Financial regulators gave their strongest signal yesterday that they will introduce clamps into the mortgage market, which made headlines today. Sydney Morning Herald and Age.
Now market analysts are calculating what this could mean for borrowers and for credit growth, a key influence on bank profits.
Richard Wiles of Morgan Stanley says that a potential outcome would be that people’s borrowing capacity would be reduced if regulators raised what is called the interest rate floor. This is the rate that banks use when testing potential borrowers.
Wiles estimates that every 0.5 percentage point increase in a bank’s interest rate floor reduces borrowing capacity by about 5%. That’s a reduction of $ 25,000 for a mortgage of $ 500,000.
The ABC took a small step in that direction by raising its floor rate by 0.15 percentage points earlier this year, but that only hit 2% of customers because most people don’t borrow their money. maximum amount.
The other option discussed is a limit on loans when clients borrow more than six times their income. This type of higher risk loan recently reached over 20% of new loans. Wiles estimates that if it were capped at 15% of new loans, it could reduce loan growth by 0.5 to 2%.
“We believe that limits on high-leverage loans could reduce mortgage growth from about 0.5% to about 2%, but a higher interest rate floor won’t have an impact. important, ”he says.