Almost a quarter of new mortgages are considered high-risk, according to APRA’s Quarterly Authorised Deposit-Taking Institution (ADI) statistics released today.
In the quarter to September, 23.8% of new loans had a debt-to-income ratio of six times or more, compared to the 16.3% in the year prior. New lending to owner-occupiers and investors also surged by 47.1% and 51.1% in the same period to $115.03 billion and $48.90 billion, respectively.
“Record-low rates have enabled Australians to borrow more from the bank than ever before,” said Sally Tindall, research director at RateCity.com.au. “However, when rates start rising, people who’ve taken on risky levels of debt could find balancing the monthly budget infinitely more challenging.”
The growth in investor lending has outpaced owner-occupier lending this quarter by a stretch of 13.6% to 5.1%, but it still only represents a mere 29.8% of all new loans. The proportion has not seen much change in the past two years.
Meanwhile, loans with deposits of 10% or less dropped to 7.5% from 8.6% of the previous quarter, with borrowers opting to pay out more just to enter the overheated property market.
Concerning it as is, Tindall said APRA’s new requirement, effective Nov. 1, had not been accounted for in this data, where mortgage applications are to be stress-tested to ensure borrowers can afford rate rises of up to 3% in an attempt to placate the market.
“APRA is keeping a very close eye on both the rise in investor lending and burgeoning debt-to-income ratios,” Tindall said. “However, at this stage, we expect they’ll take the summer to take stock without implementing further changes.”
According to RateCity, those who are looking to take out a new loan should look at the amount of debt in total and factor in future rate raises, not just the monthly mortgage payments. It would also help to get ahead of the loan before increased rates take effect.
“The more you’ve paid off by the time rates rise, the less the impact will be,” RateCity said. “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.”
