APRA warns big home loans are on the rise

Stuart Condie
(Australian Associated Press)

The banking regulator is still concerned about the size of the mortgages being taken on by consumers despite the effectiveness of its efforts to curtail housing market risks.

Australian Prudential Regulation Authority chairman Wayne Byres on Tuesday said limits on investor and interest-only mortgages had brought growth in lending to property investors back into line with owner-occupier lending.

But the size of loans being issued by the big banks remains an issue, he said, with consumers vulnerable if historically low interest rates are lifted.

Mr Byres said there had been only a slight moderation in the proportion of borrowers being granted loans six times the amount of their income – a level at which they would spend about half their net income on repayments if interest rates returned to their long-term average of about seven per cent.

Such leverage was far higher in Australia than in comparable markets such as the UK and Ireland, he said.

“Household indebtedness is high: perhaps more importantly, the trajectory is clearly for it to rise further,” Mr Byres told the Australian Securitisation Forum in Sydney.

With this in mind, there is considerable room for banks to tighten lending practices, Mr Byres said.

“Aided by file reviews conducted by external auditors, we have confirmed there is more to do in this area to improve serviceability measures, particularly in relation to the assessment of living expenses and the identification of a borrower’s existing debts,” Mr Byres said.

Nonetheless, growth in riskier investor lending had been successfully curtailed – if not reversed, he said.

Interest-only lending accounted for about 23 per cent of new lending in the three months to September 30, well below APRA’s 30 per cent limit, and forecasts for the December quarter suggest a similar level.

Mr Byres said total outstanding interest-only loans issued by banks, building societies and credit unions dropped by about $36 billion, or nearly seven per cent, in the past six months.

That followed APRA’s announcement in March that big banks should limit interest-only loans to 30 per cent of new residential mortgages, on top of a 10 per cent cap on investor lending growth.

The federal government has introduced legislation that would provide APRA with new powers should it judge non-bank lenders to be adding additional instability to the Australian financial system.

But Mr Byres said APRA was taking a broad view and was not interested in extending its supervisory remit.

“For those of you uncomfortable at the thought of APRA supervising non-ADIs, let me assure you the feeling is mutual,” he said.

“We are not seeking to expand our supervisory remit and, beyond collecting information that allows us to track aggregate trends in lending activity, we will not be undertaking any supervision of individual lenders.”


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