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Macroprudential Limits on Mortgage Products: The Australian Experience

Author

Listed:
  • Nicholas Garvin

    (Reserve Bank of Australia)

  • Alex Kearney

    (Reserve Bank of Australia)

  • Corrine Rosé

    (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.

Suggested Citation

  • Nicholas Garvin & Alex Kearney & Corrine Rosé, 2021. "Macroprudential Limits on Mortgage Products: The Australian Experience," RBA Research Discussion Papers rdp2021-07, Reserve Bank of Australia.
    • Handle: RePEc:rba:rbardp:rdp2021-07
    DOI: 10.47688/rdp2021-07
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    References listed on IDEAS

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    More about this item

    Keywords

    macroprudential policy; banks; mortgages; mortgage rates;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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