Risky loans on the rise, but APRA bats away concerns

Couple looking at real estate listings.

Record low interest rates have triggered a rush towards the property market, raising concerns that borrowers are overextending themselves in a bid to purchase their dream home. 

Recent data from APRA shows the share of new borrowers with a debt-to-income (DTI) ratio of six or higher rose by 17.2% over the December 2020 quarter. The number of high LVR home loans also reached 42%, up from 39.9% in the previous quarter. 

But the industry regulator has shown no sign it intends to intervene, saying that overall lending processes had not yet begun to deteriorate.

“Despite the increase in new higher LVR lending in the December 2020 quarter, the majority of outstanding residential mortgage loans remain well covered by collateral,” it said.

“The share of high DTI lending in the December 2020 quarter is within its historical average, and does not indicate a significant change in lending conditions.”

The percentage of interest-only loans has also been trending downwards. In the December quarter they made up 14.5% of outstanding term loans, down from 15.2% in the previous period.

CoreLogic head of residential research, Eliza Owen said the increases in high DTI and LVR lending were “not likely to be large enough to trigger a regulatory response,” but a tightening of credit policies should be expected if the trend continues.

RELATED: How are responsible lending laws changing in 2021?


Regulators will be monitoring the Sydney and Melbourne property markets in particular, given that house price to income ratios have historically been the highest in the two major cities.

“As housing prices rise at a time when incomes are expected to remain relatively flat, there is the potential for both loan-to-income and debt-to-income ratios to lift further, which is likely to be seen as a riskier outcome by regulators,” Owen said.

A lift in mortgages lent on interest-only terms could also see household debt get out of hand, particularly if the RBA decides to raise official interest rates in the coming years. 

Despite this, the government is currently mulling over the repeal of responsible lending laws, which it hopes will free up the flow of credit further still.

The proposed changes have drawn criticism, especially since existing guidelines haven’t necessarily inhibited borrowing, with ABS data showing residential mortgage lending increasing by 10.5% in January alone. 

But industry figures have spoken out in favour of the changes, with NAB CEO Ross McEwan arguing that deregulation will not lead to an increase in risky loans but an improved application experience for borrowers.

“We have no interest in lending money to customers who can’t pay it back because the customer loses and the bank loses,” he said at a parliamentary hearing last week.

Home loan comparisons on Mozo - last updated 13 August 2022

Search promoted home loans below or do a full Mozo database search . Advertiser disclosure
  • Variable Home Loan 70

    interest rate
    comparison rate
    Initial monthly repayment
    3.10% p.a. variable
    3.12% p.a.

    Affordable home loan rate for buyers or refinancers.. No monthly or ongoing fees. Option to add an offset for 0.10%. Access to savings with unlimited redraws available. Minimum 30% deposit required.

    Details
  • Unloan Variable

    Owner Occupier, Refinance Only

    interest rate
    comparison rate
    Initial monthly repayment
    3.14% p.a. variable
    3.06% p.a.

    For refinancers only. Built by CommBank, the Unloan is the first home loan with an increasing discount (conditions apply) for borrowers. No application or banking fees. No monthly account keeping or early exit fees. Apply in as little as 10 minutes.

    Details
  • PAYG Home Loan

    Owner Occupier, Principal & Interest, LVR<80%

    interest rate
    comparison rate
    Initial monthly repayment
    3.29% p.a. variable
    3.33% p.a.

    Low variable rate. Ideal for new home buyers or refinancers. Unlimited additional repayments. Unlimited free redraw. Application completely online. Optional 100% offset can be added for $120 p.a.. 20% deposit required.

    Details
  • Celebrate Variable Home Loan

    <60% LVR, Owner Occupier, Principal & Interest

    interest rate
    comparison rate
    Initial monthly repayment
    3.79% p.a. variable
    3.79% p.a.

    Fast and efficient online application. Automatic discounts as loan is paid down. Free extra repayments and redraw facility. Zero fees. Min 40% deposit required.

    Details

* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

** Initial monthly repayment figures are estimates only, based on the advertised rate, loan amount and term entered. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.

^See information about the Mozo Experts Choice Home Loan Awards

Mozo provides general product information. We don't consider your personal objectives, financial situation or needs and we aren't recommending any specific product to you. You should make your own decision after reading the PDS or offer documentation, or seeking independent advice.

While we pride ourselves on covering a wide range of products, we don't cover every product in the market. If you decide to apply for a product through our website, you will be dealing directly with the provider of that product and not with Mozo.