Macroprudential Limits on Mortgage Products: The Australian Experience

Nicholas Garvin, Alex Kearney and Corrine Rosé
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Nicholas Garvin: Reserve Bank of Australia
Alex Kearney: Reserve Bank of Australia
Corrine Rosé: Reserve Bank of Australia

RBA Research Discussion Papers from Reserve Bank of Australia

Abstract: The Australian Prudential Regulation Authority implemented 2 credit limits between 2014 and 2018. Unlike similar policies in other countries, these imposed limits on particular mortgage products – first investor mortgages, then interest-only (IO) mortgages. With prudential bank-level panel data, we empirically identify banks' credit supply and interest rate responses and test for other effects of these policies. The policies quickly reduced growth in the targeted type of credit while total mortgage growth remained steady. Banks met the limits by raising interest rates on targeted mortgage products and this lifted their income temporarily. The largest banks substituted into non-targeted mortgage products while smaller banks did not. Practical implementation difficulties slowed effects of the (first) investor policy, and led to some disproportionate bank responses, but had largely been overcome by the time the (second) IO policy was implemented.

Keywords: macroprudential policy; banks; mortgages; mortgage rates (search for similar items in EconPapers)
JEL-codes: E43 E5 G21 G28 (search for similar items in EconPapers)
Date: 2021-07
New Economics Papers: this item is included in nep-ban, nep-cba, nep-isf, nep-mac and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:rba:rbardp:rdp2021-07

DOI: 10.47688/rdp2021-07

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