The International monetary Fund (IMF) has released a paper calling for stricter lending rules to be introduced globally in order to stop banks from fuelling housing bubbles.
In its report, Key Aspects of Macroprudential Policy the IMF argues for heightened use of ‘macro-prudential policies’ – including LVR caps and caps on debt to-income ratios – in order to rein in ‘excessive’ mortgage borrowing and questions whether record-low interest rates are sparking potentially risky property price growth.
The paper follows APRA’s Loan serviceability standards in housing lending report, released last week, claiming interest rate hikes are ‘inevitable’ and that a strong focus on debt serviceability is ‘critical’ in the current low interest rate environment.
According to the Australian Financial Review, the IMF paper ‘underscores’ a growing global movement towards more activist approaches to rising property markets, including in the UK, Canada and New Zealand, where official interest rates are at record lows and lending controls are in place on banks.
Yesterday, global bank Citigroup published a report warning that rising house prices could potentially limit the RBA’s ability to use rate cuts as a way of combating a rise in unemployment and other economic factors.
“The scope to cut would be compromised if house prices continue to accelerate and precipitate a surge in leverage,” saidCitigroup economists Paul Brennan and Josh Williamson.
“We doubt that APRA and the RBA are ready to follow the Reserve Bank of New Zealand in announcing controls on LVRs of housing loans, but APRA has indicated a desire to apply tougher prudential standards on how banks assess lending risks.”