RBA hopes stricter lending standards will cool house prices

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The Reserve Bank of Australia (RBA) is optimistic that stricter supervision of lending standards are enough to cool investor-driven price surges in homes, as some banks are likely to curb their mortgage activities.

The RBA’s 58-page Financial Stability Review said the composition of new home loan finance “remained skewed” to investors, especially in cities like Sydney.

“Ongoing strong speculative demand would tend to amplify the run-up in housing prices and increase the risk that prices in at least some regions might fall significantly,” the RBA report stated.
 
“However, the further housing prices fall in that scenario, the greater the chance that lenders would incur losses on their housing loans.”
 
Meanwhile, the RBA dismissed concerns that a surprise interest rate cut in February would drive home prices, saying it could “at the margin” boost housing demand.
 
The bank also said the measures recently applied by financial and corporate regulators were designed to make sure lending standards do not reach rock-bottom.
 
“In this environment of low interest rates and strong demand, it is important that lending standards do not decline,” it said.
 
“While it is too early to see the effects of these measures in overall housing lending activity, the authorities will be monitoring an array of information in the period ahead to help ensure that the current risk profile in the mortgage does not deteriorate.”
 
The central bank also took notice of strong investor demand for commercial properties, despite weakening leasing conditions, and it warned about the trend’s growing risks. 
 

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