Interview with Laura Tchilinguirian on ABC News Radio

E&OE………

Laura Tchilinguirian

Well, for more on this, we're joined now by Liberal Senator for New South Wales, Andrew Bragg, who is heading the Inquiry. Good afternoon, Senator. To start with, what is this Inquiry about? What's its purpose?

Senator Bragg

Sarah, it's good to be with you.

Laura Tchilinguirian

It's Laura, sorry.

Senator Bragg

Sorry, Laura. It's good to be with you. The Inquiry is really trying to get to the bottom of how we can tilt the scales for first-home buyers. And by that, I mean we want to look at the lending rules to see if we can tweak them so that we can give first-home buyers a leg up. Because, of course, the Australian dream has always been a part of our society. I fear that for many millennials and Gen Zs, that dream is falling out of reach.

Laura Tchilinguirian

For an overall picture, how's the Inquiry been going so far? Who have you heard from, and when are you due to report?

Senator Bragg

We're due to report by the end of this month. We've heard from a range of different people, as you'd expect, people who live and breathe lending policy and laws. It's quite a technical area. You've heard from mortgage brokers, banks, property people, consumer advocates, and the like. Really now, we are trying to zero in on those issues around the serviceability buffer, the capital risk weights and also looking at the mandate for the Prudential Regulator, APRA.

Laura Tchilinguirian

Now, we mentioned the serviceability buffer at the beginning. It is one of the ideas to come out of this Inquiry to lower it. But can you explain what exactly it is?

Senator Bragg

Well, APRA, the Prudential Regulator, has what they call macroprudential tools, which allows them to deploy standards which are binding on banks. And so in this case, they have a serviceability buffer, which means that when an institution wants to write a new loan, they must assess that person's capacity to pay it back with a 3% buffer in place. So for example, if you walk into a mortgage broker today and you're going to get the variable interest loan, about 6.5%, they would assess you at 9.5%. So that has a disproportionate impact on people with fewer assets, and those are more likely to be first-home buyers than not.

Laura Tchilinguirian

What's the argument for getting rid of it?

Senator Bragg

I don't think anyone is proposing that it should be abolished or gotten rid of. I think the proposals are whether it could be refined for first-home buyers because it is a very blunt object. It's been at 3% for quite a long time now, and it was set at 3% when the official cash rate was just 1%, now the official cash rate has a four in front of it. It is a very blunt tool, and we are looking at refining it, not abolishing it.

Laura Tchilinguirian

What would then refining it or lowering the buffer do for housing affordability?

Senator Bragg

Well, it could potentially help first-home buyers get that elusive first mortgage. And I think for older Australians, perhaps the Baby Boomer generation, they may not have been able to get a first home loan some decades ago under these current rules, because what often happens is that people earn more money as they grow older. And so at the moment, the rules don't allow the banks to take any of that into account. So it's very rigid. It's important that we do have very strong and clear rules here, but it's important that we don't eliminate all risk because we actually do want to have some risk in the economy, particularly when we're wanting people to be able to get into that first home.

Laura Tchilinguirian

But I guess it's a matter of whether or not they can actually pay it back when it comes down to it?

Senator Bragg

Yeah, well, they would still have to meet a servicing requirement, and they would have to be able to prove that they could pay it back, and there would still be a buffer. The only question is whether the buffer should be lower for first-home buyers. That's one of the proposals which we are looking at in great detail.

Laura Tchilinguirian

And is this a policy that perhaps the Coalition might take to the next election?

Senator Bragg

Look, it could be. It's something that we are developing through the Senate Inquiry. The great beauty of the Senate is that you are able to pull apart all these different ideas around the serviceability buffer, the capital risk weights which apply to mortgages, the way that APRA goes about doing its business. The intention is to develop a set of recommendations which could be adopted by anyone, frankly.

Laura Tchilinguirian

The buffer, Senator, was introduced to protect people from borrowing more than they can afford. APRA, as you mentioned, and financial counsellors have been warning against it, saying it will lead to people defaulting on mortgages. Does that concern you?

Senator Bragg

Look, I would expect APRA to defend its own rule set, and that's, I think, predictable evidence from APRA. We don't want to see anyone put into hardship, of course, but we also want to allow for more risk. We want banks to be able to write those elusive first-home loans. At the moment, we're running a system which is focused on eliminating almost all risk in its entirety. That means that people are going to find it harder to get into that first home. I think that's really where we've been focusing our efforts.

Laura Tchilinguirian

Someone who is behind this change are the big banks. They say lending is too restrictive. But isn't that something they would say? Don't they have a bit of a vested interest in making more money?

Senator Bragg

Look, they have mixed views, and we make up our own mind as to what we think might be the optimal policy outcome here. But certainly, the banks have a mix of views on these issues. I would imagine that commercial considerations come into play when banks think about certain rules that they would like to see tweaked or not tweaked. But our view or the view of the Committee is that there is a case here for changing the buffer, but there's also a case here to look at the way that capital risk weights allocated to mortgages, as well as the overall mandate of APRA; which is not focused on helping people get into a home. So we have a prudential regulator which is focused on risk, as it should be, but it could also take into account other objectives, including first-home ownership.

Laura Tchilinguirian

Senator Bragg, just before I let you go, there are only a few more weeks of Parliament to take action on housing. Housing organisations say the 'Build-to-Rent' bill could deliver 105,000 new homes over the next decade. Why is the Coalition continuing to block the policy? And what are you proposing instead?

Senator Bragg

We think the 'Build-to-Rent' policy is totally warped. The idea that the government of Australia would give tax cuts to foreign fund managers and foreign governments to build houses in Australia, which Australians can never own, I think is really sick. And I think it speaks volumes of Labor's failure on housing, that almost all their housing policies are about shovelling money to vested interests at the big super funds or foreign fund managers. So our policy is going to be focused around two things: building more houses and finding ways to tilt the scales in favour of first home buyers. We've already announced a policy on supply, $5 billion, and we've already announced that we will allow people to use their own money in superannuation for that first home.

Laura Tchilinguirian

Okay, Senator Bragg. We'll leave it there. Thank you so much.

Senator Bragg

Thanks so much.

Senator Bragg

That is Liberal Senator for New South Wales, Andrew Bragg.

[Ends]