individual borrowers is non - trivial. for the household sector as a whole, however, the cash flow effect of the transition is likely to be moderate. the effect on household consumption is likely to be even less. this is because some interest - only borrowers 11 / 13 bis central bankers'speeches will be willing and able to refinance their loans. also, many others have built up a sufficient pool of savings, or will be able to redirect their current flow of savings to meet the payments, or have planned for, and will manage, this change in other ways. indeed, the substantial transition away from interest - only loans over the past year has been relatively smooth overall, and is likely to remain so. nevertheless, it is something that we will continue to monitor closely. finally, the observation that the transition is proceeding smoothly is not an argument that the tightening in lending standards on interest - only loans was unwarranted ; far from it. the tightening in standards starting in 2014 has helped to ensure that borrowers are generally well placed to service their loans. and the limit on new interest - only lending more recently has prompted a reduction in the use of those loans during a time of relatively robust growth of employment and still very low interest rates. in this way, it has helped to lessen the risk of a larger adjustment later on in what could be less favourable circumstances. 1 this can be true even for investors today since ( over a relatively long horizon ) the benefit of the tax deduction can offset the cost of paying the higher interest rate on interest - only loans that now apply. also, if the investor has attractive alternative investments, they may be willing to pay more for an interest - only loan. 2 the term ‘ bank ’ here refers to all authorised deposit - taking institutions, namely banks, building societies and credit unions, which are regulated by apra. 3 investors are sometimes given a clear option to extend into a second interest - only period, but that would normally proceed only after ascertaining that the borrower ’ s financial position remains sound. 4 for more discussion of the risks associated with interest - only loans, see rba ( reserve bank of australia ) ( 2017 ), financial stability review, april. 5 strictly speaking, apra imposed a 10 per cent benchmark on investor lending growth. if a lender breached that growth it would face higher capital charges and more scrutiny from apra. 6 for details, see apra ( 2017 )

values we saw since the mid 1990s, are far more likely to have been features of a one - time adjustment, albeit a fairly drawn - out one, than of a permanent trend. moreover the risks associated with those trends going too far are apparent from events in other countries. these risks have been reasonably contained so far in australia – but it would be prudent not to push our luck here. ” see : < http : / / www. rba. gov. au / speeches / 2009 / sp - gov - 280709. html >. [ bis central bankers ’ speeches but those pressures for structural change are also coinciding with changes in household behaviour that are associated with the longer - run financial cycles i have just talked about. just as some sectors are having to cope with the effects of changes in relative prices – manifest to most of us in the form of a large rise in the exchange rate – some sectors are also seeing the impacts of a shift in household behaviour towards more conservatism after a long period of very confident behaviour. it would be perfectly reasonable to argue that it is very difficult for everyone to cope with both these sets of changes together – not to mention other challenges that are in focus at the same time. however, if we were to think about how things might have otherwise unfolded – if households had been undergoing these shifts in saving and spending decisions without the big rise in income that is occurring, to which the terms of trade have contributed – it is very likely that we would have had a considerably more difficult period of adjustment. what then about the future? can we look forward to a time when these adjustments to household saving and balance sheets have been completed? we can. to return to the first of my two charts, the current divergent trends between income and consumption spending are no more sustainable than the previous trends ultimately were. at some point, the two lines are likely to stop moving apart. that is, the saving rate, debt burdens and wealth will at some stage reach levels at which people are more comfortable, and consumption ( and probably debt ) will grow in line with income, with a relatively steady saving rate. we could then reasonably expect to see consumption record more growth than it has in the past few years. after all, it is very unusual for real consumption per person not to grow. we cannot really know, of course, when that might happen. doubtless it will depend on what else is occurring. we can note that the rise in