The level of riskier mortgage lending jumped in the June quarter as rising house prices pushed more borrowers into the high debt-to-income bracket.
According to APRA’s June 2021 quarter ADI statistics, the proportion of new residential mortgages funded during the quarter that had a debt-to-income ratio of six times or more rose 5.8 percentage points to 21.9 per cent, compared with the June quarter last year.
The proportion of high-DTI loans recorded in the quarter is the highest since APRA started collecting the data in 2019 (when the high-DTI level was 15 per cent). The APRA data does not provide a high-DTI number for outstanding mortgages.
In 2018, APRA wrote to banks about their lending practices, telling them it expected them to develop internal portfolio limits on the proportion of new lending at very high debt-to-income levels and policy limits on maximum debt-to-income levels for individual borrowers
APRA did not set a DTI cap, leaving it up to each bank to set a level taking total borrowings into account. However, since then a DTI of six times or more has become a de facto industry benchmark for a risky loan.
In an analysis of the housing finance market in March this year, Corelogic said: “APRA has previously cautioned lenders on exposure to debt-to-income ratios exceeding six times.”
In 2018, UBS said APRA wanted lenders to limit high-DTI loans (of six times or more) to no more than 10 per cent of their residential mortgage portfolios.
APRA’s other mortgage market risk measures were positive. The proportion of new lending at high loan-to-valuation ratios (above 90 per cent) was 8.6 per cent in the June quarter, compared with 9.2 per cent in the June quarter last year.
APRA said the overall LVR profile of ADI’s hosing lending “remains strong”.
The proportion of interest-only lending was 17.4 per cent, down from 18.2 per cent, and the proportion of investment lending was 27.8 per cent (down from 29.1 per cent).
For outstanding mortgages, the proportion of non-performing loans fell from 1.1 per cent to 1 per cent year-on-year.