Clamps on mortgage lending imposed on the banks in recent years could be loosened as an alternative to cutting interest rates, leading market analysts have predicted. As markets bet there is a 50-50 chance the next move in official interest rates will be a cut, some experts say there is also room for APRA to take action to ease “macroprudential” policy.
APRA helped slow the $1.6 trillion home loan market in recent years by capping lending to investors and customers with interest-only loans and forcing banks to more thoroughly vet customers.
In December, however, the Council of Financial Regulators, which includes APRA and the RBA, raised concerns banks were being “overly cautious” in their lending decisions. APRA has also scrapped a limit on interest-only loans (from 1 January), after also axing a cap on loans to investors earlier in 2018.
Macquarie economists Justin Fabo and Ric Deverell predict APRA will further loosen curbs on the mortgage market. One possible change is to lower the 7% minimum interest rate at which banks are required to test all new customers (much higher than actual interest rates).