New borrowers ought be able to withstand adverse shocks: RBA research

New borrowers should be better placed to withstand any adverse shocks to income or decline in housing prices than would otherwise have been the case, the latest RBA research suggests.

Its comments comes noting lenders have announced many changes to a range of price and non-price lending terms and conditions to strengthen their lending practices in response to supervisory expectations, according to the position paper entitled Macroprudential Policy Frameworks and Tools.

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New borrowers ought be able to withstand adverse shocks: RBA research

It noted by April 2016, the pace of investor housing credit had declined from its recent peak of about 11 per cent to just below 5 per cent on a six-month annualised basis (Graph 6).

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New borrowers ought be able to withstand adverse shocks: RBA research

It also noted loan approvals for investor housing have increased over recent months, accompanied by an increase in housing price growth, driven by Sydney and Melbourne in particular.

"Even so, the earlier tightening in lending standards has helped to increase the resilience of household sector balance sheets, and hence also those of lenders, as new borrowers should be better placed to withstand any adverse shocks to income or decline in housing prices than would otherwise have been the case."

The paper noted the lenders' many changes were to a range of price and non-price lending terms along with conditions to strengthen their lending practices in response to supervisory expectations.

"In particular, interest rates for both new and existing investor loans were increased,10 high-LVR lending.

"There is now a differential between the indicator rate for owner-occupier and investor housing loans for the first time since 1996."

The paper advised it was important new borrowers "do not overstretch themselves to purchase property or rely on expectations of future increases in housing prices to enable them to do so." 

The paper was written by David Orsmond and Fiona Price. The paper was intended to make the results of current economic research within the Bank available for discussion and comment, but the views expressed are those of the authors and not necessarily those of the Bank.

Jonathan Chancellor

Jonathan Chancellor

Jonathan Chancellor is one of our authors. Jonathan has been writing about property since the early 1980s and is editor-at-large of Property Observer.

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