The term macroprudential restrictions is being used to explain a recent decline in house prices and auction results across the country. In a period with historically low interest rates we would intuitively expect the opposite to occur. What the hell are macroprudential restrictions?
The term refers to changes imposed on the macro system by the prudential regulator, which for banks and lenders in general is APRA. But as the following table shows, it’s not just APRA reviewing the bank’s at present….These reviews predominantly focus on consumer lending and wealth management. These reviews are having the following key impacts on lending:
1) Lenders (and their intermediaries) need to be far more diligent in investigating a prospective borrower’s income and expenses to ensure that a borrower can afford the loan repayments they are committing themselves to.
2) lender portfolio limits on the proportion of investment property loans relative to owner occupied loans (actually just lifted).
3) caution around the amount of the loan relative to the value of the property.
All of these things have had a material difference on people’s ability to access credit. We are in essence having a credit crunch. The challenge this time however is that the lenders have plenty of money. They just aren’t allowed to lend it to the people that they have become used to lending it to, ie those who are willing to fly very “close to the wind” with large debt levels compared to their income.
This will undoubtedly open up increased appetite for other lending markets where prudential restrictions are less onerous. Small and medium business would be an obvious target given the scale of the market, however the Royal Commission may hamper this as there have been specific moments in this review relating to Bank treatment of SMEs.
Fingers crossed though!!