The financial crisis changed all this. It reminded us all that bad outcomes were possible. And since then, the frequent news about the problems in the euro area and the possibility of political stalemate preventing the US government from meeting its financial obligations have only served to reinforce this idea.
In a booming housing market, such as we have seen in recent years, we believe the adverse externalities from rapid mortgage credit growth become accentuated, warranting the imposition of temporary macro-prudential measures such as the LVR speed limits. The Bank currently has a consultation paper out on debt-to-income (DTI) limits. We regard a DTI instrument as complementary to the LVR speed limits.