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Risky home loan lending on the rise

Risky home loan lending on the rise

Data released by APRA today has confirmed the number of high-risk new home loans is increasing.

The value of new home loans with a debt-to-income ratio of over 6 hit $21.55 billion in the December 2020 quarter – an increase of 26 per cent year-on-year.

Debt-to-income ratios of 6 and over are considered risky by APRA.

During this time, however, home lending has also increased. As a proportion of new lending, loans with a debt-to-income ratio of 6 or more has increased from 16 per cent to 17 per cent.

Other home loans considered to be higher risk also increased:

  • Low deposit loans: the value of owner-occupier loans with LVR of 95 per cent or higher increased 37 per cent, year-on-year. They now account for 2 per cent of all new owner-occupier loans. 
  • Interest-only loans for owner-occupiers, increased 59 per cent over the same period, accounting for 12 per cent of new owner-occupier loans.

APRA’s quarterly authorised deposit-taking institution property exposures

New residential home loans, all ADIs

Dec quarter 2019Dec quarter 2020Year-on-year change
Total new lending (owner-occupiers & investors)

$103.91 billion

$125.25 billion

$21.34 billion
(20.5%)

Debt-to-income of 6x or higher

$17.06 billion 
(16% of new lending)

$21.55 billion 
(17% of new lending)

$4.49 billion
(26%)

Owner-occupier low deposit loans (LVR 95% and over)

$1.32 billion 
(1.8% of new lending)

$1.81 billion 
(2% of new lending)

$487 million
(37%)

Owner-occupier interest only loans

$6.90 billion 
(10% of new lending)

$10.99 billion 
(12% of new lending)

$4.09 billion
(59%)

Source: APRA quarterly authorised deposit-taking institution statistics for December 2020, released 16 March, 2021. 

Existing non-performing loans – those that are impaired or 90 days past due – also rose 19 per cent, year-on-year. However, non-performing loans represent just 1 per cent of all outstanding loans. 

Sally Tindall, research director at RateCity.com.au, said: “Risky lending is on the rise and yet the government is still determined to water down responsible lending laws.”

“In the December quarter, $21.55 billion of new home lending had a debt-to-income ratio of 6 times or higher.  That’s 17 per cent of all new lending pushing beyond APRA’s safety barrier,” she said.

“The results are by no means surprising. The combination of record low interest rates and escalating property prices are pushing people to take on more debt. 

“It’s likely we’ll see this increase even further in the next quarter.

“When it comes to responsible lending we don’t need to send ASIC to the sidelines. What we need to do, is what Justice Hayne recommended in the final report on the Banking Royal Commission, and ‘apply the law as it stands’,” she said.

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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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