Interest rates cap policy is torched

THE United Australia Party’s signature policy for a 3 per cent cap on home-loan interest rates has been torpedoed by a blowout in government borrowing costs — that UAP leader Craig Kelly didn’t know had occurred.

Meanwhile, the nation’s banks have broken their silence on the proposal, saying it would “wreak havoc”.

Amid growing fears that housing repayments are about to go through the roof, the UAP is spending millions of dollars promoting its 3 per cent cap idea in billboards and other advertising in the mortgage belts of Australian state capitals. But the party has not attempted to explain how its policy would work, until now.

In an interview with News Corp, Mr Kelly said the cap could be enacted by the federal government selling treasury bonds to investors at 0.1 to 0.2 per cent and on-lending that cheap cash to retail banks which would then be able to keep mortgage rates at no more than 3 per cent, regardless of monetary policy action by the RBA.

The peg would cover existing owner-occupier loans only and be in place for five years, Mr Kelly said. It would stop people losing their homes, save marriages and prevent families from having to take their children out of school to move to cheaper areas, he added.

The policy would impose no financial burden on banks or taxpayers, he said. Mr Kelly volunteered that he had not checked the yield on five-year treasury bonds recently, but that he should have.

When told of Mr Kelly’s comments, Australian Banking Association CEO Anna Bligh said the idea that banks can remain strong and viable lending money at a price lower than they have sourced it, is just ‘magic pudding’ economics.