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Australian mortgage holders continue to take on risky levels of debt

Australian mortgage holders continue to take on risky levels of debt

Almost a quarter of new mortgages are considered risky, according to APRA data released today.

APRA’s quarterly ADI property exposure report for September 2021 shows 23.8 per cent of new lending in the quarter had a debt-to-income ratio of six times or more, in dollar terms. A year ago, just 16.3 per cent of new loans had debt-to-income ratios at this level.

Debt-to-income ratios of six and over are considered risky by APRA.

New loans with a debt-to-income ratio of six times or higher

Sept quarter

2021

Last quarter

(June 2021)

A year ago

(Sept 2020)

Debt-to-income of 6 times or higher23.8%21.9%16.3%

Source: APRA quarterly authorised deposit-taking institution statistics for September 2021, all ADI’s, released 7 December, 2021. Note the proportion of loans includes owner-occupier and investor loans but excludes non-housing loans.

Owner-occupiers vs investors: new residential loans

New lending to both owner-occupiers and investors has soared over the last year. The value of new owner-occupier loans rose by 47.1 per cent compared to the same quarter a year ago, while new investor loans rose by 51.1 per cent.

While growth in investor lending outpaced that of owner-occupier lending this quarter, investor lending still only represents 29.8 per cent of all new lending. This proportion has not changed significantly over the last two years (see graph below).

Sept quarter

2021

Change from previous quarterChange from 1 year ago
New owner-occupier loans

$115.03 billion

70.2% of new lending

5.1%

47.1%

New investor loans 

$48.90 billion

29.8% of new lending

13.6%

51.1%

Source: APRA quarterly authorised deposit-taking institution statistics for September 2021, all ADI’s, released 7 December, 2021. Note the proportion of loans includes owner-occupier and investor loans but excludes non-housing loans.

Screen Shot 2021-12-07 at 12.55.07 pm

Source: APRA. Owner-occupier and investor loans.

New loans with high loan-to-value ratios (LVRs)

Loans with deposits of 10 per cent or less dropped from the previous quarter and is down significantly compared to the same quarter a year ago.

Sept quarter

2021

Last quarter

(June 2021)

A year ago

(Sept 2020)

Loans with an LVR of 90% or more7.5%8.6%10.4%

Source: APRA quarterly authorised deposit-taking institution statistics for September 2021, all ADI’s, released 7 December, 2021. Note the proportion of loans includes all term loans (owner occupier, investor and non-housing).

Sally Tindall, research director at RateCity.com.au, said: “Australians are increasingly taking on eye-watering levels of debt, compared to what they earn, to get into an overheated property market.”

“Record-low rates have enabled Australians to borrow more from the bank than ever before. However, when rates start rising, people who’ve taken on risky levels of debt could find balancing the monthly budget infinitely more challenging,” she said.

Since 1 November banks are required by APRA to stress test people’s mortgage applications to make sure they can afford rate rises of up to 3 per cent.

“While these debt-to-income figures are concerning, the impact of APRA’s new stress test is not yet reflected in this data. This new requirement, along with recent fixed rate rises, which has helped cool sentiment, could be enough to placate the market, at least for the next couple of months,” she said.

“Investor lending spiked this quarter with a significant rise compared to the growth seen in owner-occupier lending. That said, as a proportion of all new loans investors still only represent less than 30 per cent of the market, which is well below the previous spike back in 2014-2015.

“When APRA last introduced caps on the growth in investor lending, investor loans represented over 40 per cent of new lending.

“APRA is keeping a very close eye on both the rise in investor lending and burgeoning debt-to-income ratios, however, at this stage, we expect they’ll take the summer to take stock without implementing further changes,” she said.

Tips for people taking out a new loan:

  • Look at the amount of debt you’re taking on, not just the monthly mortgage repayments.
  • Factor in future rate rises. The bank will stress test your loan, however, it’s important to do the numbers yourself so you know what you might need to pay.
  • Try and get ahead on your loan. The more you’ve paid off by the time rates rise, the less the impact will be.
  • If you’re priced out, consider alternatives rather than overstretching your budget. This could include becoming a rent-vestor, buying with family or looking for a less expensive property.

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This article was reviewed by Research Director Sally Tindall before it was published as part of RateCity's Fact Check process.

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