IMF calls for LVR caps in effort to pop Aussie housing bubble

by Mackenzie McCarty17 Sep 2013

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.”


  • by Regional Broker 17/09/2013 10:44:03 AM

    If we introduced LVR controls it will decimate the construction industry and the established market where the first home buyers are involved would not just land softly it would CRASH

  • by John 17/09/2013 12:16:31 PM

    Wonder what they would say if they called for restrictions to the share market. Seriously our Reserve Bank meddles with the interest rates, effectively hurting people that save money, in the hope they spend it and others go further into debt, but when it starts to happen everyone complains. To the reserve bank - Stop stuffing up our economy like other governments have done to theirs!

  • by Robert B 17/09/2013 6:44:01 PM

    Every time rules change someone gets hurt. It's become a big problem over the past six years as it is stopping people create wealth. People try to follow one set of rules and then the parameters change. To be fair, stop changing the rules. Do politicians really have the right to decide when to destroy the wealth of individuals?