Higher loan-to-value ratios, overall leverage could introduce ‘vulnerabilities’ into current cycle, says Governor Bullock
Reserve Bank governor Michele Bullock (pictured) has warned that inflation could rise again if growth accelerates, even as consumer sentiment remains subdued and investor activity in housing begins to build.
Speaking at a parliamentary hearing in Canberra, Bullock said the risks to inflation were “balanced on both sides”, indicating that price pressures could either increase or ease depending on how the economy evolves.
“We’re in a position where we think the labour markets may be still a little bit tight,” she said. “If we get a strong pickup in growth … there might be some upside risk.”
At the same time, she noted that a sustained surge in household spending was not guaranteed. “It’s also possible, though, that what we saw in the June quarter with respect to (the uptick in) consumption isn’t maintained.”
Energy rebates and inflation dynamics
Bullock pointed to temporary government energy rebates as a factor that will distort the inflation path over the coming months.
“The Commonwealth (rebates) have been extended until the end of the year, so that will continue to subtract about a point two from inflation. Then when they come off, that will get given back,” she said.
For lenders and mortgage market analysts, her comments signal a period of potential volatility in headline inflation readings, complicating efforts to predict the timing of further policy adjustments.
Weak confidence despite lower rates
Despite a series of interest rate cuts intended to support households, Bullock said consumer confidence remains “quite low”.
“I don’t think we have a really good explanation for why,” she said. “There’s a little bit of a puzzle about what might be going on with consumer confidence.”
Low sentiment may limit near-term spending and borrowing growth, but it also highlights the uncertainty facing households already contending with cost-of-living pressures and higher mortgage repayments than before the easing cycle began.
Investor lending and housing market balance
Bullock also addressed the renewed appetite from investors re-entering the property market, saying it could “exacerbate the cycle” if activity accelerates too quickly.
“The rush back into the property market by investors had the potential to exacerbate the cycle in the housing market,” she said.
More investor participation, she warned, could increase loan-to-value ratios and overall leverage. “That introduces vulnerabilities into the system. So that’s the concern.”
Read more: Are property investors good for housing supply? Rental data suggests no
However, Bullock added that the situation was not yet alarming. “We don’t see it manifesting at the moment in a severe way … All we’re highlighting is that it needs to be kept an eye on because it can aggravate these cycles.”
Supply still the missing piece
Bullock reiterated that governments must play a greater role in addressing structural supply shortages that underpin much of the nation’s housing imbalance.
“One of the big things is high-density housing, and that, by its nature, takes much longer. So it is not something that you can just turn the switch and say we’re off and running. It takes time,” she said.
While responding to Greens senator Nick McKim on whether demand-side policy settings were inflating prices, Bullock declined to provide direct policy recommendations.
“I don’t think, Senator, it is my job to tell the government what they should do with their policies,” she said. “I would not accept that the Reserve Bank is responsible for the housing price issues in this country.”
Bullock also dismissed suggestions that government-backed low-deposit schemes posed a systemic risk, saying they were fully covered. “The government guarantees the loan,” she said.
What it means for mortgage professionals
Bullock’s remarks point to a finely balanced outlook for both interest rates and property markets. Inflation remains sensitive to shifts in growth, but the RBA is also watching credit expansion and investor leverage closely.
For mortgage brokers and lenders, the message is twofold: don’t assume rate cuts will immediately revive borrowing, and expect closer scrutiny of investor lending practices as policymakers seek to avoid another speculative upswing.
With confidence weak, inflation unpredictable, and housing supply slow to respond, the path forward for Australia’s mortgage market is likely to be uneven – one where steady risk management will matter more than rapid growth.
