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Rising property prices pushing more Australians to take on risky levels of debt

Rising property prices pushing more Australians to take on risky levels of debt

Australians are increasingly taking on risky levels of debt, new figures from APRA have confirmed.

The value of new home loans with a debt-to-income ratio of six and over climbed to $23.77 billion in March, an increase from 16 per cent to 19 per cent year-on-year as a proportion of new lending.

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

Interest-only loans for owner occupiers also increased over the same period from 9.8 to 13.2 per cent as a proportion of new loans. This spike began last quarter as the banks’ mortgage deferral programs began winding up and has continued to climb.

Types of loans – as a proportion of all new lending

March quarter 2021Dec quarter

2020

March quarter

2020

Debt-to-income of 6x or higher19.1%17.3%16.3%
Owner-occupier interest-only loans13.2%12.4%9.8%
Owner-occupier low deposit loans (LVR 95% and over)1.6%2.0%2.3%

Source: APRA quarterly authorised deposit-taking institution statistics for March 2021, all ADI’s, released 8 June, 2021.

Sally Tindall, research director at RateCity.com.au, said almost 20 per cent of new lending had a debt-to-income ratio that is deemed risky by APRA.  

“These new figures confirm people are increasingly stretching themselves to get into a roaring property market,” she said.

“The recent property boom has egged many buyers to take on more debt than they originally planned in order to get their slice of the great Australian dream – a property with a patch of grass.

“In two- or three-years’ time rates are likely to be considerably higher and the bigger the loan the more costly those rate hikes will be.

“People can soften the blow of future rate hikes by getting ahead on their mortgage now. While a lot of Australians are now on fixed rates, which typically have caps on extra repayments, they can still chip in some extra money and every dollar counts.

“We don’t expect APRA will step in just yet. While the value of loans with risky levels of debt has risen, loans with small deposits of less than 5 per cent have gone down. APRA will be happy with that,” 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, particularly if you are planning to fix your loan.
  • 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 becoming a ‘rent-vestor’.

APRA quarterly property exposures– new residential loans

March quarter 2021Quarterly 

change

Year-on-year change
Total new lending 

$124.65 billion

-$600 million

-0.5%

$32.51 billion

35.3%

New owner-occupier loans

$88.49 billion

-$390 million

0.4%

$24.22 billion

37.7%

Investor loans 

$36.16 billion

-$210 million

-0.6%

$8.28 billion

29.7%

Source: APRA quarterly authorised deposit-taking institution statistics for March 2021, all ADI’s, released 8 June, 2021.

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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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