The Reserve Bank of Australia has cautioned against new policies that may encourage greater supply of mortgage finance in Australia, noting they could have implications for systemic risk.
The comments, which represent the central bank’s strongest warning on home lending growth to-date, were released as part of the RBA’s second submission to the Financial Services Inquiry.
“The supply of mortgage finance in Australia is ample,” the RBA said. “Therefore, any proposed policies that could further increase that supply should be subject to rigorous analysis of their costs, benefits to consumers and risks to financial stability.”
The interim report from the inquiry’s panel, led by former Commonwealth Bank boss David Murray, raised a number of options to boost mortgage market competition, which the RBA stressed may result in a heavier lending bias towards housing, to the detriment of the broader economy.
“These options should be assessed in terms of the end benefits and risks for consumers and the broader economy,” the submission read.
“Relevant considerations include whether the policy change might accelerate household borrowing, and the associated implications for systemic risk and the available funding for Australian businesses.
“As noted in the Bank’s initial submission, housing is generally not a particularly risky asset, but because of its size, importance to the real economy and interconnectedness with the financial system it poses systemic risk.”
The central bank again weighed into the superannuation debate, offering its agreement that super fund fees were too high.
More worrying for the RBA, however, is the use of leverage by super funds, with self-managed super funds (SMSFs) posing a particular threat to the financial system.
“While still in its infancy, the use of leverage by superannuation funds to enhance returns appears to have been mainly taken up by self-managed superannuation funds,” the RBA said.
“The Bank has previously commented on the risks that may arise from geared property investment through SMSFs, which may act as an additional source of demand that exacerbates property price cycles.
“Nonetheless, some limited leverage for liquidity management purposes may be appropriate.”
The latest submission largely agreed with the conclusions of the inquiry's interim report, but the central bank cautioned on moving too fast, too soon. With significant regulatory reform underway around the world, the Reserve Bank suggested taking a steady approach on new rules and requirements.
“This is a challenging area for policy development; hence, care should be taken in implementing new policies and consideration given to how these changes may interact with pre-existing policies,” the RBA said.