Risky home loans on the rise

Data released by APRA today confirmed that the number of new high-risk home loans is on the rise.

The value of new home loans with a debt-to-income ratio above 6 reached $ 21.55 billion in the December 2020 quarter, an increase of 26% year-over-year.

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

During this period, however, home loans also increased. As a proportion of new loans, loans with a debt-to-income ratio of 6 or more fell from 16% to 17%.

Other mortgage loans considered to be riskier have also increased:

  • Low deposit loans: The value of homeowner loans with an LVR of 95% or more increased 37% year-on-year. They now represent 2 percent of all new homeowner loans.
  • Interest-only loans for owner-occupiers, increased 59% over the same period, accounting for 12% of new homeowner loans.

Quarterly real estate exposures of APRA approved deposit-taking institutions

New residential real estate loans, all ADI

Quarter Dec. 2019 Quarter Dec. 2020 Change from year to year
Total new loans (homeowners and investors)

$ 103.91 billion

$ 125.25 billion

$ 21.34 billion

Debt / income of 6x or more

$ 17.06 billion
(16% of new loans)

$ 21.55 billion
(17% of new loans)

$ 4.49 billion

Homeowner Low Deposit Loans (95% LVR and above)

$ 1.32 billion
(1.8% of new loans)

$ 1.81 billion
(2% of new loans)

$ 487 million

Owner-occupant interest loans only

$ 6.90 billion
(10% of new loans)

$ 10.99 billion
(12% of new loans)

$ 4.09 billion

Source: Quarterly statistics of APRA Approved Depository Institutions for December 2020, published March 16, 2021.

Existing non-performing loans – those that are impaired or 90 days past due – also increased 19% year-on-year. However, non-performing loans represent only 1 percent of all outstanding loans.

Sally Tindall, Research Director at RateCity.com.au, said: “Subprime loans are on the increase and yet the government is still committed to loosening responsible lending laws. “

“In the December quarter, $ 21.55 billion in new home loans had a debt-to-income ratio of 6 times or more. This represents 17 percent of all new loans crossing APRA’s security barrier, ”she said.

“The results are by no means surprising. The combination of record interest rates and escalating house prices is pushing people into more debt.

“It’s likely we’ll see this increase even more over 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 of the Royal Commission on Banking, and “apply the law as it is,” she said.

Priscilla C. Carnegie