How would you like interest rates a quarter or half a percentage point higher than they are?
That is the Reserve Bank's estimate of the rate increases avoided by its curbs on residential mortgage lending at high loan-to-value ratios (LVRs). It also reckons that without the curbs it would have had to raise interest rates sooner than it did, putting more pressure on the exchange rate, and that house prices would be about 2.5 per cent higher than they are.
Grant Spencer, the bank's deputy governor and head of financial stability, has headed the design and implementation of the LVR rules.
It is in an exercise in macro-prudential regulation, which has been in vogue since the global financial crisis exposed the economy-wide carnage that can spring from an unholy alliance of reckless lenders and feckless borrowers.
The rules do not impose an outright ban on lending above the limit (80 per cent of a property's value) but rather a "speed limit" that restricts the proportion of new lending which can exceed that ratio.
