Should the RBA regulate LVR levels?

By BN | 20 Nov 2009

Amid a general tightening of lending criteria, assistant governor at the RBA, Guy Debelle, has proposed that the central bank regulate LVR levels to prevent future property bubbles.

He based his views on rules brought in by Hong Kong requiring borrowers to pay a higher deposit when purchasing a property following a 40% increase in the price of some flats on the island.

Debelle was responding to a question at the Minter Ellison Financial Services Industry Forum, where he was asked what central banks could do to address property bubbles, other than raise interest rates.

He responded by saying: "At the moment ... Singapore and Hong Kong are concerned about what's going on in property prices; they're changing maximum LVRs."

Since the outbreak of the GFC, banks have cut 100% loans from their product suites and introduced a genuine savings requirement for first homebuyers. In addition LMI is required for all mortgages where the LVR is greater than 80%.

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Commented by: Frank Taddeo at 20 Nov 2009 12:45 PM
Can we all have the same things that Guy Debella had for breakfast. It has realy made this guy high. My real concern is why would any one acknowledge, comment or even print this crap. Now you know why we are in trouble and the traumer this type of over educated irrisposible individuals who assists the government puts us in

Commented by: Gavin Maslen at 20 Nov 2009 12:47 PM

No I don't believe the RBA should control LVR levels! Most banks have restricted LVR levels to 90% - down from 100% less than 12 months ago. It's challenging enough for young families to pay rent and save enough deposit to buy a house in the current environment. The RBA have enough power in regard to moving interest rates, and given more, they could possibly restrict the average Australian from getting into the property market, which is very important. I believe the banks should regulate LVR levels, and control of the money they lend out, as they see fit.

Commented by: BBB at 20 Nov 2009 01:17 PM

Oh Dear , The RBA want toi fix something that is not broken!! The LVR's have been regulated well by both the lenders and LMI with some regulation from APRA and also the bankers need to meet the internation banking liquidity regulations . The issuers of bonds in this country are alos still able to meet the demand for funds , after some short anxious moments in te satrt of the GFC. The Federal goverment wisely stepped in and assisted for a short time.

The housing price increases has nothing to do with LVR's and avaliability of credit ( which has been tightened in the last few months), it is more to do with unsatisfied demand , caused by a significant number of reasons , including biut not limited to immigration levels.
This fellow needs to get up to date with trends in AUS plus take a cold shower and some tranquilisers.

The really scary thing is this bloke may one day become the governer of the RBA!!!!!!

Commented by: John C at 20 Nov 2009 01:33 PM
What a load of bunkum..... Just more Goverment interference and control. Soon we'll be a Police State with Communist tendancies. The current market forces are well enough to regulate the lending ratios.....

Commented by: Ian Black at 20 Nov 2009 01:36 PM

Absolutely not. Lets rewind back to late last year where they increased interest rates to the extend where it put so many borrowers into hardship due to the "inflation genie", then to see it fall faster than a tony ferguson weight loss diet. The governer recently admitted they reduced rates too low and now we are seeing them increase again. If they can't get interest rates right to meet the economic environment, how can they expect to control property prices adequately with LVR's?!

What would be next? Telling us next how much we can borrow?

Commented by: marty at 20 Nov 2009 01:42 PM
maybe whatever lenders see fit for owner occ but for investment say 70% max. Wont be good for business in the short term but may save us from a burst bubble ala UK / Ireland / USA where being a broker would have been very tough over last 2 years as volumes have halved since the GFC and banks have pulled out of the broker channel en masse..and no trail ...scary.

Commented by: Ken Bruns at 20 Nov 2009 04:06 PM
Brilliant....that way all us older ones can keep the real estate market to ourselves and we don't have to worry about the younger ones competing with us to buy anything. It will also ensure that our rent returns stay nice and high. Perfect

Commented by: Bill Ellerton at 20 Nov 2009 04:09 PM

I don't think regulating maximum LVR's would necesarily be a bad thing, but there is plenty of space for other regulations in the industry which would bring more benefits to brokers and customers alike.

For example prohibiting Banks from forcing Brokers to put a given number of loans through them in order to maintain accreditation. I have just lost my St George accreditation, but what they and other Banks doing similar things don't realise is that those of us who genuinely act in the best interests of our clients will put loans through those organisations that offer the best deals and broker service. If St George and others want to keep me as a broker then offer the best products and show some support to the broker channel. In other words act competitively.

Instead of the RBA fiddling around the edges with regulations on LVR, how about the ACCC investigate the anti-competitive behaviour in the sector and make recomendatiosn to the Government about ways fix it.

Commented by: Phil at 20 Nov 2009 05:35 PM

I am in favor of requiring a decent percentage deposit, as are the investors in mortgage funds. LMI costs strain the young borrower even further and iot they cannot save a depost what hope do they have of keeping up repayments in a rising interest rate environment.
Call me old fashioned if you want but 20% deposit was normal when I bought my first home and that is what we saved and used as deposit.

Commented by: Robert Kaya at 21 Nov 2009 01:22 AM
LVR should under no circumstances be regulated by any body. Since different lenders have different lending criteria,degarluation of the banks/ lenders should not be compromised.There are enough bpeople in this country to be able to meet their financial obligations.Banks should be bit more careful.NOT too clinical!

Commented by: Paul at 24 Nov 2009 08:44 AM

LVRs are not the problem it is the credit policy that goes behind it. Some lenders where basically doing 100% with a couple of payslips - this is where the larger lenders applied a sausage factory mentality to lending adn the higher the lvr the more indivdual assessment needs to be taken to make sure that every angle is assessed properly to make sure the client has the capicity to really pay the loan.

Larger deposits would be ideal but when prices where 100K then 20% was a lot easy than say on a 400K property.

LVRs are not the problem - credit assessment is.

Commented by: Fred C at 06 Feb 2010 09:15 PM
The govt has already intervened to protect the banks by way of increased FHB to prevent falling house prices, and deposit guarantees. Clearly it is/was broken to some extent. Force the banks to be more responsible or withdraw existing govt intervention.

Commented by: sniffer at 08 Feb 2010 05:27 PM
Cap the MAX LVR at 85% and waiver stamp duty for first home buyers.

Commented by: Mark at 08 Feb 2010 09:36 PM
Rather than cap LVR's they should be looking implementing strict lending standards with maximum monthly P&I repayments at say 30-35% gross income with the calculation based on long run average interest rates. That will ensure that households have capacity to meet increasing interest rates and ensure that there is at least some capacity in household budgets to meet unexpected expenditure.

Commented by: brizbroker at 09 Feb 2010 10:16 PM

But would any of us support a lender that had restrictive LVR's OR stricter borrowing capacity/credit? It's been said many times on here that the reason the majors get all the business is more to do with their credit policy than their products and rates. After all, there are cheaper products around than the majors yet they get very little support. I'm all for responsible lending; none of us should want to see any lender writing too much high LVR business and lending too much to any borrower. We all know it could end up being a real problem, but if a lender were to implement stricter criteria and effectively put a cap on lending, what sort of support would they get?

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