Banks used exceptions to serviceability policies for around 5 per cent of new housing loans over the past year, which has increased from 2 to 3 per cent in the years prior, APRA said yesterday.
This reflects in part the high level of refinancing by existing borrowers over that period, APRA said.
APRA yesterday announced that “with continued uncertainty in the outlook for the labour market, inflation and interest rates, APRA considers the current setting of the serviceability buffer at 3 percentage points to be appropriate.”
The countercyclical capital buffer (CCyB) will remain at 1 per cent of risk-weighted assets.
“Higher unemployment and some persistence in cost-of-living pressures is expected, which present risks to household incomes including if more adverse scenarios eventuated” APRA said.
“The sources of economic uncertainty have shifted over the past year or so, but the risk of shocks for borrowers remains. The risk of persistently higher inflation and further increases in interest rates in the near-term has reduced.
Over the past two decades, Australia’s household debt – most of which is housing debt – has increased from 150 per cent to 190 per cent of household incomes.
“Relative to its international peers, the Australian banking system is considerably more concentrated in residential mortgages: these assets account for around two thirds of Australian banks’ exposures” APRA said.
“Indeed, results from previous ADI industry stress tests have shown banks’ mortgage portfolios are likely to account for a large share of credit losses in stress, largely due to their size.”
Total non-performing loans have picked up slightly over 2024 from a low base, reflecting high debt servicing costs and cost of living pressures.
“Loan quality may deteriorate further, particularly if labour market conditions weaken materially more than currently expected” APRA said.