they will need the room to use the last few scraps of monetary pricing power they have left as an economic counter-stabilizer without simply fueling further property speculation.
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