The Reserve Bank of Australia (RBA) is among the bodies to suggest that loan-to-value (LTV) ratios should be capped for property lending in Australia.
At the organisation's annual conference, it released research highlighting the factors that contributed to the serious decline in real estate markets elsewhere in the world - in countries like Spain and the US - and made recommendations of how to make Australia's property sector more resilient to economic downturns.
One of the suggestions is to cap LTV ratios at a level below 100 per cent, as this will help to reduce the number of borrowers who default on their loans should their financial situation change suddenly. The Sydney Morning Herald reported that officials from the
International Monetary Fund and the Bank of International Settlements have come to similar conclusions relating to the effect that high LTVs can have when property markets enter a low point in their cycle. This policy should apply to commercial and residential borrowing, the RBA study added. According to figures from the Australian Bureau of Statistics, the average loan size for first-time buyers in the country stood at AU$281,000 (£186,632) in 2010-11, while people moving up the housing ladder typically borrowed AU$326,000.